SUPREME COURT OF THE UNITED STATES

No. 95–865

UNITED STATES, PETITIONER v. WINSTAR CORPORATION et al.

on writ of certiorari to the united states court of appeals for the federal circuit

[July 1, 1996]

Justice Scalia, with whom Justice Kennedy and Justice Thomas join, concurring in the judgment.

I agree with the plurality that the contracts at issue in this case gave rise to an obligation on the part of the Government to afford respondents favorable accounting treatment, and that the contracts were broken by the Government's discontinuation of that favorable treatment, as required by FIRREA, 12 U. S. C. §1464(t). My reasons for rejecting the Government's defenses to this contract action are, however, quite different from the plurality's, so I must write separately to state briefly the basis for my vote.

The plurality dispenses with three of the four "sovereign" defenses raised by the Government simply by characterizing the contracts at issue as "risk-shifting agreements" that amount to nothing more than "promises by the Government to insure [respondents] against any losses arising from future regulatory change." Ante, at 41. Thus understood, the plurality explains, the contracts purport, not to constrain the exercise of sovereign power, but only to make the exercise of that power an event resulting in liability for the Government—with the consequence that the peculiarly sovereign defenses raised by the Government are simply inapplicable. This approach has several difficulties, the first being that it has no basis in our cases, which have not made the availability of these sovereign defenses (as opposed to their validity on the merits) depend upon the nature of the contract at issue. But in any event, it is questionable whether, even as a matter of normal contract law, the exercise in contract characterization in which the plurality engages is really valid. Virtually every contract operates, not as a guarantee of particular future conduct, but as an assumption of liability in the event of nonperformance: "The duty to keep a contract at common law means a prediction that you must pay damages if you do not keep it,—and nothing else." Holmes, The Path of the Law (1897), in 3 The Collected Works of Justice Holmes 391, 394 (S. Novick ed. 1995). See Horwitz- Matthews, Inc. v. Chicago, 78 F. 3d 1248, 1250–1251 (CA7 1996).

In this case, it was an unquestionably sovereign act of government—enactment and implementation of provisions of FIRREA regarding treatment of regulatory capital—that gave rise to respondents' claims of breach of contract. Those claims were premised on the assertion that, in the course of entering into various agreements with respondents, the Government had undertaken to continue certain regulatory policies with respect to respondents' recently acquired thrifts; and the Government countered that assertion, in classic fashion, with the primary defense that contractual restrictions on sovereign authority will be recognized only where unmistakably expressed. The "unmistakability" doctrine has been applied to precisely this sort of situation—where a sovereign act is claimed to deprive a party of the benefits of a prior bargain with the government. See, e.g., Merrion v. Jicarilla Apache Tribe, 455 U. S. 130, 135–136, 145–148 (1982).

Like The Chief Justice, see post, at 1–8, I believe that the unmistakability doctrine applies here, but unlike him I do not think it forecloses respondents' claims. In my view, the doctrine has little if any independent legal force beyond what would be dictated by normal principles of contract interpretation. It is simply a rule of presumed (or implied-in-fact) intent. Generally, contract law imposes upon a party to a contract liability for any impossibility of performance that is attributable to that party's own actions. That is a reasonable estimation of what the parties intend. When I promise to do x in exchange for your doing y, I impliedly promise not to do anything that will disable me from doing x, or disable you from doing y—so that if either of our performances is rendered impossible by such an act on my part, I am not excused from my obligation. When the contracting party is the government, however, it is simply not reasonable to presume an intent of that sort. To the contrary, it is reasonable to presume (unless the opposite clearly appears) that the sovereign does not promise that none of its multifarious sovereign acts, needful for the public good, will incidentally disable it or the other party from performing one of the promised acts. The requirement of unmistakability embodies this reversal of the normal reasonable presumption. Governments do not ordinarily agree to curtail their sovereign or legislative powers, and contracts must be interpreted in a common-sense way against that background understanding.

Here, however, respondents contend that they have overcome this reverse-presumption that the Government remains free to make its own performance impossible through its manner of regulation. Their claim is that the Government quite plainly promised to regulate them in a particular fashion, into the future. They say that the very subject matter of these agreements, an essential part of the quid pro quo, was government regulation; unless the Government is bound as to that regulation, an aspect of the transactions that reasonably must be viewed as a sine qua non of their assent becomes illusory. I think they are correct. If, as the dissent believes, the Government committed only "to provide [certain] treatment unless and until there is subsequent action," post, at 13, then the Government in effect said "we promise to regulate in this fashion for as long as we choose to regulate in this fashion"—which is an absolutely classic description of an illusory promise. See 1 R. Lord, Williston on Contracts §1:2, p. 11 (4th ed. 1990). In these circumstances, it is unmistakably clear that the promise to accord favorable regulatory treatment must be understood as (unsurprisingly) a promise to accord favorable regulatory treatment. I do not accept that unmistakability demands that there be a further promise not to go back on the promise to accord favorable regulatory treatment.

The dissent says that if the Government agreed to accord the favorable regulatory treatment "in the short term, but made no commitment about . . . the long term, respondents still received consideration." Post, at 13. That is true enough, but it is quite impossible to construe these contracts as providing for only "short term" favorable treatment, with the long term up for grabs: either there was an undertaking to regulate respondents as agreed for the specified amortization periods, or there was no promise regarding the future at all—not even so much as a peppercorn's worth.

In sum, the special role of the agencies, and the terms and circumstances of the transactions, provide an adequate basis for saying that the promises which the trial court and the Court of Appeals for the Federal Circuit found to have been made in these cases were unmistakable ones. To be sure, those courts were not looking for "unmistakable" promises, see ibid., but unmistakability is an issue of law that we can determine here. It was found below that the Government had plainly made promises to regulate in a certain fashion, into the future; I agree with those findings, and I would conclude, for the reasons set forth above, that the promises were unmistakable. Indeed, it is hard to imagine what additional assurance that the course of regulation would not change could have been demanded—other than, perhaps, the Government's promise to keep its promise. That is not what the doctrine of unmistakability requires. While it is true enough, as the dissent points out, that one who deals with the Government may need to "`turn square corners,'" post, at 14–15 (quoting Rock Island, A. & L. R. Co. v. United States, 254 U. S. 141, 143 (1920)), he need not turn them twice.

The Government's remaining arguments are, I think, readily rejected. The scope and force of the "reserved powers" and "express delegation" defenses—which the plurality thinks inapplicable based on its view of the nature of the contracts at issue here, see ante, at 49–51—have not been well defined by our prior cases. The notion of "reserved powers" seems to stand principally for the proposition that certain core governmental powers cannot be surrendered, see, e.g., Stone v. Mississippi, 101 U. S. 814 (1880); thus understood, that doctrine would have no force where, as here, the private party to the contract does not seek to stay the exercise of sovereign authority, but merely requests damages for breach of contract. To the extent this Court has suggested that the notion of "reserved powers" contemplates, under some circumstances, nullification of even monetary governmental obligations pursuant to exercise of "the federal police power or some other paramount power," Lynch v. United States, 292 U. S. 571, 579 (1934), I do not believe that regulatory measures designed to minimize what are essentially assumed commercial risks are the sort of "police power" or "paramount power" referred to. And whatever is required by the "express delegation" doctrine is to my mind satisfied by the statutes which the plurality identifies as conferring upon the various federal bank regulatory agencies involved in this case authority to enter into agreements of the sort at issue here, see ante, at 51–52.

Finally, in my view the Government cannot escape its obligations by appeal to the so-called "sovereign acts" doctrine. That doctrine was first articulated in Court of Claims cases, and has apparently been applied by this Court in only a single case, our 3-page opinion in Horowitz v. United States, 267 U. S. 458, decided in 1925 and cited only once since, in a passing reference, see Nortz v. United States, 294 U. S. 317, 327 (1935). Horowitz holds that "the United States when sued as a contractor cannot be held liable for an obstruction to the performance of [a] particular contract resulting from its public and general acts as a sovereign." 267 U. S., at 461. In my view the "sovereign acts" doctrine adds little, if anything at all, to the "unmistakability" doctrine, and is avoided whenever that one would be—i.e., whenever it is clear from the contract in question that the Government was committing itself not to rely upon its sovereign acts in asserting (or defending against) the doctrine of impossibility, which is another way of saying that the Government had assumed the risk of a change in its laws. That this is the correct interpretation of Horowitz is made clear, I think, by our two principal cases of this century holding that the Government may not simply repudiate its contractual obligations, Lynch v. United States, 292 U. S. 571 (1934), and Perry v. United States, 294 U. S. 330 (1935). Those cases, which are barely discussed by the plurality's opinion, failed even to mention Horowitz. In both of them, as here, Congress specifically set out to abrogate the essential bargain of the contracts at issue—and in both we declared such abrogation to amount to impermissible repudiation. See Lynch, supra, at 578–580; Perry, supra, at 350–354.

For the foregoing reasons, I concur in the judgment.