OPINION & ORDER

KIMBA M. WOOD, District Judge.

Plaintiff brought this action seeking, among other things, specific performance of an alleged offer of a Harrier Jet, featured in a television advertisement for defendant's "Pepsi Stuff" promotion. Defendant has moved for summary judgment pursuant to Federal Rule of Civil Procedure 56. For the reasons stated below, defendant's motion is granted.

I. Background

This case arises out of a promotional campaign conducted by defendant, the producer and distributor of the soft drinks Pepsi and Diet Pepsi. (See PepsiCo Inc.'s Rule 56.1 Statement ("Def. Stat.") ¶ 2.)^[1] The promotion, entitled "Pepsi Stuff," encouraged consumers to collect "Pepsi Points" from specially marked packages of Pepsi or Diet Pepsi and redeem these points for merchandise featuring the Pepsi logo. (See id. ¶¶ 4, 8.) Before introducing the promotion nationally, defendant conducted a test of the promotion in the Pacific Northwest from October 1995 to March 1996. (See id. ¶¶ 5-6.) A Pepsi Stuff catalog was distributed to consumers in the test market, including Washington State. (See id. ¶ 7.) Plaintiff is a resident of Seattle, Washington. (See id. ¶ 3.) While living in Seattle, plaintiff saw the Pepsi Stuff commercial (see id. ¶ 22) that he contends constituted an offer of a Harrier Jet.

A. The Alleged Offer

Because whether the television commercial constituted an offer is the central question in this case, the Court will describe the commercial in detail. The commercial opens upon an idyllic, suburban morning, where the chirping of birds in sun-dappled trees welcomes a paperboy on his morning route. As the newspaper hits the stoop of a conventional two-story house, the tattoo of a military drum introduces the subtitle, "MONDAY 7:58 AM." The stirring strains of a martial air mark the appearance of a well-coiffed teenager preparing to leave for school, dressed in a shirt emblazoned with the Pepsi logo, a red-white-and-blue ball. While the teenager confidently preens, the military drumroll again sounds as the subtitle "T-SHIRT 75 PEPSI POINTS" scrolls across the screen. Bursting from his room, the teenager strides down the hallway wearing a leather jacket. The drumroll sounds again, as the subtitle "LEATHER JACKET 1450 PEPSI POINTS" appears. The teenager opens the door of his house and, unfazed by the glare of the early morning sunshine, puts on a pair of sunglasses. The drumroll then accompanies the subtitle "SHADES 175 PEPSI POINTS." A voiceover then intones, "Introducing the new Pepsi Stuff catalog," as the camera focuses on the cover of the catalog. (See Defendant's Local Rule 56.1 Stat., Exh. A (the "Catalog").)^[2]

The scene then shifts to three young boys sitting in front of a high school building. The boy in the middle is intent on his Pepsi Stuff Catalog, while the boys on either side are each drinking Pepsi. The three boys gaze in awe at an object rushing overhead, as the military march builds to a crescendo. The Harrier Jet is not yet visible, but the observer senses the presence of a mighty plane as the extreme winds generated by its flight create a paper maelstrom in a classroom devoted to an otherwise dull physics lesson. Finally, the Harrier Jet swings into view and lands by the side of the school building, next to a bicycle rack. Several students run for cover, and the velocity of the wind strips one hapless faculty member down to his underwear. While the faculty member is being deprived of his dignity, the voiceover announces: "Now the more Pepsi you drink, the more great stuff you're gonna get."

The teenager opens the cockpit of the fighter and can be seen, helmetless, holding a Pepsi. "[L]ooking very pleased with himself," (Pl. Mem. at 3,) the teenager exclaims, "Sure beats the bus," and chortles. The military drumroll sounds a final time, as the following words appear: "HARRIER FIGHTER 7,000,000 PEPSI POINTS." A few seconds later, the following appears in more stylized script: "Drink Pepsi — Get Stuff." With that message, the music and the commercial end with a triumphant flourish.

Inspired by this commercial, plaintiff set out to obtain a Harrier Jet. Plaintiff explains that he is "typical of the `Pepsi Generation' ... he is young, has an adventurous spirit, and the notion of obtaining a Harrier Jet appealed to him enormously." (Pl. Mem. at 3.) Plaintiff consulted the Pepsi Stuff Catalog. The Catalog features youths dressed in Pepsi Stuff regalia or enjoying Pepsi Stuff accessories, such as "Blue Shades" ("As if you need another reason to look forward to sunny days."), "Pepsi Tees" ("Live in `em. Laugh in `em. Get in `em."), "Bag of Balls" ("Three balls. One bag. No rules."), and "Pepsi Phone Card" ("Call your mom!"). The Catalog specifies the number of Pepsi Points required to obtain promotional merchandise. (See Catalog, at rear foldout pages.) The Catalog includes an Order Form which lists, on one side, fifty-three items of Pepsi Stuff merchandise redeemable for Pepsi Points (see id. (the "Order Form")). Conspicuously absent from the Order Form is any entry or description of a Harrier Jet. (See id.) The amount of Pepsi Points required to obtain the listed merchandise ranges from 15 (for a "Jacket Tattoo" ("Sew `em on your jacket, not your arm.")) to 3300 (for a "Fila Mountain Bike" ("Rugged. All-terrain. Exclusively for Pepsi.")). It should be noted that plaintiff objects to the implication that because an item was not shown in the Catalog, it was unavailable. (See Pl. Stat. ¶¶ 23-26, 29.)

The rear foldout pages of the Catalog contain directions for redeeming Pepsi Points for merchandise. (See Catalog, at rear foldout pages.) These directions note that merchandise may be ordered "only" with the original Order Form. (See id.) The Catalog notes that in the event that a consumer lacks enough Pepsi Points to obtain a desired item, additional Pepsi Points may be purchased for ten cents each; however, at least fifteen original Pepsi Points must accompany each order. (See id.)

Although plaintiff initially set out to collect 7,000,000 Pepsi Points by consuming Pepsi products, it soon became clear to him that he "would not be able to buy (let alone drink) enough Pepsi to collect the necessary Pepsi Points fast enough." (Affidavit of John D.R. Leonard, Mar. 30, 1999 ("Leonard Aff."), ¶ 5.) Reevaluating his strategy, plaintiff "focused for the first time on the packaging materials in the Pepsi Stuff promotion," (id.,) and realized that buying Pepsi Points would be a more promising option. (See id.) Through acquaintances, plaintiff ultimately raised about $700,000. (See id. ¶ 6.)

B. Plaintiff's Efforts to Redeem the Alleged Offer

On or about March 27, 1996, plaintiff submitted an Order Form, fifteen original Pepsi Points, and a check for $700,008.50. (See Def. Stat. ¶ 36.) Plaintiff appears to have been represented by counsel at the time he mailed his check; the check is drawn on an account of plaintiff's first set of attorneys. (See Defendant's Notice of Motion, Exh. B (first).) At the bottom of the Order Form, plaintiff wrote in "1 Harrier Jet" in the "Item" column and "7,000,000" in the "Total Points" column. (See id.) In a letter accompanying his submission, plaintiff stated that the check was to purchase additional Pepsi Points "expressly for obtaining a new Harrier jet as advertised in your Pepsi Stuff commercial." (See Declaration of David Wynn, Mar. 18, 1999 ("Wynn Dec."), Exh. A.)

On or about May 7, 1996, defendant's fulfillment house rejected plaintiff's submission and returned the check, explaining that:

The item that you have requested is not part of the Pepsi Stuff collection. It is not included in the catalogue or on the order form, and only catalogue merchandise can be redeemed under this program.

The Harrier jet in the Pepsi commercial is fanciful and is simply included to create a humorous and entertaining ad. We apologize for any misunderstanding or confusion that you may have experienced and are enclosing some free product coupons for your use.

(Wynn Aff. Exh. B (second).) Plaintiff's previous counsel responded on or about May 14, 1996, as follows:

Your letter of May 7, 1996 is totally unacceptable. We have reviewed the video tape of the Pepsi Stuff commercial ... and it clearly offers the new Harrier jet for 7,000,000 Pepsi Points. Our client followed your rules explicitly....

This is a formal demand that you honor your commitment and make immediate arrangements to transfer the new Harrier jet to our client. If we do not receive transfer instructions within ten (10) business days of the date of this letter you will leave us no choice but to file an appropriate action against Pepsi....

(Wynn Aff., Exh. C.) This letter was apparently sent onward to the advertising company responsible for the actual commercial, BBDO New York ("BBDO"). In a letter dated May 30, 1996, BBDO Vice President Raymond E. McGovern, Jr., explained to plaintiff that:

I find it hard to believe that you are of the opinion that the Pepsi Stuff commercial ("Commercial") really offers a new Harrier Jet. The use of the Jet was clearly a joke that was meant to make the Commercial more humorous and entertaining. In my opinion, no reasonable person would agree with your analysis of the Commercial.

(Wynn Aff. Exh. A.) On or about June 17, 1996, plaintiff mailed a similar demand letter to defendant. (See Wynn Aff., Exh. D.)

Litigation of this case initially involved two lawsuits, the first a declaratory judgment action brought by PepsiCo in this district (the "declaratory judgment action"), and the second an action brought by Leonard in Florida state court (the "Florida action").^[3] PepsiCo brought suit in this Court on July 18, 1996, seeking a declaratory judgment stating that it had no obligation to furnish plaintiff with a Harrier Jet. That case was filed under docket number 96 Civ. 5320. In response to PepsiCo's suit in New York, Leonard brought suit in Florida state court on August 6, 1996, although this case had nothing to do with Florida.^[4] That suit was removed to the Southern District of Florida in September 1996. In an Order dated November 6, 1996, United States District Judge James Lawrence King found that, "Obviously this case has been filed in a form that has no meaningful relationship to the controversy and warrants a transfer pursuant to 28 U.S.C. § 1404(a)." Leonard v. PepsiCo, [121] 96-2555 Civ.-King, at 1 (S.D.Fla. Nov. 6, 1996). The Florida suit was transferred to this Court on December 2, 1996, and assigned the docket number 96 Civ. 9069.

Once the Florida action had been transferred, Leonard moved to dismiss the declaratory judgment action for lack of personal jurisdiction. In an Order dated November 24, 1997, the Court granted the motion to dismiss for lack of personal jurisdiction in case 96 Civ. 5320, from which PepsiCo appealed. Leonard also moved to voluntarily dismiss the Florida action. While the Court indicated that the motion was proper, it noted that PepsiCo was entitled to some compensation for the costs of litigating this case in Florida, a forum that had no meaningful relationship to the case. (See Transcript of Proceedings Before Hon. Kimba M. Wood, Dec. 9, 1997, at 3.) In an Order dated December 15, 1997, the Court granted Leonard's motion to voluntarily dismiss this case without prejudice, but did so on condition that Leonard pay certain attorneys' fees.

In an Order dated October 1, 1998, the Court ordered Leonard to pay $88,162 in attorneys' fees within thirty days. Leonard failed to do so, yet sought nonetheless to appeal from his voluntary dismissal and the imposition of fees. In an Order dated January 5, 1999, the Court noted that Leonard's strategy was "`clearly an end-run around the final judgment rule.'" (Order at 2 (quoting Palmieri v. Defaria, 88 F.3d 136 (2d Cir.1996)).) Accordingly, the Court ordered Leonard either to pay the amount due or withdraw his voluntary dismissal, as well as his appeals therefrom, and continue litigation before this Court. (See Order at 3.) Rather than pay the attorneys' fees, Leonard elected to proceed with litigation, and shortly thereafter retained present counsel.

On February 22, 1999, the Second Circuit endorsed the parties' stipulations to the dismissal of any appeals taken thus far in this case. Those stipulations noted that Leonard had consented to the jurisdiction of this Court and that PepsiCo agreed not to seek enforcement of the attorneys' fees award. With these issues having been waived, PepsiCo moved for summary judgment pursuant to Federal Rule of Civil Procedure 56. The present motion thus follows three years of jurisdictional and procedural wrangling.

II. Discussion

A. The Legal Framework

1. Standard for Summary Judgment

On a motion for summary judgment, a court "cannot try issues of fact; it can only determine whether there are issues to be tried." Donahue v. Windsor Locks Bd. of Fire Comm'rs, 834 F.2d 54, 58 (2d Cir. 1987) (citations and internal quotation marks omitted). To prevail on a motion for summary judgment, the moving party therefore must show that there are no such genuine issues of material fact to be tried, and that he or she is entitled to judgment as a matter of law. See Fed. R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Citizens Bank v. Hunt, 927 F.2d 707, 710 (2d Cir.1991). The party seeking summary judgment "bears the initial responsibility of informing the district court of the basis for its motion," which includes identifying the materials in the record that "it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp., 477 U.S. at 323, 106 S.Ct. 2548.

Once a motion for summary judgment is made and supported, the non-moving party must set forth specific facts that show that there is a genuine issue to be tried. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Although a court considering a motion for summary judgment must view all evidence in the light most favorable to the non-moving party, and must draw all reasonable inferences in that party's favor, see Consarc Corp. v. Marine Midland Bank, N.A., 996 F.2d 568, 572 (2d Cir. 1993), the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). If, based on the submissions to the court, no rational fact-finder could find in the non-movant's favor, there is no genuine issue of material fact, and summary judgment is appropriate. See Anderson, 477 U.S. at 250, 106 S.Ct. 2505.

The question of whether or not a contract was formed is appropriate for resolution on summary judgment. As the Second Circuit has recently noted, "Summary judgment is proper when the `words and actions that allegedly formed a contract [are] so clear themselves that reasonable people could not differ over their meaning.'" Krumme v. Westpoint Stevens, Inc., 143 F.3d 71, 83 (2d Cir.1998) (quoting Bourque v. FDIC, 42 F.3d 704, 708 (1st Cir.1994)) (further citations omitted); see also Wards Co. v. Stamford Ridgeway Assocs., 761 F.2d 117, 120 (2d Cir.1985) (summary judgment is appropriate in contract case where interpretation urged by non-moving party is not "fairly reasonable"). Summary judgment is appropriate in such cases because there is "sometimes no genuine issue as to whether the parties' conduct implied a `contractual understanding.'.... In such cases, `the judge must decide the issue himself, just as he decides any factual issue in respect to which reasonable people cannot differ.'" Bourque, 42 F.3d at 708 (quoting Boston Five Cents Sav. Bank v. Secretary of Dep't of Housing & Urban Dev., 768 F.2d 5, 8 (1st Cir.1985)).

2. Choice of Law

The parties disagree concerning whether the Court should apply the law of the state of New York or of some other state in evaluating whether defendant's promotional campaign constituted an offer. Because this action was transferred from Florida, the choice of law rules of Florida, the transferor state, apply. See Ferens v. John Deere Co., 494 U.S. 516, 523-33, 110 S.Ct. 1274, 108 L.Ed.2d 443 (1990). Under Florida law, the choice of law in a contract case is determined by the place "where the last act necessary to complete the contract is done." Jemco, Inc. v. United Parcel Serv., Inc., 400 So.2d 499, 500-01 (Fla.Dist. Ct.App.1981); see also Shapiro v. Associated Int'l Ins. Co., 899 F.2d 1116, 1119 (11th Cir.1990).

The parties disagree as to whether the contract could have been completed by plaintiff's filling out the Order Form to request a Harrier Jet, or by defendant's acceptance of the Order Form. If the commercial constituted an offer, then the last act necessary to complete the contract would be plaintiff's acceptance, in the state of Washington. If the commercial constituted a solicitation to receive offers, then the last act necessary to complete the contract would be defendant's acceptance of plaintiff's Order Form, in the state of New York. The choice of law question cannot, therefore, be resolved until after the Court determines whether the commercial was an offer or not. The Court agrees with both parties that resolution of this issue requires consideration of principles of contract law that are not limited to the law of any one state. Most of the cases cited by the parties are not from New York courts. As plaintiff suggests, the questions presented by this case implicate questions of contract law "deeply ingrained in the common law of England and the States of the Union." (Pl. Mem. at 8.)

B. Defendant's Advertisement Was Not An Offer

1. Advertisements as Offers

The general rule is that an advertisement does not constitute an offer. The Restatement (Second) of Contracts explains that:

Advertisements of goods by display, sign, handbill, newspaper, radio or television are not ordinarily intended or understood as offers to sell. The same is true of catalogues, price lists and circulars, even though the terms of suggested bargains may be stated in some detail. It is of course possible to make an offer by an advertisement directed to the general public (see § 29), but there must ordinarily be some language of commitment or some invitation to take action without further communication.

Restatement (Second) of Contracts § 26 cmt. b (1979). Similarly, a leading treatise notes that:

It is quite possible to make a definite and operative offer to buy or sell goods by advertisement, in a newspaper, by a handbill, a catalog or circular or on a placard in a store window. It is not customary to do this, however; and the presumption is the other way. ... Such advertisements are understood to be mere requests to consider and examine and negotiate; and no one can reasonably regard them as otherwise unless the circumstances are exceptional and the words used are very plain and clear.

1 Arthur Linton Corbin & Joseph M. Perillo, Corbin on Contracts § 2.4, at 116-17 (rev. ed.1993) (emphasis added); see also 1 E. Allan Farnsworth, Farnsworth on Contracts § 3.10, at 239 (2d ed.1998); 1 Samuel Williston & Richard A. Lord, A Treatise on the Law of Contracts § 4:7, at 286-87 (4th ed.1990). New York courts adhere to this general principle. See Lovett v. Frederick Loeser & Co., 124 Misc. 81, 207 N.Y.S. 753, 755 (N.Y.Mun.Ct.1924) (noting that an "advertisement is nothing but an invitation to enter into negotiations, and is not an offer which may be turned into a contract by a person who signifies his intention to purchase some of the articles mentioned in the advertisement"); see also Geismar v. Abraham & Strauss, 109 Misc.2d 495, 439 N.Y.S.2d 1005, 1006 (N.Y.Dist.Ct.1981) (reiterating Lovett rule); People v. Gimbel Bros., 202 Misc. 229, 115 N.Y.S.2d 857, 858 (N.Y.Sp.Sess. 1952) (because an "[a]dvertisement does not constitute an offer of sale but is solely an invitation to customers to make an offer to purchase," defendant not guilty of selling property on Sunday).

An advertisement is not transformed into an enforceable offer merely by a potential offeree's expression of willingness to accept the offer through, among other means, completion of an order form. In Mesaros v. United States, 845 F.2d 1576 (Fed.Cir.1988), for example, the plaintiffs sued the United States Mint for failure to deliver a number of Statue of Liberty commemorative coins that they had ordered. When demand for the coins proved unexpectedly robust, a number of individuals who had sent in their orders in a timely fashion were left empty-handed. See id. at 1578-80. The court began by noting the "well-established" rule that advertisements and order forms are "mere notices and solicitations for offers which create no power of acceptance in the recipient." Id. at 1580; see also Foremost Pro Color, Inc. v. Eastman Kodak Co., 703 F.2d 534, 538-39 (9th Cir.1983) ("The weight of authority is that purchase orders such as those at issue here are not enforceable contracts until they are accepted by the seller.");^[5]Restatement (Second) of Contracts § 26 ("A manifestation of willingness to enter a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent."). The spurned coin collectors could not maintain a breach of contract action because no contract would be formed until the advertiser accepted the order form and processed payment. See id. at 1581; see also Alligood v. Procter & Gamble, 72 Ohio App.3d 309, 594 N.E.2d 668 (1991) (finding that no offer was made in promotional campaign for baby diapers, in which consumers were to redeem teddy bear proof-of-purchase symbols for catalog merchandise); Chang v. First Colonial Savings Bank, 242 Va. 388, 410 S.E.2d 928 (1991) (newspaper advertisement for bank settled the terms of the offer once bank accepted plaintiffs' deposit, notwithstanding bank's subsequent effort to amend the terms of the offer). Under these principles, plaintiff's letter of March 27, 1996, with the Order Form and the appropriate number of Pepsi Points, constituted the offer. There would be no enforceable contract until defendant accepted the Order Form and cashed the check.

The exception to the rule that advertisements do not create any power of acceptance in potential offerees is where the advertisement is "clear, definite, and explicit, and leaves nothing open for negotiation," in that circumstance, "it constitutes an offer, acceptance of which will complete the contract." Lefkowitz v. Great Minneapolis Surplus Store, 251 Minn. 188, 86 N.W.2d 689, 691 (1957). In Lefkowitz, defendant had published a newspaper announcement stating: "Saturday 9 AM Sharp, 3 Brand New Fur Coats, Worth to $100.00, First Come First Served $1 Each." Id. at 690. Mr. Morris Lefkowitz arrived at the store, dollar in hand, but was informed that under defendant's "house rules," the offer was open to ladies, but not gentlemen. See id. The court ruled that because plaintiff had fulfilled all of the terms of the advertisement and the advertisement was specific and left nothing open for negotiation, a contract had been formed. See id.; see also Johnson v. Capital City Ford Co., 85 So.2d 75, 79 (La.Ct. App.1955) (finding that newspaper advertisement was sufficiently certain and definite to constitute an offer).

The present case is distinguishable from Lefkowitz. First, the commercial cannot be regarded in itself as sufficiently definite, because it specifically reserved the details of the offer to a separate writing, the Catalog.^[6] The commercial itself made no mention of the steps a potential offeree would be required to take to accept the alleged offer of a Harrier Jet. The advertisement in Lefkowitz, in contrast, "identified the person who could accept." Corbin, supra, § 2.4, at 119. See generally United States v. Braunstein, 75 F.Supp. 137, 139 (S.D.N.Y.1947) ("Greater precision of expression may be required, and less help from the court given, when the parties are merely at the threshold of a contract."); Farnsworth, supra, at 239 ("The fact that a proposal is very detailed suggests that it is an offer, while omission of many terms suggests that it is not.").^[7] Second, even if the Catalog had included a Harrier Jet among the items that could be obtained by redemption of Pepsi Points, the advertisement of a Harrier Jet by both television commercial and catalog would still not constitute an offer. As the Mesaros court explained, the absence of any words of limitation such as "first come, first served," renders the alleged offer sufficiently indefinite that no contract could be formed. See Mesaros, 845 F.2d at 1581. "A customer would not usually have reason to believe that the shopkeeper intended exposure to the risk of a multitude of acceptances resulting in a number of contracts exceeding the shopkeeper's inventory." Farnsworth, supra, at 242. There was no such danger in Lefkowitz, owing to the limitation "first come, first served."

The Court finds, in sum, that the Harrier Jet commercial was merely an advertisement. The Court now turns to the line of cases upon which plaintiff rests much of his argument.

2. Rewards as Offers

In opposing the present motion, plaintiff largely relies on a different species of unilateral offer, involving public offers of a reward for performance of a specified act. Because these cases generally involve public declarations regarding the efficacy or trustworthiness of specific products, one court has aptly characterized these authorities as "prove me wrong" cases. See Rosenthal v. Al Packer Ford, 36 Md.App. 349, 374 A.2d 377, 380 (1977). The most venerable of these precedents is the case of Carlill v. Carbolic Smoke Ball Co., 1 Q.B. 256 (Court of Appeal, 1892), a quote from which heads plaintiff's memorandum of law: "[I]f a person chooses to make extravagant promises ... he probably does so because it pays him to make them, and, if he has made them, the extravagance of the promises is no reason in law why he should not be bound by them." Carbolic Smoke Ball, 1 Q.B. at 268 (Bowen, L.J.).

Long a staple of law school curricula, Carbolic Smoke Ball owes its fame not merely to "the comic and slightly mysterious object involved," A.W. Brian Simpson. Quackery and Contract Law: Carlill v. Carbolic Smoke Ball Company (1893), in Leading Cases in the Common Law 259, 281 (1995), but also to its role in developing the law of unilateral offers. The case arose during the London influenza epidemic of the 1890s. Among other advertisements of the time, for Clarke's World Famous Blood Mixture, Towle's Pennyroyal and Steel Pills for Females, Sequah's Prairie Flower, and Epp's Glycerine Jube-Jubes, see Simpson, supra, at 267, appeared solicitations for the Carbolic Smoke Ball. The specific advertisement that Mrs. Carlill saw, and relied upon, read as follows:

100 £ reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic influenza, colds, or any diseases caused by taking cold, after having used the ball three times daily for two weeks according to the printed directions supplied with each ball. 1000 £ is deposited with the Alliance Bank, Regent Street, shewing our sincerity in the matter.

During the last epidemic of influenza many thousand carbolic smoke balls were sold as preventives against this disease, and in no ascertained case was the disease contracted by those using the carbolic smoke ball.

Carbolic Smoke Ball, 1 Q.B. at 256-57. "On the faith of this advertisement," id. at 257, Mrs. Carlill purchased the smoke ball and used it as directed, but contracted influenza nevertheless.^[8] The lower court held that she was entitled to recover the promised reward.

Affirming the lower court's decision, Lord Justice Lindley began by noting that the advertisement was an express promise to pay £ 100 in the event that a consumer of the Carbolic Smoke Ball was stricken with influenza. See id. at 261. The advertisement was construed as offering a reward because it sought to induce performance, unlike an invitation to negotiate, which seeks a reciprocal promise. As Lord Justice Lindley explained, "advertisements offering rewards ... are offers to anybody who performs the conditions named in the advertisement, and anybody who does perform the condition accepts the offer." Id. at 262; see also id. at 268 (Bowen, L.J.).^[9] Because Mrs. Carlill had complied with the terms of the offer, yet contracted influenza, she was entitled to £ 100.

Like Carbolic Smoke Ball, the decisions relied upon by plaintiff involve offers of reward. In Barnes v. Treece, 15 Wash. App. 437, 549 P.2d 1152 (1976), for example, the vice-president of a punchboard distributor, in the course of hearings before the Washington State Gambling Commission, asserted that, "`I'll put a hundred thousand dollars to anyone to find a crooked board. If they find it, I'll pay it.'" Id. at 1154. Plaintiff, a former bartender, heard of the offer and located two crooked punchboards. Defendant, after reiterating that the offer was serious, providing plaintiff with a receipt for the punchboard on company stationery, and assuring plaintiff that the reward was being held in escrow, nevertheless repudiated the offer. See id. at 1154. The court ruled that the offer was valid and that plaintiff was entitled to his reward. See id. at 1155. The plaintiff in this case also cites cases involving prizes for skill (or luck) in the game of golf. See Las Vegas Hacienda v. Gibson, 77 Nev. 25, 359 P.2d 85 (1961) (awarding $5,000 to plaintiff, who successfully shot a hole-in-one); see also Grove v. Charbonneau Buick-Pontiac, Inc., 240 N.W.2d 853 (N.D. 1976) (awarding automobile to plaintiff, who successfully shot a hole-in-one).

Other "reward" cases underscore the distinction between typical advertisements, in which the alleged offer is merely an invitation to negotiate for purchase of commercial goods, and promises of reward, in which the alleged offer is intended to induce a potential offeree to perform a specific action, often for noncommercial reasons. In Newman v. Schiff, 778 F.2d 460 (8th Cir.1985), for example, the Fifth Circuit held that a tax protestor's assertion that, "If anybody calls this show ... and cites any section of the code that says an individual is required to file a tax return, I'll pay them $100,000," would have been an enforceable offer had the plaintiff called the television show to claim the reward while the tax protestor was appearing. See id. at 466-67. The court noted that, like Carbolic Smoke Ball, the case "concerns a special type of offer: an offer for a reward." Id. at 465. James v. Turilli, 473 S.W.2d 757 (Mo.Ct.App.1971), arose from a boast by defendant that the "notorious Missouri desperado" Jesse James had not been killed in 1882, as portrayed in song and legend, but had lived under the alias "J. Frank Dalton" at the "Jesse James Museum" operated by none other than defendant. Defendant offered $10,000 "to anyone who could prove me wrong." See id. at 758-59. The widow of the outlaw's son demonstrated, at trial, that the outlaw had in fact been killed in 1882. On appeal, the court held that defendant should be liable to pay the amount offered. See id. at 762; see also Mears v. Nationwide Mutual Ins. Co., 91 F.3d 1118, 1122-23 (8th Cir.1996) (plaintiff entitled to cost of two Mercedes as reward for coining slogan for insurance company).

In the present case, the Harrier Jet commercial did not direct that anyone who appeared at Pepsi headquarters with 7,000,000 Pepsi Points on the Fourth of July would receive a Harrier Jet. Instead, the commercial urged consumers to accumulate Pepsi Points and to refer to the Catalog to determine how they could redeem their Pepsi Points. The commercial sought a reciprocal promise, expressed through acceptance of, and compliance with, the terms of the Order Form. As noted previously, the Catalog contains no mention of the Harrier Jet. Plaintiff states that he "noted that the Harrier Jet was not among the items described in the catalog, but this did not affect [his] understanding of the offer." (Pl. Mem. at 4.) It should have.^[10]

Carbolic Smoke Ball itself draws a distinction between the offer of reward in that case, and typical advertisements, which are merely offers to negotiate. As Lord Justice Bowen explains:

It is an offer to become liable to any one who, before it is retracted, performs the condition.... It is not like cases in which you offer to negotiate, or you issue advertisements that you have got a stock of books to sell, or houses to let, in which case there is no offer to be bound by any contract. Such advertisements are offers to negotiate — offers to receive offers — offers to chaffer, as, I think, some learned judge in one of the cases has said.

Carbolic Smoke Ball, 1 Q.B. at 268; see also Lovett, 207 N.Y.S. at 756 (distinguishing advertisements, as invitation to offer, from offers of reward made in advertisements, such as Carbolic Smoke Ball). Because the alleged offer in this case was, at most, an advertisement to receive offers rather than an offer of reward, plaintiff cannot show that there was an offer made in the circumstances of this case.

C. An Objective, Reasonable Person Would Not Have Considered the Commercial an Offer

Plaintiff's understanding of the commercial as an offer must also be rejected because the Court finds that no objective person could reasonably have concluded that the commercial actually offered consumers a Harrier Jet.

1. Objective Reasonable Person Standard

In evaluating the commercial, the Court must not consider defendant's subjective intent in making the commercial, or plaintiff's subjective view of what the commercial offered, but what an objective, reasonable person would have understood the commercial to convey. See Kay-R Elec. Corp. v. Stone & Webster Constr. Co., 23 F.3d 55, 57 (2d Cir.1994) ("[W]e are not concerned with what was going through the heads of the parties at the time [of the alleged contract]. Rather, we are talking about the objective principles of contract law."); Mesaros, 845 F.2d at 1581 ("A basic rule of contracts holds that whether an offer has been made depends on the objective reasonableness of the alleged offeree's belief that the advertisement or solicitation was intended as an offer."); Farnsworth, supra, § 3.10, at 237; Williston, supra, § 4:7 at 296-97.

If it is clear that an offer was not serious, then no offer has been made:

What kind of act creates a power of acceptance and is therefore an offer? It must be an expression of will or intention. It must be an act that leads the offeree reasonably to conclude that a power to create a contract is conferred. This applies to the content of the power as well as to the fact of its existence. It is on this ground that we must exclude invitations to deal or acts of mere preliminary negotiation, and acts evidently done in jest or without intent to create legal relations.

Corbin on Contracts, § 1.11 at 30 (emphasis added). An obvious joke, of course, would not give rise to a contract. See, e.g., Graves v. Northern N.Y. Pub. Co., 260 A.D. 900, 22 N.Y.S.2d 537 (1940) (dismissing claim to offer of $1000, which appeared in the "joke column" of the newspaper, to any person who could provide a commonly available phone number). On the other hand, if there is no indication that the offer is "evidently in jest," and that an objective, reasonable person would find that the offer was serious, then there may be a valid offer. See Barnes, 549 P.2d at 1155 ("[I]f the jest is not apparent and a reasonable hearer would believe that an offer was being made, then the speaker risks the formation of a contract which was not intended."); see also Lucy v. Zehmer, 196 Va. 493, 84 S.E.2d 516, 518, 520 (1954) (ordering specific performance of a contract to purchase a farm despite defendant's protestation that the transaction was done in jest as "`just a bunch of two doggoned drunks bluffing'").

2. Necessity of a Jury Determination

Plaintiff also contends that summary judgment is improper because the question of whether the commercial conveyed a sincere offer can be answered only by a jury. Relying on dictum from Gallagher v. Delaney, 139 F.3d 338 (2d Cir. 1998), plaintiff argues that a federal judge comes from a "narrow segment of the enormously broad American socio-economic spectrum," id. at 342, and, thus, that the question whether the commercial constituted a serious offer must be decided by a jury composed of, inter alia, members of the "Pepsi Generation," who are, as plaintiff puts it, "young, open to adventure, willing to do the unconventional." (See Leonard Aff. ¶ 2.) Plaintiff essentially argues that a federal judge would view his claim differently than fellow members of the "Pepsi Generation."

Plaintiff's argument that his claim must be put to a jury is without merit. Gallagher involved a claim of sexual harassment in which the defendant allegedly invited plaintiff to sit on his lap, gave her inappropriate Valentine's Day gifts, told her that "she brought out feelings that he had not had since he was sixteen," and "invited her to help him feed the ducks in the pond, since he was `a bachelor for the evening.'" Gallagher, 139 F.3d at 344. The court concluded that a jury determination was particularly appropriate because a federal judge lacked "the current real-life experience required in interpreting subtle sexual dynamics of the workplace based on nuances, subtle perceptions, and implicit communications." Id. at 342. This case, in contrast, presents a question of whether there was an offer to enter into a contract, requiring the Court to determine how a reasonable, objective person would have understood defendant's commercial. Such an inquiry is commonly performed by courts on a motion for summary judgment. See Krumme, 143 F.3d at 83; Bourque, 42 F.3d at 708; Wards Co., 761 F.2d at 120.

3. Whether the Commercial Was "Evidently Done In Jest"

Plaintiff's insistence that the commercial appears to be a serious offer requires the Court to explain why the commercial is funny. Explaining why a joke is funny is a daunting task; as the essayist E.B. White has remarked, "Humor can be dissected, as a frog can, but the thing dies in the process...."^[11] The commercial is the embodiment of what defendant appropriately characterizes as "zany humor." (Def. Mem. at 18.)

First, the commercial suggests, as commercials often do, that use of the advertised product will transform what, for most youth, can be a fairly routine and ordinary experience. The military tattoo and stirring martial music, as well as the use of subtitles in a Courier font that scroll terse messages across the screen, such as "MONDAY 7:58 AM," evoke military and espionage thrillers. The implication of the commercial is that Pepsi Stuff merchandise will inject drama and moment into hitherto unexceptional lives. The commercial in this case thus makes the exaggerated claims similar to those of many television advertisements: that by consuming the featured clothing, car, beer, or potato chips, one will become attractive, stylish, desirable, and admired by all. A reasonable viewer would understand such advertisements as mere puffery, not as statements of fact, see, e.g., Hubbard v. General Motors Corp., 95 Civ. 4362(AGS), 1996 WL 274018, at *6 (S.D.N.Y. May 22, 1996) (advertisement describing automobile as "Like a Rock," was mere puffery, not a warranty of quality); Lovett, 207 N.Y.S. at 756; and refrain from interpreting the promises of the commercial as being literally true.

Second, the callow youth featured in the commercial is a highly improbable pilot, one who could barely be trusted with the keys to his parents' car, much less the prize aircraft of the United States Marine Corps. Rather than checking the fuel gauges on his aircraft, the teenager spends his precious preflight minutes preening. The youth's concern for his coiffure appears to extend to his flying without a helmet. Finally, the teenager's comment that flying a Harrier Jet to school "sure beats the bus" evinces an improbably insouciant attitude toward the relative difficulty and danger of piloting a fighter plane in a residential area, as opposed to taking public transportation.^[12]

Third, the notion of traveling to school in a Harrier Jet is an exaggerated adolescent fantasy. In this commercial, the fantasy is underscored by how the teenager's schoolmates gape in admiration, ignoring their physics lesson. The force of the wind generated by the Harrier Jet blows off one teacher's clothes, literally defrocking an authority figure. As if to emphasize the fantastic quality of having a Harrier Jet arrive at school, the Jet lands next to a plebeian bike rack. This fantasy is, of course, extremely unrealistic. No school would provide landing space for a student's fighter jet, or condone the disruption the jet's use would cause.

Fourth, the primary mission of a Harrier Jet, according to the United States Marine Corps, is to "attack and destroy surface targets under day and night visual conditions." United States Marine Corps, Factfile: AV-8B Harrier II (last modified Dec. 5, 1995) . Manufactured by McDonnell Douglas, the Harrier Jet played a significant role in the air offensive of Operation Desert Storm in 1991. See id. The jet is designed to carry a considerable armament load, including Sidewinder and Maverick missiles. See id. As one news report has noted, "Fully loaded, the Harrier can float like a butterfly and sting like a bee — albeit a roaring 14-ton butterfly and a bee with 9,200 pounds of bombs and missiles." Jerry Allegood, Marines Rely on Harrier Jet, Despite Critics, News & Observer (Raleigh), Nov. 4, 1990, at C1. In light of the Harrier Jet's well-documented function in attacking and destroying surface and air targets, armed reconnaissance and air interdiction, and offensive and defensive anti-aircraft warfare, depiction of such a jet as a way to get to school in the morning is clearly not serious even if, as plaintiff contends, the jet is capable of being acquired "in a form that eliminates [its] potential for military use." (See Leonard Aff. ¶ 20.)

Fifth, the number of Pepsi Points the commercial mentions as required to "purchase" the jet is 7,000,000. To amass that number of points, one would have to drink 7,000,000 Pepsis (or roughly 190 Pepsis a day for the next hundred years — an unlikely possibility), or one would have to purchase approximately $700,000 worth of Pepsi Points. The cost of a Harrier Jet is roughly $23 million dollars, a fact of which plaintiff was aware when he set out to gather the amount he believed necessary to accept the alleged offer. (See Affidavit of Michael E. McCabe, 96 Civ. 5320, Aug. 14, 1997, Exh. 6 (Leonard Business Plan).) Even if an objective, reasonable person were not aware of this fact, he would conclude that purchasing a fighter plane for $700,000 is a deal too good to be true.^[13]

Plaintiff argues that a reasonable, objective person would have understood the commercial to make a serious offer of a Harrier Jet because there was "absolutely no distinction in the manner" (Pl. Mem. at 13,) in which the items in the commercial were presented. Plaintiff also relies upon a press release highlighting the promotional campaign, issued by defendant, in which "[n]o mention is made by [defendant] of humor, or anything of the sort." (Id. at 5.) These arguments suggest merely that the humor of the promotional campaign was tongue in cheek. Humor is not limited to what Justice Cardozo called "[t]he rough and boisterous joke ... [that] evokes its own guffaws." Murphy v. Steeplechase Amusement Co., 250 N.Y. 479, 483, 166 N.E. 173, 174 (1929). In light of the obvious absurdity of the commercial, the Court rejects plaintiff's argument that the commercial was not clearly in jest.

4. Plaintiff's Demands for Additional Discovery

In his Memorandum of Law, and in letters to the Court, plaintiff argues that additional discovery is necessary on the issues of whether and how defendant reacted to plaintiff's "acceptance" of their "offer"; how defendant and its employees understood the commercial would be viewed, based on test-marketing the commercial or on their own opinions; and how other individuals actually responded to the commercial when it was aired. (See Pl. Mem. at 1-2; Letter of David E. Nachman to the Hon. Kimba M. Wood, Apr. 5, 1999.)

Plaintiff argues that additional discovery is necessary as to how defendant reacted to his "acceptance," suggesting that it is significant that defendant twice changed the commercial, the first time to increase the number of Pepsi Points required to purchase a Harrier Jet to 700,000,000, and then again to amend the commercial to state the 700,000,000 amount and add "(Just Kidding)." (See Pl. Stat. Exh C (700 Million), and Exh. D (700 Million — Just Kidding).) Plaintiff concludes that, "Obviously, if PepsiCo truly believed that no one could take seriously the offer contained in the original ad that I saw, this change would have been totally unnecessary and superfluous." (Leonard Aff. ¶ 14.) The record does not suggest that the change in the amount of points is probative of the seriousness of the offer. The increase in the number of points needed to acquire a Harrier Jet may have been prompted less by the fear that reasonable people would demand Harrier Jets and more by the concern that unreasonable people would threaten frivolous litigation. Further discovery is unnecessary on the question of when and how the commercials changed because the question before the Court is whether the commercial that plaintiff saw and relied upon was an offer, not that any other commercial constituted an offer.

Plaintiff's demands for discovery relating to how defendant itself understood the offer are also unavailing. Such discovery would serve only to cast light on defendant's subjective intent in making the alleged offer, which is irrelevant to the question of whether an objective, reasonable person would have understood the commercial to be an offer. See Kay-R Elec. Corp., 23 F.3d at 57 ("[W]e are not concerned with what was going through the heads of the parties at the time [of the alleged contract]."); Mesaros, 845 F.2d at 1581; Corbin on Contracts, § 1.11 at 30. Indeed, plaintiff repeatedly argues that defendant's subjective intent is irrelevant. (See Pl. Mem. at 5, 8, 13.)

Finally, plaintiff's assertion that he should be afforded an opportunity to determine whether other individuals also tried to accumulate enough Pepsi Points to "purchase" a Harrier Jet is unavailing. The possibility that there were other people who interpreted the commercial as an "offer" of a Harrier Jet does not render that belief any more or less reasonable. The alleged offer must be evaluated on its own terms. Having made the evaluation, the Court concludes that summary judgment is appropriate on the ground that no reasonable, objective person would have understood the commercial to be an offer.^[14]

D. The Alleged Contract Does Not Satisfy the Statute of Frauds

The absence of any writing setting forth the alleged contract in this case provides an entirely separate reason for granting summary judgment. Under the New York^[15] Statute of Frauds,

a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker.

N.Y.U.C.C. § 2-201(1); see also, e.g., AFP Imaging Corp. v. Philips Medizin Systeme, 92 Civ. 6211(LMM), 1994 WL 652510, at *4 (S.D.N.Y. Nov. 17, 1994). Without such a writing, plaintiff's claim must fail as a matter of law. See Hilord Chem. Corp. v. Ricoh Elecs., Inc., 875 F.2d 32, 36-37 (2d Cir.1989) ("The adequacy of a writing for Statute of Frauds purposes `must be determined from the documents themselves, as a matter of law.'") (quoting Bazak Int'l. Corp. v. Mast Indus., Inc., 73 N.Y.2d 113, 118, 538 N.Y.S.2d 503, 535 N.E.2d 633 (1989)).

There is simply no writing between the parties that evidences any transaction. Plaintiff argues that the commercial, plaintiff's completed Order Form, and perhaps other agreements signed by defendant which plaintiff has not yet seen, should suffice for Statute of Frauds purposes, either singly or taken together. (See Pl. Mem. at 18-19.) For the latter claim, plaintiff relies on Crabtree v. Elizabeth Arden Sales Corp., 305 N.Y. 48, 110 N.E.2d 551 (1953). Crabtree held that a combination of signed and unsigned writings would satisfy the Statute of Frauds, "provided that they clearly refer to the same subject matter or transaction." Id. at 55, 110 N.E.2d 551. Yet the Second Circuit emphasized in Horn & Hardart Co. v. Pillsbury Co., 888 F.2d 8 (2d Cir.1989), that this rule "contains two strict threshold requirements." Id. at 11. First, the signed writing relied upon must by itself establish "`a contractual relationship between the parties.'" Id. (quoting Crabtree, 305 N.Y. at 56, 110 N.E.2d 551); see also O'Keeffe v. Bry, 456 F.Supp. 822, 829 (S.D.N.Y.1978) ("To the extent that Crabtree permits the use of a `confluence of memoranda,' the minimum condition for such use is the existence of one [signed] document establishing the basic, underlying contractual commitment."). The second threshold requirement is that the unsigned writing must "`on its face refer to the same transaction as that set forth in the one that was signed.'" Horn & Hardart, 888 F.2d at 11 (quoting Crabtree, 305 N.Y. at 56, 110 N.E.2d 551); see also Bruce Realty Co. of Florida v. Berger, 327 F.Supp. 507, 510 (S.D.N.Y.1971).

None of the material relied upon by plaintiff meets either threshold requirement. The commercial is not a writing; plaintiff's completed order form does not bear the signature of defendant, or an agent thereof; and to the extent that plaintiff seeks discovery of any contracts between defendant and its advertisers, such discovery would be unavailing: plaintiff is not a party to, or a beneficiary of, any such contracts. Because the alleged contract does not meet the requirements of the Statute of Frauds, plaintiff has no claim for breach of contract or specific performance.

E. Plaintiff's Fraud Claim

In addition to moving for summary judgment on plaintiff's claim for breach of contract, defendant has also moved for summary judgment on plaintiff's fraud claim. The elements of a cause of action for fraud are "`representation of a material existing fact, falsity, scienter, deception and injury.'" New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308, 639 N.Y.S.2d 283, 662 N.E.2d 763 (1995) (quoting Channel Master Corp. v. Aluminium Ltd. Sales, Inc., 4 N.Y.2d 403, 407, 176 N.Y.S.2d 259, 262, 151 N.E.2d 833 (1958)).

To properly state a claim for fraud, "plaintiff must allege a misrepresentation or material omission by defendant, on which it relied, that induced plaintiff" to perform an act. See NYU, 639 N.Y.S.2d at 289, 662 N.E.2d 763. "General allegations that defendant entered into a contract while lacking the intent to perform it are insufficient to support the claim." See id. (citing Rocanova v. Equitable Life Assur. Soc'y, 83 N.Y.2d 603, 612 N.Y.S.2d 339, 634 N.E.2d 940 (1994)); see also Grappo v. Alitalia Linee Aeree Italiane, S.p.A., 56 F.3d 427, 434 (2d Cir.1995) ("A cause of action does not generally lie where the plaintiff alleges only that the defendant entered into a contract with no intention of performing it"). Instead, the plaintiff must show the misrepresentation was collateral, or served as an inducement, to a separate agreement between the parties. See Bridgestone/Firestone v. Recovery Credit, 98 F.3d 13, 20 (2d Cir.1996) (allowing a fraud claim where plaintiff "`demonstrate[s] a fraudulent misrepresentation collateral or extraneous to the contract'") (quoting Deerfield Communications Corp. v. Chesebrough-Ponds, Inc., 68 N.Y.2d 954, 510 N.Y.S.2d 88, 89, 502 N.E.2d 1003 (1986)).

For example, in Stewart v. Jackson & Nash, 976 F.2d 86 (2d Cir.1992), the Second Circuit ruled that plaintiff had properly stated a claim for fraud. In the course of plaintiff's negotiations for employment with defendant, a law firm, defendant represented to plaintiff not only that plaintiff would be hired (which she was), but also that the firm had secured a large environmental law client, that it was in the process of establishing an environmental law department, and that plaintiff would head the environmental law department. See id. at 89-90. The Second Circuit concluded that these misrepresentations gave rise to a fraud claim, because they consisted of misrepresentations of present fact, rather than future promises.

Plaintiff in this case does not allege that he was induced to enter into a contract by some collateral misrepresentation, but rather that defendant never had any intention of making good on its "offer" of a Harrier Jet. (See Pl. Mem. at 23.) Because this claim "alleges only that the defendant entered into a contract with no intention of performing it," Grappo, 56 F.3d at 434, judgment on this claim should enter for defendant.

III. Conclusion

In sum, there are three reasons why plaintiff's demand cannot prevail as a matter of law. First, the commercial was merely an advertisement, not a unilateral offer. Second, the tongue-in-cheek attitude of the commercial would not cause a reasonable person to conclude that a soft drink company would be giving away fighter planes as part of a promotion. Third, there is no writing between the parties sufficient to satisfy the Statute of Frauds.

For the reasons stated above, the Court grants defendant's motion for summary judgment. The Clerk of Court is instructed to close these cases. Any pending motions are moot.

[1] The Court's recitation of the facts of this case is drawn from the statements of uncontested facts submitted by the parties pursuant to Local Civil Rule 56.1. The majority of citations are to defendant's statement of facts because plaintiff does not contest many of defendant's factual assertions. (See Plaintiff Leonard's Response to PepsiCo's Rule 56.1 Statement ("Pl.Stat.").) Plaintiff's disagreement with certain of defendant's statements is noted in the text.

In an Order dated November 24, 1997, in a related case (96 Civ. 5320), the Court set forth an initial account of the facts of this case. Because the parties have had additional discovery since that Order and have crafted Local Civil Rule 56.1 Statements and Counter-statements, the recitation of facts herein should be considered definitive.

[2] At this point, the following message appears at the bottom of the screen: "Offer not available in all areas. See details on specially marked packages."

[3] Because Leonard and PepsiCo were each plaintiff in one action and defendant in the other, the Court will refer to the parties as "Leonard" and "PepsiCo," rather than plaintiff and defendant, for its discussion of the procedural history of this litigation.

[4] The Florida suit alleged that the commercial had been shown in Florida. Not only was this assertion irrelevant, in that plaintiff had not actually seen the commercial in Florida, but it later proved to be false. See Leonard v. PepsiCo, 96-2555 Civ.-King, at 1 (S.D.Fla. Nov. 6, 1996) ("The only connection this case has to this forum is that Plaintiff's lawyer is in the Southern District of Florida.").

[5] Foremost Pro was overruled on other grounds by Hasbrouck v. Texaco, Inc., 842 F.2d 1034, 1041 (9th Cir.1987), aff'd, 496 U.S. 543, 110 S.Ct. 2535, 110 L.Ed.2d 492 (1990). See Chroma Lighting v. GTE Products Corp., 111 F.3d 653, 657 (9th Cir.1997), cert. denied sub nom., Osram Sylvania Products, Inc. v. Von Der Ahe, 522 U.S. 943, 118 S.Ct. 357, 139 L.Ed.2d 278 (1997).

[6] It also communicated additional words of reservation: "Offer not available in all areas. See details on specially marked packages."

[7] The reservation of the details of the offer in this case distinguishes it from Payne v. Lautz Bros. & Co., 166 N.Y.S. 844 (N.Y.City Ct.1916). In Payne, a stamp and coupon broker purchased massive quantities of coupons produced by defendant, a soap company, and tried to redeem them for 4,000 round-trip tickets to a local beach. The court ruled for plaintiff, noting that the advertisements were "absolutely unrestricted. It contained no reference whatever to any of its previous advertising of any form." Id. at 848. In the present case, by contrast, the commercial explicitly reserved the details of the offer to the Catalog.

[8] Although the Court of Appeals's opinion is silent as to exactly what a carbolic smoke ball was, the historical record reveals it to have been a compressible hollow ball, about the size of an apple or orange, with a small opening covered by some porous material such as silk or gauze. The ball was partially filled with carbolic acid in powder form. When the ball was squeezed, the powder would be forced through the opening as a small cloud of smoke. See Simpson, supra, at 262-63. At the time, carbolic acid was considered fatal if consumed in more than small amounts. See id. at 264.

[9] Carbolic Smoke Ball includes a classic formulation of this principle: "If I advertise to the world that my dog is lost, and that anybody who brings the dog to a particular place will be paid some money, are all the police or other persons whose business it is to find lost dogs to be expected to sit down and write a note saying that they have accepted my proposal?" Carbolic Smoke Ball, 1 Q.B. at 270 (Bowen, L.J.).

[10] In his affidavit, plaintiff places great emphasis on a press release written by defendant, which characterizes the Harrier Jet as "the ultimate Pepsi Stuff award." (See Leonard Aff. ¶ 13.) Plaintiff simply ignores the remainder of the release, which makes no mention of the Harrier Jet even as it sets forth in detail the number of points needed to redeem other merchandise.

[11] Quoted in Gerald R. Ford, Humor and the Presidency 23 (1987).

[12] In this respect, the teenager of the advertisement contrasts with the distinguished figures who testified to the effectiveness of the Carbolic Smoke Ball, including the Duchess of Sutherland; the Earls of Wharncliffe, Westmoreland, Cadogan, and Leitrim; the Countesses Dudley, Pembroke, and Aberdeen; the Marchionesses of Bath and Conyngham; Sir Henry Acland, the physician to the Prince of Wales; and Sir James Paget, sergeant surgeon to Queen Victoria. See Simpson, supra, at 265.

[13] In contrast, the advertisers of the Carbolic Smoke Ball emphasized their earnestness, stating in the advertisement that "£ 1,000 is deposited with the Alliance Bank, shewing our sincerity in the matter." Carbolic Smoke Ball, 1 Q.B. at 257. Similarly, in Barnes, the defendant's "subsequent statements, conduct, and the circumstances show an intent to lead any hearer to believe the statements were made seriously." Barnes, 549 P.2d at 1155. The offer in Barnes, moreover, was made in the serious forum of hearings before a state commission; not, as defendant states, at a "gambling convention." Compare Barnes, 549 P.2d at 1154, with Def. Reply Mem. at 6.

[14] Even if plaintiff were allowed discovery on all of these issues, such discovery would be relevant only to the second basis for the Court's opinion, that no reasonable person would have understood the commercial to be an offer. That discovery would not change the basic principle that an advertisement is not an offer, as set forth in Section II.B of this Order and Opinion, supra; nor would it affect the conclusion that the alleged offer failed to comply with the Statute of Frauds, as set forth in Section II.D, infra.

[15] Having determined that defendant's advertisement was not an offer, the last act necessary to complete the contract would be defendant's acceptance in New York of plaintiff's Order Form. Thus the Court must apply New York law on the statute of frauds issue. See supra Section II.A.2.

The cause was argued before MARKELL, C.J., and DELAPLAINE, COLLINS, HENDERSON and HAMMOND, JJ.

W. Edward Plitt, for appellants.

Submitted on the record by Maguire and Brennan for appellees.

HAMMOND, J., delivered the opinion of the Court.

In an action in the Circuit Court for Baltimore County by the owners of an unimproved lot against a construction company for a complete breach of a written contract to build a house, the court, sitting without a jury, found for the defendant and the plaintiffs appealed.

Calvin T. Ray and Katherine S.J. Ray, his wife, own a lot on Dance Mill Road in Baltimore County. Late in 1950, they decided to build a home on it, and entered into negotiations with several builders, including William G. Eurice & Bros., Inc., the appellee, which had been recommended by friends. They submitted stock plans and asked for an estimate — not a bid — to see whether the contemplated house was within their financial resources. John M. Eurice, its President, acted for the Eurice Corporation. He indicated at the first meeting that the cost of the house would be about [117] $16,000. Mr. Ray then employed an architect who redrew the plans and wrote a rough draft of specifications. Mr. Ray had copies of each mechanically reproduced, and in January, 1951, arranged a meeting with Mr. Eurice to go over them so that a final bid, as opposed to an estimate, could be arrived at. In the Ray living room, Mr. Ray and Mr. John Eurice went over the redrawn plans dated 9 January 1951, and the specifications prepared by the architect, consisting of seven pages and headed "Memorandum Specifications, Residence for Mr. and Mrs. C.T. Ray, Dance Mill Road, Baltimore County, Maryland, 9 January, 1951", and discussed each item. Mr. Eurice vetoed some items and suggested change in others. For example, foundation walls were specified to be of concrete block. Mr. Eurice wanted to pour concrete walls, as was his custom. Framing lumber was to be fir. Mr. Eurice wanted this to be fir or pine. In some instances, Mr. Eurice, wanting more latitude, asked that the phrase "or equivalent" be added after a specified product or brand make. All the changes agreed on were noted by Mr. Ray in green ink on the January 9th specifications, and Mr. Eurice was given a set of plans and a set of the specifications so that he could make a formal bid in writing. On February 14, the Eurice Corporation submitted unsigned, its type-written three-page proposed contract to build a house for $16,300 "according to the following specifications". Most of the three pages consisted of specifications which did not agree in many, although often relatively unimportant, respects with those in the January 9th seven-page specifications. Mr. Ray advised Mr. Eurice that he would have his own lawyer draw the contract. This was done. In the contract, as prepared and as finally signed, the builder agrees to construct a house for $16,300 "strictly in accordance with the Plans hereto attached and designated residence for Mr. and Mrs. C.T. Ray, Dance Mill Road, Baltimore County, Maryland, Sheets 1 through 7 dated 9 January 1951 * * * [118] and to supply and use only those materials and building supplies shown on the Specifications hereto attached and designated Memorandum Specifications — Residence for Mr. C.T. Ray, Dance Mill Road, Baltimore County, Maryland, Sheets 1 through 5 dated 14 February 1951 it being understood and agreed that any deviation from the said Plans shall be made only with the prior assent of the Owner. Deviations from the Specifications shall be made only in the event any of the items shown thereon is unavailable at the time its use is required, and then only after reasonable effort and diligence on the part of the Builder to obtain the specific item has failed and the owner has given his prior approval to the use of a substitute item."

The Memorandum Specifications referred to in the contract, consisting of five pages and dated 14 February 1951, had been prepared by Mr. and Mrs. Ray, the night of the day the Eurice Corporation delivered its three-page proposal, and after Mr. Ray had said that his own lawyer would draw the contract. On the 14th of February the 9 January seven pages, as they had emerged from the green ink deletions and additions made at the meeting in January, were retyped and from the stencil so cut at the Ray apartment, Mr. Ray had many copies mechanically reproduced at the Martin Plant where he is an aeronautical engineer. The rewritten specifications were identified as they are designated in the contract, namely as "* * * Sheets 1 through 5, dated 14 February 1951."

On February 22, at the office of the Eurice Corporation, on the Old Philadelphia Road, the contract was signed. Present, at the time, were Mr. Ray — Mrs. Ray was absent and had signed the contract earlier because she could not get a baby-sitter — Mr. John Eurice and Mr. Henry Eurice, who is Secretary of the Eurice Corporation. Mr. Ray relates the details of the meeting, as follows:

"I had copies, plans and specifications before me, as well as two copies of the contract. We [119] sat down, Mr. John Eurice and I sat down and went over all of the items in the specifications. I volunteered to show him I had in fact changed the specifications to reflect their building idiosyncrasies, such as wanting to build the house with a poured cellar. We also went over the contract document item by item. Following that, we each signed the contract and Mr. Henry Eurice, being the other party there at the time, witnessed our signature. He was in the room during the entire discussion or review of the contract."

After the contract had been signed, Mr. Ray says he asked that the Eurice brothers help him fill out the F.H.A. form of specifications (required to obtain the mortgage he needed) since he was not familiar with the intricacies of that form. This they did, with Mr. Henry Eurice giving most of the aid. They used the memorandum specifications of 14 February where they corresponded with the F.H.A. form and in other instances, as where the memorandum specifications were not adequate, Mr. Henry Eurice gave the necessary information. After the F.H.A. specifications were completed, the meeting broke up and a copy of the signed contract and copies of the Plans and Specifications were retained by the Eurice Corporation.

Mr. Ray then obtained a loan from the Loyola Savings & Loan Association. To do this it was necessary that he furnish it with his copy of the contract as well as copies of the Plans, the specifications of 14 February and the F.H.A. specifications. Neither the plans nor specifications which were left with the Building Association were signed by the Eurice Corporation, nor, through a misunderstanding, had they been signed by either Mr. or Mrs. Ray. When they applied for the loan, Mr. and Mrs. Ray did sign the reverse side of each page of the drawings and of the contract specifications. Thereafter, in response to a call from the Building Association, Mr. John Eurice went to its office and [120] signed the reverse side of each page of the contract, each page of the specifications of the five-page specifications of February 14, referred to in the contract, and each page of the plans dated January 9, and referred to in the contract, although he says that he did not look at any of these prior to signing them.

Settlement of the mortgage loan was made on April 19 and thereafter, Mr. Ray phoned Mr. John Eurice repeatedly in order to set a starting date for the construction work. He finally came to the Ray home on April 22 and indicated that he would start construction sometime about the middle of May. Other details of the work were discussed and Mr. Ray was given the names of a plumber and a supply company so that he could pick out and buy direct various products which would be incorporated in the house. Mr. Eurice, at that time, brought up the question of a dry well which had not been noted in the specifications, and which was required by the Baltimore County Building Code, and Mr. Ray agreed that he would make allowance for this, as he felt it was an honest mistake.

On May 8, Mr. Ray received urgent messages from the Eurice Corporation that his presence was desired for a conference. As he walked into the office, Mr. Henry Eurice picked up the drawings, specifications and the contract, and threw them across the desk at him, and onto the floor, with the announcement that he had never seen them, and that if he had to build according to those specifications he did not propose to go ahead. Attempts were made at the meeting to iron out the differences which apparently caused Mr. Henry Eurice to state that he would not live up to the contract. A second meeting was held at the Ray apartment several days later, and these efforts were continued by Mr. John Eurice, and that was the last contact that the Ray family had with any officer or agent of the Eurice Corporation. Realization that to build according to contract specifications would cost more than their usual "easy going, hatchet and saw manner" as Judge Gontrum described [121] it, undoubtedly played a part in the refusal of the Eurice brothers to build the Ray house, although they testified that the excess cost would be only about $1,000. More decisive, in all probability, was Mr. Ray's precision and his insistence on absolute accuracy in the smallest details which certainly made the Eurices unhappy, and to them was the shadow cast by harassing and expensive events to come. For example, at the meeting where the specifications were thrown across the desk, Mr. Ray agreed that certain millwork and trim which the Eurices had on hand was the equal of the specified Morgan millwork. Mr. Henry Eurice testified as to this:

"He said that he thought ours were better. I said `if we put that in your house how will we determine it was right or not?' He said he would bring a camera and take a picture of the moldings in our shed and when they were constructed in the house take another picture, and see if it would correspond. I said, `Man, we can't build you a house under those conditions. It is not reasonable.' It created a heated argument for a while."

After written notice by Mr. Ray's lawyer to the lawyer for Eurice Corporation, that Mr. and Mrs. Ray considered that the contract had been breached and unless recognized within the week they would hold the Eurice Corporation "for any additional amount necessary to construct the house over and above the price called for in the agreement which has been breached by your client" had been ignored, suit was filed.

Mr. John Eurice agrees, in his testimony, that the Memorandum Sheets 1 to 7, dated January 9, had been gone over by him with Mr. and Mrs. Ray, but only as he says, to pick up "pointers". He also agrees that he had been told that the contract was to be drawn by Mr. Ray's lawyer, but says that he agreed only "so long as it is drawn up to our three page contract". He says that no specifications were attached to the contract which was signed, at the time it was signed, and Mr. [122] and Mrs. Ray cannot say definitely that the specifications were physically attached, although both say that they were unquestionably in existence and Mr. Ray is unequivocal and positive in his statement that they were present, stapled together, and discussed at the time of signing the contract. Mr. John Eurice says that the first time he saw the specifications was when his brother Henry "chucked them out", and in response to a question as to where they came from, said: "They were laying on the desk on the opened mail". This, he says, was some two weeks after the signing of the contract. No effort has been made by the appellee to show how the specifications arrived in the office at this time, with the opened mail. No envelope, with what could be a significant postmark, was introduced. No stenographer or clerk was brought into court to say that the specifications had been received in the mail, or to say that they had been delivered by messenger, or by Mr. Ray. Mr. John Eurice does not deny that he signed the plans and specifications, as well as the back of the contract at the office of the Loyola Building and Loan Association, but dismisses this as a practice necessary in all cases where financing is to be obtained, which has no relation to or significance in connection with the actual agreement between builder and owner.

Mr. Henry Eurice says that, although he was present at the time the contract was signed, and signed as a witness, that no specifications were attached to either copy of the signed contract, and that he did not see Specifications 1 to 5 until "right smart later, maybe a month." When he did first see them "they were laying on the desk on the opened mail".

Mr. John Eurice says in his testimony that the contract which was signed February 22 was not the proposal the Eurice Corporation had made. He sets forth that he read the contract of February 22 before he signed it, and he admits that he read paragraph B, whereby the builder agreed to construct the building strictly in accordance with the plans and specifications identified [123] by description and date. He says he thought that the specifications, although they referred to pages 1 through 5, were those in his proposal which covered only three pages. Mr. Henry Eurice says that he read the contract of February 22, and that he read the paragraph with respect to the plans and specifications, but that he, too, thought it referred to the three-page proposal. Both agree that the plans were present at the time of the signing of the contract.

On the basis of the testimony which has been cited at some length, Judge Gontrum found the following:

"The plaintiff, Mr. Ray, is an aeronautical engineer, a highly technical, precise gentleman, who has a truly remarkable memory for figures and dates and a meticulous regard for detail. Apparently, his profession and his training have schooled him to approach all problems in an exceedingly technical and probably very efficient manner. He testified with an exceptional fluency and plausibility. His mastery of language and recollection of dates and figures are phenomenal.

"The defendants in the case are what might be termed old fashioned country or community builders. Their work is technical but it doesn't call for the specialized ability that Mr. Ray's work demands. They conduct their business in a more easy going, hatchet and saw manner, and have apparently been successful in a small way in their field of home construction.

"The contract in question was entered into, in my judgment, in a hasty and rather careless fashion."

Judge Gontrum then cites the testimony of the Eurice Brothers that they had not seen Specifications 1 through 5 when they signed, and then says:

"* * * There is real doubt in my mind about the matter. Why the defendants signed the agrement without checking up on the specifications, [124] I do not know, but they clearly were under the impression that the specifications referred to in the agreement were the specifications they had submitted some time prior and which they had permitted to be redrafted by the attorney for Mr. Ray. They both stated with absolute emphasis, and I do not question their veracity, that they were under the impression that the specifications in the agreement were the same which they had prepared."

He concludes by saying that he feels that Mr. and Mrs. Ray were under one impression, and that the Messrs. Eurice were under another impression, saying:

"* * * In my opinion there was an honest mistake; that there was no real meeting of the minds and that the plaintiffs and defendants had different sets of specifications in mind when this agreement was signed. The minds of the parties, so different in their approach, to use a mechanical phrase, did not mesh."

It is unnecessary to decide, as we see it, whether there was or was not a mistake on the part of the Eurice Corporation. It does strain credulity to hear that the Messrs. Eurice, builders all their adult lives and, on their own, successful builders for fifteen years of some twenty houses a year, would sign a simple contract to build a house, after they had read it, without knowing exactly what obligations they were assuming as to specifications requirements. The contract clearly referred to the specifications by designation, by number of pages and by date. It permits, in terms, no deviations from the specified makes or brands to be incorporated in the house, without the express permission of the owner. This would have been unimportant if the Eurice three-page specifications had been intended, since generality and not particularity was the emphasis there. Again, the contract could scarcely have intended to incorporate by reference the specifications in the three-page proposal because they were not set forth in a separate [125] writing, but were an integral part of a proposed contract, which itself was undated, and which was of three pages, while the specifications designated in the contract were dated and were stated to be in the contract, five pages. Further, it is undisputed that the five pages of February 14th were the seven pages of January 9th, corrected to reflect the deletions and changes made and agreed to by Mr. Ray and Mr. John Eurice. The crowning challenge to credulity in finding mistake is the fact that admittedly the contract, the plans and the specifications were all signed at one sitting by the President of the Eurice Corporation at the Loyola Building Association, after they had been signed by Mr. and Mrs. Ray.

If we assume the view as to mistake held by Judge Gontrum, in effect the mistake in the written agreement which prevented its execution by the Eurice Corporation from making it a contract was an unilateral one. It consisted, in the opinion of the Court, in the Eurice Corporation thinking it was assenting to its own specifications, while in form it was assenting to the Ray specifications. If there was such a mistake, the legal result the Court found to follow, we think does not follow.

The law is clear, absent fraud, duress or mutual mistake, that one having the capacity to understand a written document who reads and signs it, or, without reading it or having it read to him, signs it, is bound by his signature in law, at least. An integrated agreement may not be varied by parol where there is no mutual mistake, nor may the parties place their own interpretation on its meaning or intended meaning.

Neither fraud nor duress are in the case. If there was mistake it was unilateral. The Rays intended their specifications to be a part of the contract, and the contract so stated, so the misconception, if it existed, was in the minds of the Messrs. Eurice.

Williston-Contracts (Rev. Ed.), Sec. 1577 — says as to unilateral mistake:

"But if a man acts negligently, and in such a way as to justify others in supposing that the [126] terms of the writing are assented to by him and the writing is accepted on that supposition, he will be bound both at law and in equity. Accordingly, even if an illiterate executes a deed under a mistake as to its contents, he is bound if he did not require it to be read to him or its object explained."

In Maryland there may be exceptions in proceedings for specific performance, but otherwise the rule is in accord. Kappelman v. Bowie, 201 Md. 86, 93 A.2d 266. Gross v. Stone, 173 Md. 653, 664, 197 A. 137. Spitze v. B. & O.R.R. Co., 75 Md. 162, 23 A. 307, and McGrath v. Petersen, 127 Md. 412, 96 A. 551. See also the Restatement — Contracts, Section 70, where it is said:

"One who makes a written offer which is accepted, or who manifests acceptance of the terms of a writing which he should reasonably understand to be an offer or proposed contract, is bound by the contract, though ignorant of the terms of the writing or of its proper interpretation."

It does not lie in the mouth of the appellee, then, to say that it intended to be bound to build only according to its specifications. First, its claimed intent is immaterial, where it has agreed in writing to a clearly expressed and unambiguous intent to the contrary. Next, it may not vary that clearly expressed written intent by parol. And, finally, it may not put its own interpretation on the meaning of the written agreement it has executed. The Restatement-Contracts, Section 20, states the first proposition:

"A manifestation of mutual assent by the parties to an informal contract is essential to its formation and the acts by which such assent is manifested, must be done with the intent to do those acts, but * * * neither mental assent to the promises in the contract nor real or apparent intent that the promises shall be legally binding, is essential."

[127] Williston (work cited), Sec. 21, states the rule as follows: "The only intent of the parties to a contract which is essential, is an intent to say the words and do the acts which constitute their manifestation of assent." Judge Learned Hand expressed it in this wise: "A contract has, strictly speaking, nothing to do with the personal or individual intent of the parties. A contract is an obligation attached by the mere force of law to certain acts of the parties, usually words, which ordinarily accompany and represent a known intent. If, however, it were proved by twenty bishops that either party, when he used the words, intended something else than the usual meaning which the law imposes upon them, he would still be held, unless there were some mutual mistake, or something else of the sort." Hotchkiss v. National City Bank, 200 Fed. 287, 293.

Next, if a contract has been integrated, it may not be varied by parol in the absence of mutual mistake, nor will it be rescinded or redrafted by the Court if one of the parties finds that he has made a bad deal or has become dissatisfied with its provisions. Vincent v. Palmer, 179 Md. 365, 19 A.2d 183; McKeever v. Realty Corp., 183 Md. 216, 37 A.2d 305, and Markoff v. Kreiner, 180 Md. 150, 23 A.2d 19.

Finally, where there has been an integration of an agreement, those who executed it will not be allowed to place their own interpretation on what it means or was intended to mean. The test in such case is objective and not subjective. Restatement-Contracts, Sec. 230. McKeever v. Realty Corp., supra, at page 220 of 183 Md. at page 308 of 37 A.2d. Williston (work cited), Sec. 94, page 294, says: "It follows that the test of a true interpretation of an offer or acceptance is not what the party making it thought it meant or intended it to mean, but what a reasonable person in the position of the parties would have thought it meant". See also Weil v. Free State Oil Co. of Maryland, 200 Md. 62, 70, 87 A.2d 826 at 829.

[128] The lower court seemingly attached significance to the fact that the plans and specifications were not physically fastened to the contract document which was executed, although it specifically and explicitly referred to both. In this situation physical attachment has not the significance so attributed to it. It is settled that where a writing refers to another document that other document, or so much of it as is referred to, is to be interpreted as part of the writing. Williston (work cited), Sec. 628, page 1801. The Restatement-Contracts, Sec. 235 (c) and 208. Gaybis v. Palm, 201 Md. 78, 93 A.2d 269. Duplex Envelope Co. v. Balto. Post Co., 103 Md. 596. Noel Construction Co. v. Atlas Cement Co., 103 Md. 209, 63 A. 384. Ahern v. White, 39 Md. 409. Connor v. Manchester Assurance Co., 9 Cir., 130 Fed. 743, 70 L.R.A. 106. In New England Iron Co. v. Culbert, 91 N.Y. 153, the contract required that the work to be done should conform "in all particulars to the plans and specifications approved by (E.H.T.) and (H.A.S.) a copy of which specifications is declared to be annexed to and to form a part of the contract." In answer to the argument that the specifications had not been attached and so had no force, the Court said: "The annexation of the copy (of the) specifications was not a condition on which the validity of the agreement depended. If annexed the identification might have been more satisfactory, but without that, the contents of the plans and specifications, so far as referred to in the agreement executed, became constructively a part of it, and in that respect made one instrument". Aetna Indemnity Co. v. Waters, 110 Md. 673, 73 A. 712. See also Valley Construction v. City of Calistoga, 72 Calif.2d 839, 165 Pac.2d 521 and North Bergen Board of Education v. Jaeger, 67 N.J.L. 39, 50 A. 583, and 17 C.J.S., Contracts sec. 327, page 772.

We conclude that the appellee wrongfully breached its contract to build the plaintiffs a house for $16,300.00. The measure of damage in such a case presents no difficulty. Keystone Engineering Corp. v. Sutter, 196 Md. [129] 620, 628, 78 A.2d 191, 195. Here Judge Marbury said for the Court: "When a contractor on a building contract fails to perform, one of the remedies of the owner is to complete the contract, and charge the cost against the wrong-doer. Williston on Contracts (Rev. Ed.) Vol. 5, Sec. 1363, p. 3823. The Restatement of Contracts, Ch. 12, Par. 346, subsec. (1) (a) (i) p. 573 and Comment 1, p. 576." See also, Carrig v. Gilbert-Varker Corp., 314 Mass. 351, 50 N.E.2d 59, 62, 147 A.L.R. 927. There the court said: "The owner was entitled to be put in the same position that he would have been in if the contractor had performed its contract. * * * We think the proper measure of damages was the cost in excess of the contract price that would be incurred by the owner in having the houses built * * *". That figure is ascertainable with sufficient definiteness in the instant case. At the time he originally contemplated building, Mr. Ray had obtained bids from firms other than the appellee. One was $14,000.00 — a tentative and, it was believed an untrustworthy bid. One was from J. Allen Thompson for $22,500.00, another from J. Raymond Gerwig Co. for $23,900.00, and another from the Eastern Contracting Co. for $24,800.00. At the trial, the appellant produced Mr. Nelson Turner of the Eastern Contracting Co., who testified that on the market at that time, his bid of $24,800.00 would be a fair and reasonable price for the erection of the house called for in the plans and specifications in the Eurice contract. Mr. Lewis L. Tignor, a builder, testified that he then would build the same house for $25,000.00. Mr. J. Raymond Gerwig did not appear at the trial but Mr. Ray testified that he had submitted a current bid of $23,925.00. The appellant also produced Mr. John W. Sands (whose qualifications were admitted by the appellee) to testify as an expert in the construction of houses and the cost of building them. He testified that his calculations showed that the house in question could be built for $23,851.00 and that if he were invited to bid, he would submit a bid of that amount.

[130] He testified further that the current market value of performance of the contract here involved would be within seven and one half per cent of $23,851.00, either way. The appellee argued strongly below — although it filed no brief and made no argument here — that damages had not been proved with sufficient definiteness. We think the proof on this point convincing. The appellee also argued below that the low bid of J. Raymond Gerwig should not be accepted because he had not been produced for cross examination. We are not impressed with this contention. Nevertheless, since Mr. Sands, the expert who testified for the appellants and whose qualifications were admitted by the appellee, placed the low figure for current market value of performance of the contract at $23,851.00 less seven and one-half per cent or $22,062.25, we will accept that amount for use in measuring damages, and award the appellants the difference between it and $16,300 or $5,762.25. They are entitled in addition to the expenses incurred by them in seeking the construction loan from the Loyola Federal Savings and Loan Association in the amount of $231.15.

Judgment reversed with costs and judgment entered for appellants against appellee in the sum of $5,993.40.

Supreme Court of Indiana.

HURLEY v. EDDINGFIELD

156 Ind. 416 (1901)

BAKER, J.

The appellant sued appellee for $10,000 damages for wrongfully causing the death of his intestate. The court sustained appellee's demurrer to the complaint, and this ruling is assigned as error.

The material facts alleged may be summarized thus: At and for years before decedent's death appellee was a practicing physician at Mace, in Montgomery county, duly licensed under the laws of the state. He held himself out to the public as a general practitioner of medicine. He had been decedent's family physician. Decedent became dangerously ill, and sent for appellee. The messenger informed appellee of decedent's violent sickness, tendered him his fee for his services, and stated to him that no other physician was procurable in time, and that decedent relied on him for attention. No other physician was procurable in time to be of any use, and decedent did rely on appellee for medical assistance. Without any reason whatever, appellee refused to render aid to decedent. No other patients were requiring appellee's immediate service, and he could have gone to the relief of decedent if he had been willing to do so. Death ensued, without decedent's fault, and wholly from appellee's wrongful act.

The alleged wrongful act was appellee's refusal to enter into a contract of employment. Counsel do not contend that, before the enactment of the law regulating the practice of medicine, physicians were bound to render professional service to every one who applied. Whart. Neg. § 731. The act regulating the practice of medicine provides for a board of examiners, standards of qualification,
examinations, licenses to those found qualified, and penalties for practicing without license. Acts 1897, p. 255; Acts 1899, p. 247. The act is a preventive, not a compulsive, measure. In obtaining the state's license (permission) to practice medicine, the state does not require, and the licensee does not engage, that he will practice at all or on other terms than he may choose to accept. Counsel's
analogies, drawn from the obligations to the public on the part of innkeepers, common carriers, and the like, are beside the mark.

Judgment affirmed.

Present: LIACOS, C.J., WILKINS, ABRAMS, LYNCH, & O'CONNOR, JJ.

Andrew M. Fischer for the plaintiff.

Ralph R. Bagley for the defendant.

LIACOS, C.J.

Congregation Kadimah Toras-Moshe (Congregation), an Orthodox Jewish synagogue, commenced this action in the Superior Court to compel the administrator of an estate (estate) to fulfil the oral promise of the decedent to give the Congregation $25,000. The Superior Court transferred the case to the Boston Municipal Court, which rendered summary judgment for the estate. The case was then transferred back to the Superior Court, which also rendered summary judgment for the estate and dismissed the Congregation's complaint. We granted the Congregation's application for direct appellate review. We now affirm.

[366] The facts are not contested. The decedent suffered a prolonged illness, throughout which he was visited by the Congregation's spiritual leader, Rabbi Abraham Halbfinger. During four or five of these visits, and in the presence of witnesses, the decedent made an oral promise to give the Congregation $25,000. The Congregation planned to use the $25,000 to transform a storage room in the synagogue into a library named after the decedent. The oral promise was never reduced to writing. The decedent died intestate in September, 1985. He had no children, but was survived by his wife.

The Congregation asserts that the decedent's oral promise is an enforceable contract under our case law, because the promise is allegedly supported either by consideration and bargain, or by reliance. See Loranger Constr. Corp. v. E.F. Hauserman Co., 376 Mass. 757, 761, 763 (1978) (distinguishing consideration and bargain from reliance in the absence of consideration). We disagree.

The Superior Court judge determined that "[t]his was an oral gratuitous pledge, with no indication as to how the money should be used, or what [the Congregation] was required to do if anything in return for this promise." There was no legal benefit to the promisor nor detriment to the promisee, and thus no consideration. See Marine Contractors Co. v. Hurley, 365 Mass. 280, 286 (1974); Gishen v. Dura Corp., 362 Mass. 177, 186 (1972) (moral obligation is not legal obligation). Furthermore, there is no evidence in the record that the Congregation's plans to name a library after the decedent induced him to make or to renew his promise. Contrast Allegheny College v. National Chautauqua County Bank, 246 N.Y. 369, 377-379 (1927) (subscriber's promise became binding when charity implicitly promised to commemorate subscriber).

As to the lack of reliance, the judge stated that the Congregation's "allocation of $25,000 in its budget[,] for the purpose of renovating a storage room, is insufficient to find reliance or an enforceable obligation." We agree. The inclusion of the promised $25,000 in the budget, by itself, merely reduced to writing the Congregation's expectation that it would have additional funds. A hope or expectation, even though well founded, is [367] not equivalent to either legal detriment or reliance.^[2]Hall v. Horton House Microwave, Inc., 24 Mass. App. Ct. 84, 94 (1987).

The Congregation cites several of our cases in which charitable subscriptions were enforced. These cases are distinguishable because they involved written, as distinguished from oral, promises and also involved substantial consideration or reliance. See, e.g., Trustees of Amherst Academy v. Cowls, 6 Pick. 427, 434 (1828) (subscribers to written agreement could not withdraw "after the execution or during the progress of the work which they themselves set in motion"); Trustees of Farmington Academy v. Allen, 14 Mass. 172, 176 (1817) (trustees justifiably "proceed[ed] to incur expense, on the faith of the defendant's subscription").^[3] Conversely, in the case of Cottage St. Methodist Episcopal Church v. Kendall, 121 Mass. 528 [368] (1877), we refused to enforce a promise in favor of a charity where there was no showing of any consideration or reliance.

The Congregation asks us to abandon the requirement of consideration or reliance in the case of charitable subscriptions. The Congregation cites the Restatement (Second) of Contracts § 90 (1981), which provides, in subsection (2): "A charitable subscription ... is binding under Subsection (1) without proof that the promise induced action or forbearance." Subsection (1), as modified in pertinent part by subsection (2), provides: "A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person ... is binding if injustice can be avoided only by enforcement of the promise...."

Assuming without deciding that this court would apply § 90, we are of the opinion that in this case there is no injustice in declining to enforce the decedent's promise. Although § 90 dispenses with the absolute requirement of consideration or reliance, the official comments illustrate that these are relevant considerations. Restatement (Second) of Contracts, supra at § 90 comment f. The promise to the Congregation is entirely unsupported by consideration or reliance.^[4] Furthermore, it is an oral promise sought to be enforced against an estate. To enforce such a promise would be against public policy.^[5]

Judgment affirmed.

[1] Of the estate of Saul Schwam.

[2] "We do not use the expression `promissory estoppel,' since it tends to confusion rather than clarity." Loranger Constr. Corp. v. E.F. Hauserman Co., 376 Mass. 757, 761 (1978).

[3]The Congregation cites two cases for the proposition that Massachusetts requires so little consideration or reliance that, in practice, none is required. The Congregation misconstrues each case.

The Congregation interprets this court's opinion in Robinson v. Nutt, 185 Mass. 345 (1904), to state the principle that the promises of several subscribers to donate funds are interdependent, that each promise is "consideration" or "reliance" for the other, and that each subscription is therefore an enforceable contract. This interpretation is neither the reasoning of the case nor good law in Massachusetts. The court in Robinson decided that the financial duties imposed on the charity therein, and adhered to by the charity for five years, were consideration for the promised funds. Id. at 348-349. The principle to which the Congregation refers, on the other hand, had been repudiated by this court in Cottage St. Methodist Episcopal Church v. Kendall, 121 Mass. 528, 530 (1877).

The second case cited by the Congregation, In re Morton Shoe Co., 40 Bankr. 948 (D. Mass. 1984), is not controlling, and is in any event distinguishable. That case involved an organized campaign of solicitation and significant reliance by the charity therein. "After the pledge drive, [the charity] establishe[d] an operating budget, determine[d] the amount of and recipients of distributions, and hire[d] personnel. In addition, based on the estimated amount of subscriptions, [the charity] borrow[ed] money from banks so that it [could] make immediate distributions to recipients before obtaining the actual pledge amount." Id. at 949. Thus, even assuming this case to have some precedential value, it demonstrates the need for reliance or consideration, not the opposite.

[4] We need not decide whether we would enforce an oral promise where there was a showing of consideration or reliance.

[5] The defendant argues that, if the decedent was aware of impending death, yet made no gift during life, then the promise is in the nature of a promise to make a will, which is unenforceable, by virtue of the Statute of Frauds. See G.L.c. 259, §§ 5, 5A (1986 ed.). Under the view we take, we need not consider this argument.

124 N.Y. 538

Louisa W. Hamer, Appellant,
v.
Franklin Sidway, as Executor, etc., Respondent.

Court of Appeals of New York.
Argued February 24, 1981.
Decided April 14, 1891.

OPINION OF THE COURT

PARKER, J. The question which provoked the most discussion by counsel on this appeal, and which lies at the foundation of plaintiff's asserted right of recovery, is whether by virtue of a contract defendant's testator William E. Story became indebted to his nephew William E. Story, 2d, on his twenty-first birthday in the sum of five thousand dollars. The trial court found as a fact that “on the 20th day of March, 1869, . . . William E. Story agreed to and with William E. Story, 2d, that if he would refrain from drinking liquor, using tobacco, swearing, and playing cards or billiards for money until he should become 21 years of age then he, the said William E. Story, would at that time pay him, the said William E. Story, 2d, the sum of $5,000 for such refraining, to which the said William E. Story, 2d, agreed,” and that he “in all things fully performed his part of said agreement.”

The defendant contends that the contract was without consideration to support it, and, therefore, invalid. He asserts that the promisee by refraining from the use of liquor and tobacco was not harmed but benefited; that that which he did was best for him to do independently of his uncle's promise, and insists that it follows that unless the promisor was benefited, the contract was without consideration. A contention, which if well founded, would seem to leave open for controversy in many cases whether that which the promisee did or omitted to do was, in fact, of such benefit to him as to leave no consideration to support the enforcement of the promisor's agreement. Such a rule could not be tolerated, and is without foundation in the law. The Exchequer Chamber, in 1875, defined consideration as follows: “A valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.” Courts

“will not ask whether the thing which forms the consideration does in fact benefit the promisee or a third party, or is of any substantial value to anyone. It is enough that something is promised, done, forborne or suffered by the party to whom the promise is made as consideration for the promise made to him.”

(Anson's Prin. of Con. 63.)

“In general a waiver of any legal right at the request of another party is a sufficient consideration for a promise.” (Parsons on Contracts, 444.)

“Any damage, or suspension, or forbearance of a right will be sufficient to sustain a promise.” (Kent, vol. 2, 465, 12th ed.)

Pollock, in his work on contracts, page 166, after citing the definition given by the Exchequer Chamber already quoted, says:

“The second branch of this judicial description is really the most important one. Consideration means not so much that one party is profiting as that the other abandons some legal right in the present or limits his legal freedom of action in the future as an inducement for the promise of the first.”

Now, applying this rule to the facts before us, the promisee used tobacco, occasionally drank liquor, and he had a legal right to do so. That right he abandoned for a period of years upon the strength of the promise of the testator that for such forbearance he would give him $5,000. We need not speculate on the effort which may have been required to give up the use of those stimulants. It is sufficient that he restricted his lawful freedom of action within certain prescribed limits upon the faith of his uncle's agreement, and now having fully performed the conditions imposed, it is of no moment whether such performance actually proved a benefit to the promisor, and the court will not inquire into it, but were it a proper subject of inquiry, we see nothing in this record that would permit a determination that the uncle was not benefited in a legal sense. Few cases have been found which may be said to be precisely in point, but such as have been support the position we have taken.

In Shadwell v. Shadwell (9 C. B. [N. S.] 159), an uncle wrote to his nephew as follows:

"MY DEAR LANCEY — I am so glad to hear of your intended marriage with Ellen Nicholl, and as I promised to assist you at starting, I am happy to tell you that I will pay to you 150 pounds yearly during my life and until your annual income derived from your profession of a chancery barrister shall amount to 600 guineas, of which your own admission will be the only evidence that I shall require.

“Your affectionate uncle,
“CHARLES SHADWELL.”

It was held that the promise was binding and made upon good consideration.

In Lakota v. Newton, an unreported case in the Superior Court of Worcester, Mass., the complaint averred defendant's promise that “if you (meaning plaintiff) will leave off drinking for a year I will give you $100,” plaintiff's assent thereto, performance of the condition by him, and demanded judgment therefor. Defendant demurred on the ground, among others, that the plaintiff's declaration did not allege a valid and sufficient consideration for the agreement of the defendant. The demurrer was overruled.

In Talbott v. Stemmons (a Kentucky case not yet reported), the step- grandmother of the plaintiff made with him the following agreement: “I do promise and bind myself to give my grandson, Albert R. Talbott, $500 at my death, if he will never take another chew of tobacco or smoke another cigar during my life from this date up to my death, and if he breaks this pledge he is to refund double the amount to his mother.” The executor of Mrs. Stemmons demurred to the complaint on the ground that the agreement was not based on a sufficient consideration. The demurrer was sustained and an appeal taken therefrom to the Court of Appeals, where the decision of the court below was reversed. In the opinion of the court it is said that

“the right to use and enjoy the use of tobacco was a right that belonged to the plaintiff and not forbidden by law. The abandonment of its use may have saved him money or contributed to his health, nevertheless, the surrender of that right caused the promise, and having the right to contract with reference to the subject-matter, the abandonment of the use was a sufficient consideration to uphold the promise.”

Abstinence from the use of intoxicating liquors was held to furnish a good consideration for a promissory note in Lindell v. Rokes (60 Mo. 249).

The cases cited by the defendant on this question are not in point. In Mallory v. Gillett (21 N. Y. 412); Belknap v. Bender (75 id. 446), and Berry v. Brown (107 id. 659), the promise was in contravention of that provision of the Statute of Frauds, which declares void all promises to answer for the debts of third persons unless reduced to writing. In Beaumont v. Reeve (Shirley's L. C. 6), and Porterfield v. Butler (47 Miss. 165), the question was whether a moral obligation furnishes sufficient consideration to uphold a subsequent express promise. In Duvoll v. Wilson (9 Barb. 487), and In re Wilber v. Warren (104 N. Y. 192), the proposition involved was whether an executory covenant against incumbrances in a deed given in consideration of natural love and affection could be enforced. In Vanderbilt v. Schreyer (91 N. Y. 392), the plaintiff contracted with defendant to build a house, agreeing to accept in part payment therefor a specific bond and mortgage. Afterwards he refused to finish his contract unless the defendant would guarantee its payment, which was done. It was held that the guarantee could not be enforced for want of consideration. For in building the house the plaintiff only did that which he had contracted to do. And in Robinson v. Jewett (116 N. Y. 40), the court simply held that “The performance of an act which the party is under a legal obligation to perform cannot constitute a consideration for a new contract.” It will be observed that the agreement which we have been considering was within the condemnation of the Statute of Frauds, because not to be performed within a year, and not in writing. But this defense the promisor could waive, and his letter and oral statements subsequent to the date of final performance on the part of the promisee must be held to amount to a waiver. Were it otherwise, the statute could not now be invoked in aid of the defendant. It does not appear on the face of the complaint that the agreement is one prohibited by the Statute of Frauds, and, therefore, such defense could not be made available unless set up in the answer. (Porter v. Wormser, 94 N. Y. 431, 450.) This was not done.

In further consideration of the questions presented, then, it must be deemed established for the purposes of this appeal, that on the 31st day of January, 1875, defendant's testator was indebted to William E. Story, 2d, in the sum of $5,000, and if this action were founded on that contract it would be barred by the Statute of Limitations which has been pleaded, but on that date the nephew wrote to his uncle as follows:

“DEAR UNCLE—I am now 21 years old to-day, and I am now my own boss, and I believe, according to agreement, that there is due me $5,000. I have lived up to the contract to the letter in every sense of the word."

A few days later, and on February sixth, the uncle replied, and, so far as it is material to this controversy, the reply is as follows:

"DEAR NEPHEW—Your letter of the 31st ult. came to hand all right saying that you had lived up to the promise made to me several years ago. I have no doubt but you have, for which you shall have $5,000 as I promised you. I had the money in the bank the day you was 21 years old that I intended for you, and you shall have the money certain. Now, Willie, I don't intend to interfere with this money in any way until I think you are capable of taking care of it, and the sooner that time comes the better it will please me. I would hate very much to have you start out in some adventure that you thought all right and lose this money in one year. . . . This money you have earned much easier than I did, besides acquiring good habits at the same time, and you are quite welcome to the money. Hope you will make good use of it. . . .

W. E. STORY.
P. S.—You can consider this money on interest.”

The trial court found as a fact that “said letter was received by said William E. Story, 2d, who thereafter consented that said money should remain with the said William E. Story in accordance with the terms and conditions of said letter.”

And further,

“That afterwards, on the first day of March, 1877, with the knowledge and consent of his said uncle, he duly sold, transferred and assigned all his right, title and interest in and to said sum of $5,000 to his wife Libbie H. Story, who thereafter duly sold, transferred and assigned the same to the plaintiff in this action.”

We must now consider the effect of the letter, and the nephew's assent thereto. Were the relations of the parties thereafter that of debtor and creditor simply, or that of trustee and cestui que trust? If the former, then this action is not maintainable, because barred by lapse of time. If the latter, the result must be otherwise. No particular expressions are necessary to create a trust. Any language clearly showing the settler's intention is sufficient if the property and disposition of it are definitely stated. (Lewin on Trusts, 55.)

A person in the legal possession of money or property acknowledging a trust with the assent of the cestui que trust, becomes from that time a trustee if the acknowledgment be founded on a valuable consideration. His antecedent relation to the subject, whatever it may have been, no longer controls. (2 Story's Eq. §972.) If before a declaration of trust a party be a mere debtor, a subsequent agreement recognizing the fund as already in his hands and stipulating for its investment on the creditor's account will have the effect to create a trust. (Day v. Roth, 18 N. Y. 448.)

It is essential that the letter interpreted in the light of surrounding circumstances must show an intention on the part of the uncle to become a trustee before he will be held to have become such; but in an effort to ascertain the construction which should be given to it, we are also to observe the rule that the language of the promisor is to be interpreted in the sense in which he had reason to suppose it was understood by the promisee. (White v. Hoyt, 73 N. Y. 505, 511.) At the time the uncle wrote the letter he was indebted to his nephew in the sum of $5,000, and payment had been requested. The uncle recognizing the indebtedness, wrote the nephew that he would keep the money until he deemed him capable of taking care of it. He did not say “I will pay you at some other time,” or use language that would indicate that the relation of debtor and creditor would continue. On the contrary, his language indicated that he had set apart the money the nephew had 'earned' for him so that when he should be capable of taking care of it he should receive it with interest. He said: “I had the money in the bank the day you were 21 years old that I intended for you and you shall have the money certain.” That he had set apart the money is further evidenced by the next sentence: “Now, Willie, I don't intend to interfere with this money in any way until I think you are capable of taking care of it.” Certainly, the uncle must have intended that his nephew should understand that the promise not “to interfere with this money” referred to the money in the bank which he declared was not only there when the nephew became 21 years old, but was intended for him. True, he did not use the word “trust,” or state that the money was deposited in the name of William E. Story, 2d, or in his own name in trust for him, but the language used must have been intended to assure the nephew that his money had been set apart for him, to be kept without interference until he should be capable of taking care of it, for the uncle said in substance and in effect:

“This money you have earned much easier than I did . . . you are quite welcome to. I had it in the bank the day you were 21 years old and don't intend to interfere with it in any way until I think you are capable of taking care of it and the sooner that time comes the better it will please me.”

In this declaration there is not lacking a single element necessary for the creation of a valid trust, and to that declaration the nephew assented.

The learned judge who wrote the opinion of the General Term, seems to have taken the view that the trust was executed during the life-time of defendant's testator by payment to the nephew, but as it does not appear from the order that the judgment was reversed on the facts, we must assume the facts to be as found by the trial court, and those facts support its judgment.

The order appealed from should be reversed and the judgment of the Special Term affirmed, with costs payable out of the estate.

All concur.

Order reversed and judgment of Special Term affirmed.

EARLE

v.

ANGELL.

Worcester. October 3, 4, 1892. — Oct. 21, 1892.


Present: FIELD, C. J., HOLMES, KNOWLTON, MORTON, & LATHROP, JJ.

Parol Contract to pay Money after one’s Death.

A parol contract to pay a person a sum of money conditioned upon his attending the promisor’s funeral, and in consideration of his promise to do so, is valid ; and the fact that the acceptance varied from the terms of the offer is immaterial, if the jury might have found that the variation was assented to when the contract was made.

CONTRACT, against the executor of Mary Dewitt, to recover five hundred dollars upon an agreement made by the plaintiff with the defendant’s testatrix in her lifetime.

[295]

At the trial in the Superior Court, before Maynard, J., the plaintiff testified as follows:

“I saw Mrs. Dewitt in the fore part of August, 1883, in Oxford. I went there from Homesburg, a suburb of Philadelphia. That was on Sunday morning, August 11th. On Monday, August 12th, I and my aunt went out walking through the garden, soon after breakfast. We returned in after our ramble through the garden, and were seated in the sitting-room on the old hair sofa talking over things, and she holding me by the hand. She said, ‘Ben, there are few left to come to my funeral. I have thought a great deal of you for coming to your uncle’s funeral and bringing that large box of flowers in that terrible snowstorm we had, when our friends could not reach here from Boston, and you coming here from Philadelphia. I want you to attend my funeral, Ben, if you outlive me, and I think you will, and I will pay all expenses and I will give you five hundred dollars. I want you to come.’ I agreed to come if I lived, and they notified me of her death. After talking of the many gone and the few left, she says, ‘I want you to come to my funeral. If you will agree to come and attend my funeral if you outlive me,’ as near as I can give the precise language, ‘I will give you five hundred dollars and pay all expenses. It is a good ways to come, but I want you to come.’ I promised upon my honor to attend her funeral if I was a living man, and they informed me in time to get there, and I was able.

“I saw my aunt again in 1885. I was at the funeral of my mother, and after it was over I went and called upon my aunt. Aunt says, ‘Another one is gone of the family, and we shall go soon, but don’t forget your agreement or promise to attend my funeral.’ I says, ‘I shan’t do it, aunt, and I shall come if I am able and they let me know in time to get here.’ I am not quite positive, but I am very sure she says, ‘Ben, I am going to give you five hundred dollars in the will, one half that your uncle did.’ My aunt died in 1887. I attended her funeral. I attended it on account of my promise. The writing on that envelope is my aunt’s, and the paper in it is also in her handwriting. It came into my possession, I cannot tell exactly when, but soon after I returned from my aunt’s funeral. It came to me sealed, and I cut it open with my scissors.”

[296]

The paper was as follows :

“$500.00. Oxford, August 14th, 1883. If Benjamin A. Earle should come to my funeral, I order my executor to pay him the sum of five hundred dollars. Mary Dewitt.”

The defendant offered no evidence, and the plaintiff having rested his case, the judge directed a verdict for the defendant; and the plaintiff alleged exceptions.

G. M. Rice, (If. W. King with him,) for the plaintiff.
W. S. B. Hopkins, (F. B. Smith with him,) for the defendant.

HOLMES, J.

There is no difficulty in point of law in the way of a parol contract to pay a person $500, conditioned upon his attending the promisor's funeral, and in consideration of his promise to do so. It is well settled that a contract to pay money after one's own death is valid. Parker v. Coburn, 10 Allen, 82, 83; Phillips v. Blatchford, 137 Mass. 510, 514; Krell v. Codman, 154 Mass. 454. And the other elements of the case are examples of very well known principles. The ruling that the plaintiff could not recover must have gone on the ground that there was no evidence of such a contract as we have supposed. According to the report, the plaintiff testified that the defendant's testatrix said, “If you will agree to come, … I will give you five hundred dollars,” etc., and that he promised to come if alive, and notified in time. We cannot say that this did not warrant a finding of promise for promise. It is suggested that the acceptance varied from the terms of the offer; but the parties were face to face, and separated seemingly agreed. The jury well might have found, if that was the only question, that the variation, if any, was assented to on the spot.

Exceptions sustained.

[1308] Kelly, Remmel & Zimmerman, Richard W. Mulhern (orally), Portland, for plaintiff.

Law Offices of George Carlton, Jr., William C. Leonard (orally), Bath, for defendant.

Before NICHOLS, ROBERTS, WATHEN, GLASSMAN, SCOLNIK and CLIFFORD, JJ.

NICHOLS, Justice.

On appeal the Defendant, Shirley C. Greeley-Shaw, contends that the Superior Court (Cumberland County) committed error when it entered judgment against her upon a promissory note in favor of the Plaintiff, George D. Whitten, in a foreclosure action, and when the court refused to recognize a certain writing entered into by the parties as a valid contract, that writing being the basis of the Defendant's counterclaim.

We reject both of the Defendant's claims of error and deny the appeal.

The Defendant's first claim of error originates from the foreclosure action brought by the Plaintiff pursuant to 14 M.R.S.A. § 6321 et seq. (1980 & Supp.1986). As assignee of a promissory note secured by a mortgage deed of a home in Harpswell, he sought to foreclose due to the Defendant's failure to pay any portion of the $64,000.00 long since overdue him on the promissory note. The Defendant alleged that she was the owner of the home, that it was given to her by the Plaintiff as an incident of their four-year romantic relationship, and as assistance toward her efforts to start life anew with her fiancee. While the Defendant admits to having executed both the promissory note and the mortgage deed in favor of the Plaintiff's assignor, she argues that neither the Plaintiff, nor his attorney (who was the assignor), had informed her of what the documents were that she was signing, their legal significance, or that she would be responsible for annual payments on the note. She claims that it was not until a week later, when photocopying the documents, that she thoroughly examined them and realized their legal significance. Not until the foreclosure action was commenced, however, did she make known to the Plaintiff her misunderstanding.

The Plaintiff asserts that at all times the funds he advanced to the Defendant to purchase the home was in the form of a loan, and that both he and his attorney made this clear to the Defendant. He testified that he had encouraged her to purchase a home in Maine and that he originally had his attorney's name on the deed and [1309] note to save himself possible embarrassment.

While she alleges facts that might possibly give rise to claims of misrepresentation or breach of fiduciary duty, the Defendant does not expressly claim either ground for relief. Based upon evidence adduced at trial, that included the deposition of a second attorney who actually conducted the closing, there was ample evidence to support the finding of the Superior Court that the Defendant was aware of the nature of the documents and her legal responsibilities, and entered into the contract voluntarily. It is to no avail that the Defendant objects to the contents of a contract, that she admits she "barely looked at", despite having been given the opportunity, and indeed encouragement, to read. Great Northern Mfg. Co. v. Brown, 113 Me. 51, 92 A. 993 (1915); Maine Mutual Ins. Co. v. Hodgkins, 66 Me. 109 (1876).

Emerging as a counterclaim to the Plaintiff's foreclosure action is the Defendant's request that the court enforce the terms of a written "agreement" entered into by the parties. The parties had engaged in an intermittent extra-marital affair from 1972 until March, 1980. At the time of this writing the Plaintiff, a Massachusetts contractor, had travelled to his Bermuda home to vacation with friends, and expected to soon be joined there by his wife. The precise facts surrounding the creation of the agreement are in dispute. However, it is the testimony of the Defendant that she wanted to have "something in writing" because of all the past promises to her that she said the Plaintiff had broken. She testified that the Plaintiff told her, "You figure out what you want and I will sign it." She added that she unilaterally drew up the "agreement" while in Bermuda, and the Plaintiff signed it without objection. There was an original and a copy, and only he signed the original.^[1]

On his part the Plaintiff testified that he had agreed to visit with the Defendant, who had come to his Bermuda home uninvited, because "[S]he demanded I see her or she would come up and raise hell with my friends" and embarrass him in front of his wife.

Basically, the "agreement" is a one-page typewritten document, prepared by the Defendant, that begins "I, George D. Whitten... agree to the following conditions made by Mrs. Shirley C. Shaw ..." and then goes on to list four "conditions" required of the Plaintiff. The "conditions" require the Plaintiff to make payments to the Defendant of $500.00 per month for an indeterminate period, make any "major repairs" to the Harpswell home, pay for any medical needs, take one trip with the Defendant and supply her with one piece of jewelry per year, and visit and phone the Defendant at various stated intervals. The only "condition" that approaches the recital of a promise or duty of the Defendant is the statement "[U]nder no circumstances will there be any calls made to my homes or offices without prior permission from me."

The Plaintiff contends that, inter alia, this writing is unenforceable because of a lack of consideration. The Defendant argues that the writing is enforceable because there is the necessary objective manifestation of assent on each side, supported by the "stated" consideration of the Defendant not to call the Plaintiff without his prior permission, that, she asserts, constituted her "promise."

The Superior Court found that no legally enforceable contract had been created. We agree. Every contract requires "consideration" to support it, and any promise not supported by consideration is unenforceable. Zamore v. Whitten, 395 A.2d 435, 440 (Me.1978). The Defendant asks this Court to recognize the "agreement" as an enforceable bilateral contract, where the necessary consideration is the parties' promise of performance. 1 S.Williston, A Treatise on the Law of Contracts § 13 (3d ed. 1957). Generally, the Defendant's promise to forbear from engaging in an activity that she had the legal right to [1310] engage in, can provide her necessary consideration for the Plaintiff's return promises. Shaw v. Philbrick, 129 Me. 259, 262, 151 A. 423, 425 (1930); 1 Williston § 135. However, the Plaintiff's allegation of lack of consideration draws attention to the bargaining process; although the Defendant's promise to forbear could constitute consideration, it cannot if it was not sought after by the Plaintiff, and motivated by his request that the Defendant not disturb him. Id.; see also, Burgess v. Queen, 124 N.H. 155, 470 A.2d 861, 865 (1983). Of this there was no evidence whatsoever. This clause, the only one that operates in the Plaintiff's favor, was only included in the contract by the Defendant, because, she asserts, she felt the Plaintiff should get something in exchange for his promises. Clearly, this clause was not "bargained for" by the Plaintiff, and not given in exchange for his promises, and as such cannot constitute the consideration necessary to support a contract. Zamore, 395 A.2d at 444; see also, Restatement (Second) of Contracts §§ 75, 71(1)(2) (1982).

The entry is:

Judgment affirmed.

All concurring.

[1] Only the original was produced at the trial.

[484] Robert A. Dempster, Daniel S. Norton, Sikeston, for plaintiff-appellant.

Blanton & Blanton, Sikeston, for defendants-respondents.

RUARK, Judge.

This is a suit on a note, but the tentacles of the question reach into the mysteries of cotton acreage allotments. The plaintiff, now appellant, sued the defendants-respondents on a $1,500 note. The note was pleaded in conventional form. The answer was admission of execution but denial of consideration. At trial, which was without jury, the plaintiff offered his note and rested. The defendants, as was their burden, since the note imports a valid consideration,^[1] then went forward with the evidence, and on the uncontradicted evidence the following facts were established.

Defendant William Black, who appears to have inherited considerable land from his father, sold some 359 acres of this land to the plaintiff. The contract, after referring to the description, consideration, and items not here concerned, announced in a separate paragraph, "Party of the second part is to receive a 65 acre cotton allotment with the land he is purchasing from the party of the first part." Deed was executed on December 29, 1954.

Now the land so sold did not "carry" a 65-acre cotton allotment. When and as fixed by the county committee, the allotment was only 49.6 acres, and the parties undertook to make up the 15-plus-acre difference by using a part of the allotment allowed to Black's unsold land. The first crop year defendants "made up that difference" out of their own cotton alloment.^[2] The following year plaintiff came to defendants and requested that they "do that again" (make up the difference). Defendant Black first assented, but later decided that he didn't cotton to this idea, backed out, and did not do it. Sometime prior to September 13, 1956, the date of the note, plaintiff came to Black and told him that he (plaintiff) had been or would be penalized for planting more cotton than his allotment called for. He said he had been advised by a lawyer that defendant owed him damages "on the contract." Black asked if the matter couldn't be "settled," and the transaction was settled by the giving of the note in question.

It should be here noted that the evidence does not show, and it is not contended, that there was any fraud or misrepresentation, or any mistake of law or fact. Neither party contends the contract is ambiguous. Although on two occasions the defendants attempted to go back of the writing in order to show what was understood, on both occasions the plaintiff successfully objected on the ground that the written agreement speaks for itself.

The court rendered judgment for the defendants, and plaintiff has appealed. His contentions are premised upon the proposition that the giving of the note was a compromise of a disputed claim; that because plaintiff did not receive the complete consideration for which he bargained (the complete 65-acre cotton allotment), he was entitled to rescind; that in the new agreement (the acceptance of the note) he forbore this right of rescission, and this was sufficient consideration.

Among the respondents' contentions are (1) the contract for a 65-acre allotment was complied with by "making it up" for the one year; (2) there was no consideration because plaintiff's claim for damages had no basis; and (3) if there was a consideration it was illegal.

It is necessary that we first understand the nature of the thing the parties were attempting to bargain:

In the Agricultural Adjustment Act, Title 7 U.S.C.A. § 1282, there is a declaration of [485] policy, and in section 1341 there is a legislative finding and declaration that fluctuations in supplies of cotton disrupt orderly marketing, with consequent destruction of commerce; that without federal assistance farmers cannot prevent recurrence of excessive supplies and provide for orderly marketing; that it is in the interest of general welfare that the soil be not wasted by production of excessive supplies of cotton.

Accordingly it is provided that the Secretary of Agriculture shall fix and proclaim a national quota of cotton "for such marketing year," this to be submitted to a referendum, and if the required majority of the farmers vote to surrender a portion of their liberty in this respect, then the Secretary shall impose a national allotment for cotton "to be produced in the next calendar year." This allotment is thereafter apportioned among the states, and the state allotment is in turn apportioned among the counties, and the county allotment is in turn (by local committee) apportioned among the individual farms. The law provides for the reservation of a portion of the allotment in order to allow for adjustments, abnormal conditions, and new farms. It also provides that any allotment acreage which is voluntarily surrendered shall be reapportioned to other farms; and it further provides a penalty against the farmer for planting more than the allotment which has been established for his land. The Secretary is vested with power to make regulations necessary to carry out and enforce the Act, 7 U.S.C.A. § 1281 et seq.

The purpose and general scheme of the Act is to accomplish a national public benefit in controlling surplus and consequent abnormal prices by limiting production,^[3] which purpose and benefit will fail unless the plan is carried out at farm level.^[4] Under the Act and its administration, the individual farm acreage allotment is fixed by the county committee, whose finding of facts is final. The allotment runs with the land. It is not the separate "property" of the individual and is not subject to be sold, bartered or removed to other land.^[5]

A situation somewhat similar to the one at hand arose in Luke v. Review Committee, D.C.W.D.La., 155 F.Supp. 719. A part of a farm was sold and the parties attempted themselves to divide the then existing allotment. The court said, loc. cit. 723:

"The County Committee and the Review Committee are legally prohibited from following the contract of sale and lease, which the plaintiff insists should be followed, since the Act and regulations under which cotton acreage allotments and quotas are established affirmatively determine how the cotton acreage history shall be divided, and the cotton acreage allotments established for a `farm.' In addition to this affirmative action required on the part of the County Committee by the regulations, such Committee was specifically prohibited from carrying out the contractual arrangements of the parties, which were in conflict with Section 722.825 of the regulations. This section provides: `A farm marketing quota is established for a farm, and * * * may not be assigned or otherwise transferred in whole or in part to any other farm.' As is evident throughout the Act and the regulations issued thereunder, acreage allotments are not established for individuals, but are established for a farm on the basis of the history of planted acreage on such farm. The construction argued for by the plaintiff seeks to establish [486] marketing quotas and acreage allotments for an individual, which is directly contrary to the specific provisions of the Act and regulations."

Our conclusion is that the attempt to buy and sell acreage of an allotment and move it from one farm to the other is not only invalid and contrary to the regulations governing operation of the Act, but also contrary to and destructive of the basic purpose of the Act.

The law favors compromise of doubtful claims, and forbearance may be a sufficient consideration for such compromise, even though the claim upon which it is based should develop to be ill-founded. The fact that, had the parties proceeded to litigate the claim, one of them would certainly have won, does not destroy the consideration for the compromise, for the consideration is said to be the settlement of the dispute.^[6]

But there are certain essentials to the validity of such consideration. For one thing, and by all authority, the claim upon which the settlement is based must be one made in good faith. Of that there is no dispute in this case. Secondly, the claim must have some foundation. As to this second consideration we find the courts using varying language. The claim cannot be "utterly baseless."^[7] It has been said that it must have a "tenable ground"^[8] or a "reasonable, tenable ground."^[9] It must be based on a "colorable right,"^[10] or on some "legal foundation."^[11] It must have at least an appearance of right sufficient to raise a "possible doubt" in favor of the party asserting it.^[12] This is the Missouri rule.^[13]

It is difficult to reconcile the antinomous rules and statements which are applied to the "doubtful claims" and to find the words which will exactly draw the line between the compromise (on the one hand) of an honestly disputed claim which has some fair element of doubt and is therefore to be regarded as consideration and (on the other hand) a claim, though honestly made, which is so lacking in substance and virility as to be entirely baseless. The Missouri courts have struggled and not yet found apt language. We think we had best leave definitions alone, confident that, as applied to each individual case, the facts will make the thing apparent. But if we should make further effort to distinguish we would say that if the claimant, in good faith, makes a mountain out of a mole hill the claim [487] is "doubtful." But if there is no discernible mole hill in the beginning, then the claim has no substance.

The very nature of a cotton acreage allotment is such that it has no existence except for the one specific year. It expires with the crop year. It is not continuous. The fact there may (or may not) be another allotment fixed for the next year carries no certainty that a successive allotment will be in the same amount or acreage. The cotton allotment acreage is not like an oak tree which continues in existence through the years and sends forth new leaves on the same branches with each successive spring. Rather it is like the bindweed which springs from seed, a new life with the coming of a new life-giving season—from seed which may or may not sprout, dependent upon conditions of sun, moisture, and a charitable soil, and which produces a plant only to die by the icy sword of frost when the season ends. So in this case the only possible allotment of a definite acreage applicable to the situation was that in existence for the contemplated crop year. None other existed. And there was no way under heaven the parties could be assured that any future allotment, if there was to be such, would be of the same acreage, any more than the proposed purchaser of public welfare relief checks could be assured by the recipient of such benefits that his welfare check would be in the same amount through the next year and from there on.

It would therefore appear that the only thing the parties were contracting for, or could have contracted for, was the amount of acres (65) allotted for the ensuing crop year. The uncontradicted evidence is that Black "made up" that acreage out of the acreage on his own (retained) land. Hence plaintiff got all he could possibly have bargained for, and his claim of the purchase of some nonexistent, ethereal future allotment stretching perhaps into eternity was baseless and did not rise to the dignity of consideration. It falls into the same category as a claim of purchase of the green cheese monopoly on the moon. Whether the parties actually knew they could not sell a future unfixed cotton allotment acreage off one farm and onto the other is not shown. No one testified that either of them knew, or did not know. But, be that as it may, the age-old legal fiction is that they did know the law, and this rule has been applied to the workings of the Agricultural Adjustment Act in relation to cotton allotments.^[14]

But there is another and perhaps more potent reason why plaintiff cannot recover. The settlement of a claim based on a contract which is against public morals or public policy, or which is inherently illegal, or which is in direct violation of the statutes, cannot form the basis of consideration for a valid compromise settlement,^[15] for the reason that "`the wrong done is against the state, and the state only can forgive it. To permit the subsequent ratification of such contract, or to consider it the sufficient and legal basis of a subsequent promise, would be a manifest inconsistency. It would be to annul the rule and enable the parties, by an easy expedient, to evade laws based upon considerations of public policy.'"^[16] The attempt here to transfer the allotment was the attempt to do that which was clearly contrary to and destructive of the Act and its workings. And, being illegal as such, [488] it did not constitute a consideration which the law can recognize. The court must leave the parties where it found them.^[17]

The record shows no request for findings of fact or law, and none were given. It is our duty to review the case upon both the law and the evidence as in suits of an equitable nature. The judgment shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge of the credibility of the witnesses.^[18] The decision of the trial court is obviously based upon the fact there was no valid consideration for the note. It being so, we must affirm the judgment. It is so ordered.

STONE, P. J., and McDOWELL, J., concur.

[1] Simmon v. Marion, Mo.App., 227 S.W.2d 127, 134; McGinnis v. Rolf, 239 Mo.App. 54, 189 S.W.2d 456.

[2] How this was done we do not know.

[3] Wickard v. Filburn, 317 U.S. 111, 63 S.Ct. 82, 87 L.Ed. 122; Rodgers v. United States, 332 U.S. 371, 68 S.Ct. 5, 92 L.Ed. 3; Usher v. United States, 4 Cir., 146 F.2d 369; United States v. Bonderer, D.C.W.D.Mo., 139 F.Supp. 391, 395.

[4] Edwards v. Owens, D.C.E.D.Mo., 137 F.Supp. 63, 65.

[5] Lee v. Berry, 219 S.C. 346, 65 S.E.2d 257, 259; Luke v. Review Committee, D.C.W.D.La., 155 F.Supp. 719.

[6] Corbin on Contracts, vol. 1, sec. 139, p. 431, sec. 140, p. 433; 11 Am.Jur., Compromise and Settlement, sec. 7, p. 253; 15 C.J.S. Compromise and Settlement § 11, p. 728, et seq.; State ex rel. St. Louis Shipbuilding & Steel Co. v. Smith, 356 Mo. 25, 201 S.W.2d 153; Weisert v. Bramman, 358 Mo. 636, 216 S.W.2d 430; Landers v. Fox, Mo.App., 209 S.W. 287.

[7] Osborne v. Fridrich, 134 Mo.App. 449, 114 S.W. 1045, 1047.

[8] Heck v. Watkins, Mo.App., 183 S.W. 351.

[9] Deiss v. Kasselmann, Mo.App., 189 S.W. 824, 825.

[10] Deiss v. Kasselmann, Mo.App., 189 S.W. 824; Holladay-Klotz Land & Lumber Co. v. Beekman Lumber Co., 136 Mo.App. 176, 116 S.W. 436.

[11] Tegethoff v. Sidmon, Mo.App., 158 S.W.2d 224.

[12] Long v. Towl, 42 Mo. 545, 550, 97 Am.Dec. 355.

[13] Although the law writers seem to make good faith alone the preponderant consideration. 11 Am.Jur., Compromise and Settlement, secs. 6 and 7, pp. 252, 253, says that the words "colorable," "plausible," et cetera, are mere catchwords underneath which lies the idea that the courts will not countenance extortion. 15 C.J.S. Compromise and Settlement § 11b, p. 732, states that the reality of the claim must be measured, not by the state of the law as it is ultimately discovered to be, but by the state of the knowledge of the person who at the time has to judge and make the concession. Professor Corbin (Corbin on Contracts, vol. 1, sec. 140, p. 436) states that the absence of reasonable ground for belief in validity is evidence of bad faith, but not conclusive.

[14] Edwards v. Owens, D.C.E.D.Mo., 137 F.Supp. 63, 68-69.

[15] Parke, Davis & Co. v. Mullett, 245 Mo. 168, 149 S.W. 461; Bick v. Seal, 45 Mo.App. 475; Gwinn v. Simes, 61 Mo. 335; Isaacson v. Van Gundy, Mo.App., 48 S.W.2d 208; Elmore-Schultz Grain Co. v. Stonebraker, 202 Mo.App. 81, 214 S.W. 216; Adams v. Cribbis, D.C.D.Colo., 17 F.Supp. 723; see 15 C.J.S. Compromise and Settlement § 36c, pp. 758-759.

[16] State ex rel. Isaacson v. Trimble, 335 Mo. 213, 72 S.W.2d 111, 114; Gilbert v. Edwards, Mo.App., 276 S.W.2d 611, 619-620.

[17] Gilbert v. Edwards, Mo.App., 276 S.W.2d 611, 619.

[18] Section 510.310, RSMo 1949, V.A.M.S.; Pitts v. Garner, Mo., 321 S.W.2d 509; In re Kies' Estate, Mo., 320 S.W.2d 478.

3 Pick. 207
DANIEL MILLS
v.
SETH WYMAN.
OCTOBER TERM 1825

The general position, than a moral obligation is a sufficient consideration for an express promise, is to be limited in its application, to cease where a good or valuable consideration has once existed.

 Thus, where a son, who was of full age and had ceased on be a member of his father's family, was suddenly taken sick among strangers and, being poor and in distress, was relieved by the plaintiff, and afterwards the father wrote to the plaintiff promising to pay him the expenses incurred, it was held, that such promise would not sustain an action.

This was an action of assumpsit brought to recover a compensation for the board, nursing, &c., of Levi Wyman, son of the defendant, from the 5th to the 20th of February 1821. The plaintiff then lived at Hartford, in Connecticut; the defendant, at Shrewsbury, in this county. Levi Wyman, at the time when the services were rendered, was about 25 years of age, and had long ceased to be a member of his father's family. He was on his return from a voyage at sea, and being suddenly taken sick at Hartford, and being poor and in distress, was relieved by the plaintiff in the manner and to the extent above stated. On the 24th of February, after all the expenses had been incurred, the defendant wrote a letter to the plaintiff, promising to pay him such expenses. There was no consideration for this promise, except what grew out of the relation which subsisted between Levi Wyman and the defendant, and Howe, J., before whom the cause was tried in the Court of Common Pleas, thinking this not sufficient to support [208] the action, directed a nonsuit: To this direction the plaintiff filed exceptions.

J. Davis and Allen In support of the exceptions. The moral obligation of a parent to support his child is a sufficient consideration for an express promise. Andover &c. Turnpike Corp. V. Gould, 6 Mass. R. 40 ; Andover v. Salem, 3 Mass. R. 438; Davenport v. Mason, 15 Mass. R. 94 ; 1 Bl. Comm. 446 ; Reeve’s Dom. Rel 283. The arbitrary rule of law, fixing the age of twenty-one years for the period of emancipation, does not interfere with this moral obligation, ID case a child of full age shall be unable to support himself. Our statute of 1793, c. 59, requiring the kindred of a poor person to support him,  proceeds upon the ground of a moral obligation.

But if there was no moral obligation on the part of the defendant, it is sufficient that his promise was in writing, and was made deliberately, with A knowledge of all the circumstances A man has a right to give away his property. [Parker C. J. There is a distinction between giving and promising.] The case of Bowers. v. Hurd, 10 Mass. R. 427, does not take this distinction. [Parker C. J. That case has been doubted.] Neither does the case of Packard v. Richardson, 17 Mass. R. 122 ; and in this last case (p. 130) the want of consideration is treated as a technical objection.

Brigham, for the defendant, furnished in vacation a written argument, in which he cited Fowler v. Shearer, 7 Mass. R . 22; Rann v. Hughes, 7 T. R. 350, note; Jones v. Ashburnham, 4 East, 463; Pearson v. Pearson, 7 Johns. R . 26 ; Schoonmaker v. Roosa, 17 Johns. R. 301 ; the note to Wennall v . Adney, S Bos. & Pul. 249 ; Fink v. Coz, 18 Johns. R. 145; Barnes v. Hedley, 2 Taunt. 184; Lee v. Muggeridge, 5 Taunt. 36. He said the case of Bower. v. Hurd was upon a promissory note, where the receipt of value is acknowledged; which is a privileged contract. Livingston  v. Hastie, 2 Caines's R. 246 ; Bishop v. Young, 2 Bos. & Pul. 79, 80; Pillans v. Mierop, 3 Burr. 1670; I Wins's Saond 211, note 2.

The opinion of the Court was read, as drawn up by Parker  C. J.

General rules of law established for the protection and security of honest and fair-minded men, who [209] may inconsiderately make promises without any equivalent, will sometimes screen men of a different character from engagements which they are bound in foro conscientiae to perform. This is a defect inherent in all human systems of legislation. T he rule that a mere verbal promise, without any consideration, cannot be enforced by action, is universal in its application, and cannot be departed from to suit particular cases in which a refusal to perform such a promise may be disgraceful.

The promise declared on in this case appears to have been made without any legal consideration. The kindness and services towards the sick son of the defendant were not bestowed at his request. The son was in no respect under the care of the defendant. He was twenty-five years old, and had long left his father's family. On his return from a foreign country, he fell sick among strangers, and the plaintiff acted the part of the good Samaritan, giving him shelter and comfort until he died. The defendant, his father, on being informed of this event, influenced by a transient feeling of gratitude, promises in writing to pay the plaintiff for the expenses he had incurred. But he has determined to break this promise, and is willing to have his case appear on record as a strong example of particular injustice sometimes necessarily resulting from the operation of general rules.

It is said a moral obligation is a sufficient consideration to support an express promise; and some authorities lay down the rule thus broadly; but upon examination of the cases we are satisfied that the universality of the rule cannot be supported, and that there must have been some preexisting obligation, which has become inoperative by positive law, to form a basis for an effective promise. The cases of debts barred by the statute of limitations, of debts incurred by infants, of debts of bankrupts, are generally put for illustration of the rule. Express promises founded on such preexisting equitable obligations may be enforced; there is a good consideration for them; they merely remove an impediment created by law to the recovery of debts honestly due, but which public policy protects the debtors from being compelled to pay. In all these cases there was originally a quid pro quo; and according to the [210] principles of natural justice the party receiving ought to pay; but the legislature has said he shall not be coerced; then comes the promise to pay the debt that is barred, the promise of the man to pay the debt of the infant, of the discharged bankrupt to restore to his creditor what by the law he had lost. In all these cases there is a moral obligation founded upon an antecedent valuable consideration. These promises therefore have a sound legal basis. They are not promises to pay something for nothing; not naked pacts; but the voluntary revival or creation of obligation which before existed in natural law, but which had been dispensed with, not for the benefit of the party obliged solely, but principally for the public convenience. If moral obligation, in its fullest sense, is a good substratum for an express promise, it is not easy to perceive why it is not equally good to support an implied promise. What a man ought to do, generally he ought to be made to do, whether he promise or refuse. But the law of society has left most of such obligations to the interior forum, as the tribunal of conscience has been aptly called. Is there not a moral obligation upon every son who has become affluent by means of the education and advantages bestowed upon him by his father, to relieve that father from pecuniary embarrassment, to promote his comfort and happiness, and even to share with him his riches, if thereby he will be made happy? And yet such a son may, with impunity, leave such a father in any degree of penury above that which will expose the community in which he dwells to the danger of being obliged to preserve him from absolute want. Is not a wealthy father under strong moral obligation to advance the interest of an obedient, well disposed son, to furnish him with the means of acquiring and maintaining a becoming rank in life, to rescue him from the horrors of debt incurred by misfortune? Yet the law will uphold him in any degree of parsimony, short of that which would reduce his son to the necessity of seeking public charity.

Without doubt there are great interests of society which justify withholding the coercive arm of the law from these duties of imperfect obligation as they are called; imperfect, not because they are less binding [211] upon the conscience than those which are called perfect, but because the wisdom of the social law does not impose sanctions upon them.

A deliberate promise, in writing, made freely and without any mistake, one which may lead the party to whom it is made into contracts and expenses, cannot be broken without a violation of moral duty. But if there was nothing paid or promised for it, the law, perhaps wisely, leaves the execution of it to the conscience of him who makes it. It is only when the party making the promise gains something, or he to whom it is made loses something, that the law gives the promise validity. And in the case of the promise of the adult to pay the debt of the infant, of the debtor discharged by the statute of limitations or bankruptcy, the principle is preserved by looking back to the origin of the transaction, where an equivalent is to be found. An exact equivalent is not required by the law; for there being a consideration, the parties are left to estimate its value: though here the courts of equity will step in to relieve from gross inadequacy between the consideration and the promise.

These principles are deduced from the general current of decided cases upon the subject, as well as from the known maxims of the common law. The general position, that moral obligation is a sufficient consideration for an express promise, is to be limited in its application, to cases where at some time or other a good or valuable consideration has existed. ^[1]

A legal obligation is always a sufficient consideration to support either an express or an implied promise; such as an infant's debt for necessaries, or a father's promise to pay for the support and education of his minor children. But when the child shall have attained to manhood, and shall have become his own agent in the world's business, the debts he incurs, whatever may be their nature, create no obligation upon the father; and it seems to follow, that his promise founded upon such a debt has no legally binding force.

The cases of instruments under seal and certain mercantile contracts, in which considerations need not be proved, do not contradict the principles above suggested. The first import a consideration in themselves, and the second belong to a [212] branch of the mercantile law, which has found it necessary to disregard the point of consideration in respect to instruments negotiable in their nature and essential to the interests of commerce.

Instead of citing a multiplicity of cases to support the positions I have taken, I will only refer to a very able review of all the cases in the note in 3 Bos. & Pul. 249. The opinions of the judges had been variant for a long course of years upon this subject, but there seems to be no case in which it was nakedly decided, that a promise to pay the debt of a son of full age, not living with his father, though the debt were incurred by sickness which ended in the death of the son, without a previous request by the father proved or presumed, could be enforced by action.

It has been attempted to show a legal obligation on the part of the defendant by virtue of our statute, which compels lineal kindred in the ascending or descending line to support such of their poor relations as are likely to become chargeable to the town where they have their settlement. But it is a sufficient answer to this position, that such legal obligation does not exist except in the very cases provided for in the statute, and never until the party charged has been adjudged to be of sufficient ability thereto. We do not know from the report any of the facts which are necessary to create such an obligation. Whether the deceased had a legal settlement in this commonwealth at the time of his death, whether he was likely to become chargeable had he lived, whether the defendant was of sufficient ability, are essential facts to be adjudicated by the court to which is given jurisdiction on this subject. The legal liability does not arise until these facts have all been ascertained by judgment, after hearing the party intended to be charged. ^[2]

For the foregoing reasons we are all of opinion that the non-suit directed by the Court of Common Pleas was right, and that judgment be entered thereon for costs for the defendant.

[1]  Coole v. Bradley, 7 Connect. R. 57; Littlefield v. Shee, 2 Barnw. &. Adol. 811; Yelv. (Metcalf's ed.) 4 a, note 1; Parker v. Carter, 4 Munf. 273; M' Plerson v. Rees, 2 Penrose &. Watts, 521 ; Pennington v. Gillings, 2 Gill &. Johns. 208;  Smith v. Ware, 13 Johns. R.259. Edwards v. Davis, 16 Johns. R. 281, 283, note; Greeves v. McAllister, 2 Binn. 591; Clandler v. Hill, 2 Hen. & Munf. 124; Fonbl. On Eq. by Laussat, 273, Note; 2 Kent’s C, Comm. (2nd ed.) 465.
Contra, Glass v. Beach, 5 Vermont R. 172; Barlow v. Smith, 4 Vermont R. 144 ; Commissioners of the Canal Fund v. Perry, 5 Ohio R. 58.
See also Seago v. Deane, 4 Bingh. 459 ; welles v. Horton, 2 Carr. &. Payne, 383; Davis v. Morgan, 6 Dowl. &. Ryl. 42.

[2] See Cook Y. Bradley, 7 Connect. R. 57; Weatherfield v. Montagueo, 3 connect . R 507 ; Dover v. McMurphy, 4 N. Hamp. R. 158

27 Ala.App. 82, 168 So. 196 (1935)
Joe WEBB
v.
Floyd and Joseph F. McGOWIN
Court of Appeals of Alabama
Nov. 12, 1935
Denied 232 Ala. 374, 168 So. 199 (1936)

Appeal from Circuit Court, Butler County; A. E. Gamble, Judge.

Action by Joe Webb against N. Floyd McGowin and Joseph F. McGowin, as executors of the estate of J. Greeley McGowin, in, deceased. From a judgment of nonsuit, plaintiff appeals.

Reversed and remanded.

Certiorari denied by Supreme Court in . Webb v. McGowin, 232 Ala. 374, 168 So. 199.

Powell & Hamilton, of Greenville, for appellant.

A moral obligation is a sufficient consideration and will support a subsequent promise to pay, where the promisor has received an actual pecuniary or material benefit, although there was no original duty or liability. Lycoming County v. Union County, 15 Pa. 166, 53 Am. Dec. 579; Ferguson v. Harris, 39 S.c. 323, 17 S.E. 782, 39 'Am. St.Rep. 731; Muir v. Kane, 55 Wash. 131, .104 P. 153, 26 L.R.A.(N.S.) 519, 526, 19 Ann.Cas. 1180; 17 A.L.R. 1324, 1368, 1370, .1374; Park Falls State Bank v. Fordyce, 206 Wis. 628, 238 N.W. 516, 79 A.L.R. 1339; Hawkes v. Saunder.s, 1 Cowp. 290; State v. Funk, 105 Or. 134, 19Q P. 592, 209 P. 113, 25 A.L.R. 634; Edson v; Poppe, 24 S.D. 466, 124 N.W. 441, 26 L.R.A.(N.S.). 534; Sutch's Estate, 201 Pa. 305, 50 A. 943; Olsen v. Hagan, 102 Wash. 321, 172 P.1173. A promise to pay for part services implies that they were rendered upon a previous request. Such services are a good consideration for the promise, and the implication that a previous request had been made for the services rendered is one of law. 17 A.L.R. 1370-1374; Pittsburg, etc., Co. v. Cerebus Oil Co., 79 Kan. 603, 100 P. 631; Holland v. Martinson, 119 Kan. 43, 237 P. 902; Fellows Box Co. v. Mills, 86 N. H. 267, 167 A. 153; McMorris v. Herndon, 2 Bailey (S.C.) 56, 21 Am.Dec. 517; Bailey v. Philadelphia, 167 Pa. 569, 31 A. 925, 46 Am.St Rep. 691; Chick v. Trevett, 20 Me. 462, 37 Am.Dec. 69; Chadwick v. Knox, 31 N.H. 226, 64 Am.Dec. 329: Ross v. Pearson, 21 Ala. 473, 477; Baker v. Gregory, 28 Ala. 544, 65 Am. Dec. 366; Clanton v. Eaton, 92 Ala. 612, 8 So. 823; Harris v. Davis, 1 Ala. 259. The agreement sued on is not within the statute of frauds. 25 R.C.L. 456, 457, 470.

Calvin Poole, of Greenville, for appellee. A past consideration is not sufficient to support a subsequent promise. . It is not enough to show that a service has been rendered and that it was beneficial to the party sought to be charged, unless such service was rendered at the promisor's special request. A promise given in consideration of past services voluntarily rendered without the promisor's privity or request is purely gratuitous and creates no legal liability. 1 Elliott on Contr. § 213; Clark on Contr. 197, § 91; Shaw v. Boyd, 1 Stew. & P. 83 j Thomason v. Dill, 30 Ala . 444; Holland v. Barnes, 53 Ala. 83, 25 Am.  Rep. 595; 13 C.J. 359; 6 R.C.L. 672; 17 A.L.R. 1373; 79 A.L.R. 1354. A promise to pay for services rendered is never implied unless the services were rendered under such circumstances as to raise a presumption that they were to be paid for' or, at least, that the circumstances were such that a reasonable man in the same situation would and ought to understand that compensation was to be paid for such services. 2 Elliott on Contr. § 1365 j 6 R.C.L. 587; Brush E. L. & P. Co. v. City Council of Montgomery, 114 Ala. 433, 21 So. 960; 13 C.J. 240. A mere moral obligation will not support an express promise. A valid consideration must have at one time existed creating a legal duty or obligation which is barred at the time of the promise by some positive rule of law. Clark on Contr. 180,. § 84 j 1 Elliott on Contr. § 211; Vance v. Wells, 6 Ala. 737; Agee v. Steele, 8 Ala. 948; Kenan v. Holloway, 16 Ala. 53, 50 Am..Dec. 162; Turlington v. Slaughter, 54 Ala. 195; Grimball v. Mastin, 77 Ala. 553; Thompson v. Hudgins, 116 Ala. 93, 107, 22 So. 632; 53 L.RA. 361; 17 A.L.R 1304; 79 A.L.R 1347. A promise to pay based on an illegal consideration is not enforceable. The alleged contract sued on is void as' being in contravention of public policy. 50 C.J. 857; 6 R.C.L. 727; Vance v. Wells, supra; Georgia Fruit Exch. v. Turnipseed, 9 Ala.App. 123, 62 So. 542; Union Nat. Bank v; Hartwell, 84 Ala. 379, 4 So. 156; Western Union Tel. Co. Y. Priester, 21 Ala.App. 587, 111 So. 199.

BRICKEN, Presiding Judge.

This action is in assumpsit. The complaint as originally filed was amended. The demurrers to the complaint as amended were sustained, and because of this adverse ruling by the court the plaintiff took a nonsuit, and the assignment of errors on this appeal are predicated upon said action or ruling of the court.

A fair statement of the case presenting the questions for decision is set out in appellant's brief, which we adopt.

"On the 3d day of August, 1925, appellant while in the employ of the W.T. Smith Lumber Company, a corporation, and acting within the scope of his employment, was engaged in clearing the upper floor of Mill No.2 of the company. While so engaged he was in the act of dropping a pine block from the upper floor of the mill to the ground below; this being the usual and ordinary way of clearing the floor, and it being the duty of the plaintiff in the course of his employment to so drop it. The block weighed about 75 pounds.

"As appellant was in the act of dropping the block to the ground below, he was on the edge of the upper floor of the mill. As he started to turn the block loose so that it would drop to the ground, he saw J. Greeley McGowin, testator of the defendants, on the ground below and directly under where the block would have fallen had appellant turned it loose. Had he turned it loose it would have struck McGowin with such force as to have caused him serious bodily harm or death. Appellant could have remained safely on the upper floor of the mill by turning the block loose and allowing it to drop, but had he done this the block would have fallen on McGowin and caused him serious Injuries or death. The only safe and reasonable way to prevent this was for appellant to hold to the block and divert its direction in falling from the place where McGowin was standing and the only safe way to divert it so as to prevent its coming into contact with McGowin was for appellant to fall with it to the ground below. Appellant did this, and by holding to the block and falling with it to the ground below, he diverted the course of its fall in such way that McGowin was not injured. In thus preventing the injuries to McGowin appellant himself received serious bodily injuries, resulting in his right leg being broken, the heel of his right foot torn off and his right arm broken. He was badly crippled for life and rendered unable to do physical or mental labor.

"On September 1, 1925, in consideration of appellant having prevented him from sustaining death or serious bodily harm and in consideration of the injuries appellant had received, McGowin agreed with him to care for and maintain him for the remainder of appellant's life at the rate of $15 every two weeks from the time he sustained his injuries to and during the remainder of appellant's life; it being agreed that McGowin would pay this sum to appellant for his maintenance. Under the agreement McGowin paid or caused to be paid to appellant the sum so agreed on up until McGowin's death on January 1, 1934. After his death the payments were continued to and including January 27, 1934, at which time they were discontinued. Thereupon plaintiff brought suit to recover the unpaid installments accruing up to the time of the bringing of the suit.

"The material averments of the different counts of the original complaint and the amended complaint are predicated upon the foregoing statement of facts."

In other words, the complaint as amended averred in substance: (1) That on August 3, 1925, appellant saved J. Greeley McGowin, appellee's testator, from death or grievous bodily harm; (2) that in doing so appellant sustained bodily injury crippling him for 'life; (3) that in consideration of the services rendered and the injuries received by appellant, McGowin agreed to care for him the remainder of appellant's life, the amount to be paid being $15 every two weeks; (4) that McGowin complied with this agreement until he died on January 1, .1934, and the payments were kept up to January 27, 1934, after which they were discontinued.

The action was for the unpaid installments accruing after January 27, 1934, to the time of the suit.

The principal grounds of' demurrer to the original and amended complaint are: (1) It states no cause of action; (2) its averments show the contract was without consideration; (3) it fails to allege that McGowin had, at or before the services were rendered, agreed to pay appellant for them; (4) the contract declared on is void under the statute of frauds.

1. The averments of the complaint show that appellant saved McGowin from death or grievous bodily harm. This was a material benefit to him of infinitely more value than any financial aid he could have received. Receiving this benefit, McGowin became morally bound to compensate appellant for the services rendered. Recognizing his moral obligation, he expressly agreed to pay appellant as alleged in the complaint and complied with this agreement up to the time of his death; a period of more than 8 years.

Had McGowin been accidentally poisoned and a physician, without his knowledge or request, had administered an antidote, thus saving his life, a subsequent promise by McGowin to pay the physician would have been valid. Likewise, McGowin's agreement as disclosed by the complaint to compensate appellant for saving him from death or grievous bodily injury is valid and enforceable.

Where the promisee cares for, improves, and preserves the property of the promisor, though done without his request, it is sufficient consideration for the promisor's subsequent agreement to pay for the service, because of the material benefit received. Pittsburg Vitrified Paving & Building Brick Co. v. Cerebus Oil Co., 79 Kan. 603, 100 P. 631; Edson v. Poppe, 24 S.D. 466, 124 N.W. 441, 26 I.R.A.(N.S.) .534; Drake v. Bell, 26 Misc. 237, 55 N.Y.S. 945.

In Boothe v. Fitzpatrick, 36 Vt. 681, the court held that a promise by defendant to pay for the past keeping of a bull which had escaped from defendant's premises and been cared for by plaintiff was valid, although there was no previous request, because the subsequent promise obviated that objection; it being equivalent to a previous request. On the same principle, had the promisee saved the promisor's life or his body from grievous harm, his subsequent promise to pay for the services rendered would have been valid. Such service would have been far more material than caring for his bull. Any holding that saving a man from death or grievous bodily harm is not a material benefit sufficient to uphold a subsequent promise to pay for the service, necessarily rests on the assumption that saving life and preservation of the body from harm have only a sentimental value. The converse of this is true. Life and preservation of the body have material, pecuniary values, measurable in dollars and cents. Because of this, physicians practice their profession charging for services rendered in saving life and curing the body of its ills, and surgeons perform operations. The same is true as to the law of negligence, authorizing the assessment of damages in personal injury cases based upon the extent of the injuries, earnings, and life expectancies of those injured.

In the business of life insurance, the value of a man's life is measured in dollars and cents according to his expectancy, the soundness of his body, and his ability to pay premiums. The same is true as to health and accident insurance.

It follows that if, as alleged in the complaint, appellant saved J. Greeley McGowin from death or grievous bodily harm, and McGowin subsequently agreed to pay him for the service rendered, it became a valid and enforceable contract.

2. It is well settled that a moral obligation is a sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit, although there was no original duty or liability resting on the promisor.  Lycoming County v. Union County, 15 Pa. 166, 53  Am.Dec. 575, 579, 580 j Ferguson v. Harris, 39 S.C. 323, 17 S.E. 782, 39 Am.St.Rep. 731, 734; Muir v. Kane, 55 Wash. 131, 104 P. 153, 26 L.R.A.(N.S,) 519, 19 Ann.Cas. 1180; State ex reI. Bayer v.Funk, 105 Or. 134, 199 P. 592, 209 P. 113, 25 A.L.R. 625, 634; Hawkes v. Saunders, 1 Cowp. 290; In re Sutch's Estate, 201 Pa. 305, 50 A 943 Edson v. Poppe, 24 S.D. 466, 124 N.W. 441, 26 L.R.A(N. S.) .534; Park Falls State Bank v. Fordyce, 206 Wis. 628, 238 N.W. 516, 79 AL. R. 1339; Baker v. Gregory, 28 Ala. 544, 65 Am.Dec. 366. In the case of State ex rel. Bayer v. Funk, supra, the court held that a moral obligation is a sufficient consideration to support all executory promise where the promisor received an actual pecuniary or material benefit for which he subsequently expressly promised to pay.

The case at bar is clearly distinguishable from that class of cases where the consideration is a mere moral obligation or conscientious duty unconnected with receipt by promisor of benefits of a material or pecuniary nature. Park Falls State Bank v. Fordyce, supra. Here the promisor received a material benefit constituting a valid consideration for his promise.

3. Some authorities hold that, for a moral obligation to support a subsequent promise to pay, there must have existed a prior legal or equitable obligation, which for some reason had become unenforceable, but for which the promisor was still morally bound. This rule, however, is subject to qualification in those cases where the promisor having received a material benefit from the promisee, is morally bound to compensate him for the services rendered and in consideration of this obligation promises to pay. In such cases the subsequent promise to pay is an affirmance or ratification of the services rendered carrying with it the presumption that a previous request for the service was made McMorris v. Herndon, 2 Bailey (S.c,) 56, 21 Am.Dec. 515; Chadwick v. Knox, 31 N.H. 226, 64 Am.Dec. 329; Ke- follownan v. Holloway, 16 Ala. 53, 50 Am.Dec. 162; Ross v. Pearson, 21 Ala. 473.

Under the decisions above cited, McGowin's express promise to pay appellant for the services rendered was an affirmance or ratification of what appellant had done raising the presumption that the services had been rendered at McGowin's request.

4. The averments of the complaint show that in saving McGowin from death or grievous bodily harm, appellant was crippled for life. This was part of the consideration of the contract declared on. MeGowin was benefited. Appellant was injured. Benefit to the promisor or injury to the promisee is a sufficient legal consideration for the promissor's agreement to pay. Fisher v. Bartlett, 8 Greenl. (Me.) 122, 22 Am.Dec. 225; State ex reI. Bayer v. Funk, supra.

5. Under the averments of the complaint the services rendered by appellant were not gratuitous. The agreement of McGowin to pay and the acceptance of payment by appellant conclusively shows the contrary..

6. The contract declared on was not void under the statute of frauds (Code 1923, § 8034). The demurrer on this ground was not well taken. 25 R.C.L. 456, 457 and 470, § 49. .

The cases of Shaw v. Boyd, 1 Stew. & P. 83, and Duncan v. Hall, 9 Ala. 128, are not in conflict with the principles here announced. In those cases the lands were owned by the United States at the time the alleged improvements were made, for which subsequent purchasers  from the government agreed to pay. These subsequent purchasers were not the, owners of the lands at the time the improvements were made. Consequently, they could not have been made for their benefit.

From what has been said, we are of the opinion that the court below erred in the ruling complained of; that is to say in sustaining the demurrer, and for this error the case is reversed and remanded.

Reversed and remanded.

SAMFORD, Judge (concurring).

The questions involved in this case are not free from doubt, and perhaps the strict letter of the rule, as stated by judges, though riot always in accord, would bar a recovery by plaintiff, but following the principle announced by Chief Justice Marshall in Hoffman v. Porter, Fed. Cas. No. 6,577, 2 Brock. 156, 159, where he says, "I do not think that law ought to be separated from justice, where it is at most doubtful," I concur in the conclusions reached by the court.

[36 S.E.2d 227]

Appeal from Superior Court, Richmond County; Hubert E. Olive, Special Judge.

Action by Lena Harrington against Lee Walter Taylor on defendant's promise to pay damages for injuries sustained by plaintiff at hands of another when plaintiff intervened to save defendant's life. From a judgment for defendant, plaintiff appeals.

Affirmed.

George S. Steele, Jr., of Rockingham, for plaintiff, appellant.

No counsel contra.

PER CURIAM.

The plaintiff in this case sought to recover of the defendant upon a promise made by him under the following peculiar circumstances:

The defendant had assaulted his wife, who took refuge in plaintiff's house. The next day the defendant gained access to the house and began another assault upon his wife. The defendant's wife knocked him down with an axe, and was on the point of cutting his head open or decapitating him while he was laying on the floor, and the plaintiff intervened, caught the axe as it was descending, and the blow intended for defendant fell upon her hand, mutilating it badly, but saving defendant's life.

Subsequently, defendant orally promised to pay the plaintiff her damages; but, after paying a small sum, failed to pay anything more. So, substantially, states the complaint.

The defendant demurred to the complaint as not stating a cause of action, and the demurrer was sustained. Plaintiff appealed.

The question presented is whether there was a consideration recognized by our law as sufficient to support the promise. The Court is of the opinion that, however much the defendant should be impelled by common gratitude to alleviate the plaintiff's misfortune, a humanitarian act of this kind, voluntarily performed, is not such consideration as would entitle her to recover at law.

The judgment sustaining the demurrer is

Affirmed.

Appeal from Circuit Court, Turner County.

Action by George F. Edson against William Poppe. Judgment for plaintiff, and defendant appeals. Affirmed. [441] Edwin Lewis Brown and French & Orvis, for appellant.

Jones & Jones and L. L. Fleeger, for respondent.

McCOY, J.

The plaintiff recovered judgment upon the verdict of a jury in the circuit court. The case was tried upon the following complaint: That the defendant at all the times hereinafter named was the owner of the following described premises situated in Turner county, S. D., to wit (describing the land); that at all the times herein named George Poppe was in possession of said premises as the tenant of defendant; that during the year 1904 this plaintiff, at the instance and request of said George Poppe, drilled and dug upon said premises a well 250 feet deep, and obtained water in said well, and placed casing therein; that the reasonable value of the digging and casing of said well was and is the sum of $250; that said well was and is a valuable improvement upon the said premises, and greatly adds to the value thereof, and has been used by the occupants of said premises since the said digging thereof, with the knowledge and consent of defendant; that on or about the 5th day of August, 1905, the defendant, at the said premises, after having examined the said well, and in consideration of the said well to him, and of the improvement it made upon said premises, expressly ratified the acts of his said tenant in having said well drilled, and then and there promised and agreed to pay plaintiff the reasonable value of the digging and casing of the said well as aforesaid; that defendant has since refused, and still refuses, to pay plaintiff anything for said well. Wherefore, etc. To the said complaint defendant made the following answer: Denies generally and specifically each and every allegation in said complaint, except such as is hereinafter specifically admitted. Defendant admits that he is the owner of the said premises as stated in the complaint. At the opening of the trial, and upon the offer of testimony on the part of plaintiff, defendant objected to the introduction of any evidence, for the reason that the complaint did not state a cause of action, in that the consideration alleged in the contract is a past consideration, and no consideration for any promise, if any was made, and no consideration for the promise alleged. The objection was overruled, and defendant excepted. This ruling of the trial court is assigned and now urged as error, but we are of the opinion that the ruling of the learned trial court was correct.

It seems to be the general rule that past services are not a sufficient consideration for a promise to pay therefor, made at a subsequent time, and after such services have been fully rendered and completed; but in some courts a modified doctrine of moral obligation is adopted, and it is held that a moral obligation, founded on previous benefits received by the promisor at the hands of the promisee, will support a promise by him. 9 Cyc. 361; Doty v. Wilson, 14 Johns (N. Y.) 378;Oatfield v. Waring, 14 Johns. (N. Y.) 188;Glenn v. Savage, 14 Or. 567, 13 Pac. 442. The authorities are not so clear as to the sufficiency of past services, rendered without previous request, to support an express promise; but, when proper distinctions are made, the cases as a whole seem to warrant the statement that such a promise is supported by a sufficient consideration if the services were beneficial, and were not intended to be gratuitous. Trimble v. Rudy, 53 L. R. A., note p. 373, and cases cited. In Drake v. Bell, 26 Misc. Rep. 237, 55 N. Y. Supp. 945, a mechanic, under contract to repair a vacant house, by mistake repaired the house next door, which belonged to the defendant. The repairing was a benefit to the latter, and he agreed to pay a certain amount therefor. It was held that the promise rested upon sufficient consideration. Gaynor, J., says: “The rule seems to be that a subsequent promise, founded on a former enforceable obligation, or on value [442] previously had from the promisee, is binding.” In Glenn v. Savage, 14 Or. 567, 13 Pac. 442, it was held that an act done for the benefit of another without his request is deemed a voluntary act of courtesy, for which no action can be sustained, unless after knowing of the service the person benefited thereby promises to pay for it. In Boothe v. Fitzpatrick, 36 Vt. 681, it is held that if the consideration, even without request, moves directly from the plaintiff to the defendant, and inures directly to the defendant's benefit, the promise is binding though made upon a past consideration. In this case the court held that a promise by defendant to pay for the past keeping of a bull, which had escaped from defendant's premises and been cared for by plaintiff, was valid, although there was no previous request, but that the subsequent promise obviated that objection; it being equivalent to a previous request. The allegation of the complaint here is that the digging and casing of the well in question inured directly to the defendant's benefit, and that, after he had seen and examined the same, he expressly promised and agreed to pay plaintiff the reasonable value thereof. It also appears that said well was made under such circumstances as could not be deemed gratuitous on the part of plaintiff, or an act of voluntary courtesy to defendant. We are therefore of the opinion that, under the circumstances alleged, the subsequent promise of defendant to pay plaintiff the reasonable value for digging and casing said well was binding, and supported by sufficient consideration. We are also of the opinion that the instructions based on this complaint, and in particular as to the validity of the subsequent promise of defendant, properly submitted the issues to the jury.

At the close of plaintiff's evidence, and again at the close of all the evidence on both sides, defendant moved for a directed verdict. Both motions were overruled. Defendant excepted, and now assigns such rulings as error; but, as the evidence is not contained in the abstract on which these motions were based, the assignment cannot be considered. Neither can we consider assignments of error based on evidence or objections to evidence not shown by the abstract.

Finding no error in the record, the judgment of the circuit court is affirmed.

SMITH, J., took no part in this decision.

[No. 7913. Department One. October 4, 1909.]


B. L. Muir, Respondent,

v.

M. FRANCIS KANE et al., Appellants.

CONTRACTS—CONSIDERATION—MORAL OBLIGATION—FRAUDS, STATUTE OF. An oral contract with a broker to pay commissions on the sale of real estate, void under the statute of frauds, raises a moral obligation which is sufficient consideration to support a subsequent written agreement to pay the same, after the rendition of the services.

Appeal from a judgment of the superior court for King county, Griffin, J., entered May 15, 1908, upon findings in favor of the plaintiff, after a trial on the merits before the court without a jury, in an action to recover a broker’s commission. Affirmed.

Rice & Frank, for appellants.

F. J. Carver, for respondent.

[132]

FULLURTON, J.—

The respondent brought this action to recover of the appellants the sum of $200, alleged to be due pursuant to a written agreement executed and delivered to him by the appellants, whereby they agreed to pay him the sum of $200 for his services in selling for appellants a certain tract of real property. Issue was taken on the complaint and a trial had thereon, which resulted in a judgment in his favor for the amount claimed to be due. The case was tried by the court silting without a jury. No question is raised as to the correctness of the facts found, but the case is here on the question whether these facts justify the judgment of the court.

The court’s findings of fact are as follows:

“(1) That now and at all times herein referred to the plaintiff is and was doing a general real estate business in Seattle, Washington, under the firm name and style of B. L. Muir & Co. being the sole owner thereof.

“(2) That now and at all times concerned herein, the defendants are and were husband and wife.

“(3) That on or about the 21st day of November, 1906, the defendants made, executed and delivered to the plaintiff their written agreement agreeing to pay said plaintiff two hundred dollars ($200) for his services in selling for them a certain parcel of real estate; said agreement being in words and figures, to wit:

“ ‘M. Francis Kane and Ida Kane, his wife, agree to sell and Paul Bush agrees to buy the following described real estate situated in the County of King, State of Washington, to wit:

“ ‘South 40 feet of lot 1, block 17, J. H. Nagle’s addition to the city of Seattle, for the sum of nine thousand six hundred dollars ($9,600) the purchaser having paid the sum of five hundred dollars ($500) the receipt of which is hereby acknowledged, as earnest money and part payment for said land, the same to be held in trust by B. L. Muir & Co. until the sale is closed or canceled and the balance of said purchase price shall be paid as follows, or as soon after said dates respectively as the title to said real estate is shown to be marketable, to wit:

“ ‘Three thousand dollars ($3,000) on or before the 22nd

[133]

day of Nov. 1900, at 1 p. m.; nineteen hundred dollars ($1,900) on or before the 22nd day of Nov. 1907, at 1 p. m.; four thousand dollars ($4,000) according to certain mortgage to be executed due in three years from date.

“ ‘The purchaser agrees to pay interest at the rate of six per cent payable semi-annually on all deferred payments.

“ ‘The vendor agrees to furnish an abstract of title made by a reliable abstract company, for said real estate showing a marketable title of record in the vendor free from encumbrances to date of conveyance except the street assessments amount to about two hundred dollars ($200) and if over $200 the surplus to be deducted from the nineteen hundred payment which the purchaser assumes and agrees to pay as a part of the above named purchase price, and the vendor further agrees to transfer said property to the purchaser by a good and sufficient warranty deed to the said vendee or his assigns and pay two hundred dollars ($200) of the purchase price to B. L. Muir & Co. for services rendered.

“ ‘The purchaser shall have one day’s time after the delivery of said abstract for examination of same, and in case the abstract shall show a marketable title in the vendor, this sale shall be completed, and if the said title is not marketable and cannot be made so, then B. L. Muir & Co. shall refund to the said vendee the above named earnest money, and the sale shall be canceled, the deposit of $500 to be paid to Mrs. Ida Kane in the event of the purchaser failing to comply with this agreement.

“ ‘Witness our hands this 21st day of November, 1906. “ ‘Signed and delivered in the presence of B. L. Muir.

“ ‘M. FRANCIS KANE, [SEAL.]

“ ‘IDA KANE, [SEAL.]

“ ‘PAUL BUSH. [SEAL.]’

“(4) That the plaintiff did make the sale referred to in said written contract and which sale was accepted by the defendants, but they have since failed, neglected and refused to pay the aforesaid two hundred dollars ($200) commission allowed, although the same is long past due and still the property of the plaintiff.”

The statute governing contracts for commissions for buying or selling real estate provides that any agreement authorizing an employee, an agent or broker, to sell or pur-

[134]

chase real estate for compensation or a commission, shall be void unless the agreement, contract, or promise, or some note or memorandum thereof, be in writing. The appellants contend that the writing relied upon by the respondent is insufficient under the statute; that it is not an agreement authorizing the respondent to sell the real property described for compensation or commission, nor does it authorize or employ the respondent to sell real estate at all. Manifestly, if the writing sued upon was intended as an agreement authorizing the respondent to sell real estate of the appellants, it is faulty in the particulars mentioned, and so far deficient as not to warrant a recovery even if a sale had been made thereunder. But we do not understand that this is the question presented by the record. It is clear that this writing was not intended as an agreement authorizing the respondent to sell the real property mentioned. In fact, it was executed after that service had been performed, and is an agreement in writing to pay a fixed sum for a past service, not a service to be performed in the future. The question for determination is its validity as a promise to pay for a past service.

Looking to the instrument itself, there is nothing on its face that in any manner impugns its validity. It is a direct promise to pay a fixed sum of money for services rendered. Prima facie, therefore, it is legal and valid; and if it is illegal at all, it is because the actual consideration for the promise, which was alleged and proven, rendered the promise illegal. This consideration was the sale of real property for the appellants by the respondent acting as a broker, without a written agreement authorizing the service, and it is thought that because the statute declares an agreement for such a service void unless in writing, the service furnishes no consideration for the subsequent promise, since the service must either have been founded upon an invalid agreement or was voluntary. There are cases which maintain this doctrine. In Bagnole v. Madden (N. J . ) , 69 Atl. 967, the precise question was presented. There the plaintiff had been orally authorized

[135]

by the defendant to sell a parcel of real estate owned by the defendant. A purchaser was found and a contract of sale entered into. The defendant thereupon executed a written agreement and delivered the same to the plaintiff, wherein she promises to pay him $50 for his services. In an action brought upon the writing, the court held that she could not recover because of the invalidity of the original oral contract authorizing the services, it being in violation of the statute declaring such agreement void unless in writing. The case was rested on a decision of the Court of Errors and Appeals, Stout v. Humphrey, 69 N. J. L. 436, 55 Atl. 281, which announced the same doctrine, but upon a state of facts not quite the same; the subsequent promise to pay being oral instead of in writing. In the course of its opinion in the latter case, the court said:

“It is clear that if a contract between two parties be void, and not merely voidable, no subsequent express promise will operate to charge the party promising, even though he has derived the benefit of the contract. Yet, according to the commonly received notion respecting moral obligations, and the force attributed to a subsequent express promise, such a person ought to pay. An express promise, therefore, as it should seem, can only revive a precedent good consideration which might have been enforced at law through the medium of an implied promise had it not been suspended by some positive rule of law, but can give no original right of action if the obligation on which it is founded never could have been enforced at law, though not barred by any legal maxim or statute provision.”

The court, it will be observed, makes a distinction between contracts formerly good but on which the right of recovery has been barred by the statute, and those contracts which are barred in the first instance because of some legal defect in their execution, holding that the former will furnish a consideration for a subsequent promise to perform, while the latter will not.

It has seemed to us that this distinction is not sound. The moral obligation to pay for services rendered as a broker in

[136]

selling real estate, under an oral contract where the statute requires such contract to be in writing, is just as binding as is the moral obligation to pay a debt that has become barred by the statute of limitations, and there is no reason for holding that the latter will support a new promise to pay while the former will not. There is no moral delinquency that attaches to an oral contract to sell real property as a broker. This service cannot be recovered for because the statute says the promise must be in writing; not because it is illegal in itself. It was not intended by the statute to impute moral turpitude to such contracts. The statute was intended to prevent frauds and perjuries, and to accomplish that purpose, it is required that the evidence of the contract be in writing; but it is not conducive to either fraud or perjury to say that the services rendered under the void contract, or voluntarily, will support a subsequent written promise to pay for such service. Nor is it a valid objection to say there was no antecedent legal consideration. The validity of a promise to pay a debt barred by the statute of limitations is not founded on its antecedent legal obligation. There is no legal obligation to pay such a debt; if there were, there would be no need for the new promise. The obligation is moral solely, and since there can be no difference in character between one moral obligation and another, there can be no reason for holding that one moral obligation will support a promise while another will not.

Our attention has been called to no case, other than the New Jersey case above cited, where the facts of the case at bar are presented. A case in point on the principle involved, however, is Ferguson v. Harris, 39 S. C. 323, 39 Am. St. 731. Certain persons, without authority from the defendant, had ordered lumber and used it in the erection of a building on the defendant’s separate property, she being a married woman. Subsequently she gave her promissory note therefor, and when an action was brought upon the note she sought to defend on the ground of want of consideration. It

[137]

was conceded that there was never any legal obligation on the part of the defendant to pay for the lumber, but that her obligation was wholly moral. It was thereupon urged that such an obligation was insufficient to support the promise. Speaking upon this question the court said:

“All of the authorities admit that where an action to recover a debt is barred by the statute of limitations, or by a discharge in bankruptcy, a subsequent promise to pay the same can be supported by the moral obligation to pay the same, although the legal obligation is gone forever; and I am unable to perceive any just distinction between such a case and one in which there never was a legal, but only a moral, obligation to pay. In the one case, the legal obligation is gone as effectually as if it had never existed, and I am at a loss to perceive any sound distinction in principle between the two cases. In both cases, at the time the promise sought to be enforced is made, there is nothing whatever to support it except the moral obligation, and why the fact that, because in the one case there was once a legal obligation, which, having utterly disappeared, is as if it had never existed, should affect the question, I am at a loss to conceive. If, in the one case, the moral obligation, which alone remains, is sufficient to afford a valid consideration for the promise, I cannot see why the same obligation should not have the same effect in the other. The remark made by Lord Denman, in Eastwood v. Kenyon, 11 Ad. & E. 438, that the doctrine for which I am contending ‘would annihilate the necessity for any consideration at all, inasmuch as the mere fact of giving a promise creates a moral obligation to perform it,’ is more specious than sound, for it entirely ignores the distinction between a promise to pay money which the promisor is under a moral obligation to pay, and a promise to pay money which the promisor is under no obligation, either legal or moral, to pay. It seems to me that the cases relied upon to establish the modern doctrine, so far as my examination of them has gone, ignore the distinction pointed out in the note to Comstock v. Smith, 7 Johns. 89, above cited, between an express and an implied promise resting merely on a moral obligation, for while such obligation does not seem to be sufficient to support an implied promise, yet it is sufficient to support an express promise.”

[138]

To the same effect is Anderson v. Best, 176Pa.St. 498, 35 Atl.194, wherein it was said:

“The distinction sought to be made between considerations formerly good but now barred by statute, and those barred by statute in the first instance, is not substantial, and is not sustained by the cases.”

See, also, Bailey v. Philadelphia, 167 Pa. St. 569,31 Atl. 925, 46 Am. St. 691; Stout v. Ennis, 28 Kan. 706.

Believing as we do that the better rule is with the cases holding the moral obligation alone sufficient to sustain the promise, it follows that the judgment appealed from should be affirmed. I t is so ordered.

RUDKIN, C. J., GOSE, CHADWICK, and MORRIS, JJ., concur

236 Wis. 311

ESTATE OF SCHOENKERMAN: SUCHER and another, Respondents,
vs.
BILLER, Executor, Appellant.

November 8—December 3, 1940.

APPEAL from an order of the county court of Milwaukee county: C. A. HANSEN, Judge. Affirmed.

Claims of Goldie Sucher and Ethel Sucher against the estate of Bern S. Schoenkerman, deceased, filed June 7, 1939. From an order allowing the claims, entered February 7, 1940, the executor appeals. The facts are stated in the opinion.

[312] Herman A. Mosher of Milwaukee, for the appellant.

For the respondents there was a brief by Jos. G. Konop, attorney, and Albert B. Houghton of counsel, both of Milwaukee, and oral argument by Mr. Houghton.

FOWLER, J. Goldie Sucher and Ethel Sucher filed claims against the estate of Bern S. Schoenkerman, deceased. The claimants were mother-in-law and sister-in-law, respectively, of the decedent. Both claims are for services rendered to the decedent during a series of years in caring for the decedent's home and children. After continuance of the service for ten years the decedent executed and delivered to the mother-in-law his promissory note for $500 and to the sister-in-law his like note for $1,500. The claimants in their claims applied the amount of the notes upon the aggregates claimed, and demanded judgment for the difference. The mother-in-law's claim aggregated $500 and the sister-in-law's $4,610. The court allowed judgments for the amounts of the notes, but disallowed anything in excess of these sums.

The wife of the deceased died in May, 1928. She was a daughter of the one claimant and sister of the other. At the time of the death the claimants were maintaining a home in Chicago. The mother kept the house, and the daughter was employed outside at $15 per week. The decedent had two children, a son thirteen years old and a daughter seventeen years old. At the solicitation of the decedent the mother and daughter broke up their home in Chicago, and went to Milwaukee there to take care of the decedent's home and the children and continued to do so until a short the death of the decedent, who died May 18, 1939. The notes were executed May 14, 1938, and were payable in eight months from date. In maintaining the decedent's home, the mother did the cooking for the family and the daughter did the entire purchasing for the maintenance of the home [313] and of the clothing for the children. She took entire charge of the household and of caring for the children and did everything of that nature that the wife and mother could have done had she lived. The appellant contends that the mother and daughter lived as members of the family, and that their relations to the decedent were such that the services were gratuitous, and intent to make compensation for them will not be presumed, but express agreement to pay therefor must be proved in order to warrant compensation. This may be conceded. An express agreement was not proved. The trial court so found, and held that there was no legal obligation to pay for the services rendered except as was covered by the notes, but that the notes were valid. The court did not state the basis of his holding that the notes were valid, but if such basis appears his ruling must be sustained.

The crucial question in this case is whether there was consideration for the notes other than natural love and affection. If the sale consideration was the latter then there can be no recovery. Estate of Smith, 226 Wis. 556, 560, 277 N. W. 141. However, the Smith Case recognizes the rule that a moral obligation will operate as consideration for an executory promise "whenever the promisor has originally received value, material pecuniary benefit, under circumstances giving rise to a moral obligation on his part to pay for that which he has received." To this rule the opinion in the Smith Case cites Park Falls State Bank v. Fordyce, 206 WIS. 628, 238 N. W. 516; Elbinger v. Capitol & Teutonia Co. 208 Wis. 163, 242 N. W. 568; Onsrud v. Paulsen, 219 Wis: 1, 261 N. W. 541. In the Elbinger Case, supra, the rule is stated as above quoted. The rule as above stated was also applied in Estate of Hatten, 233 Wis. 199, 218, 288 N. W. 278, wherein the Elbinger and Park Falls State Bank Cases, supra, are cited in support.

[314] The appellant contends that as in this case the claimants were relatives of the deceased living in his family there was no legal obligation on the part of the deceased to pay for the services rendered, and that a legal obligation must have existed in order to render the moral-obligation rule applicable. If it be true that under the circumstances of this case the presumption arises that the services were gratuitous, a fact we need not and therefore do not decide, it does not follow that there must have been a legal obligation to compensate in order to constitute a moral obligation a good consideration. It is said of the Park Falls State Bank Case, supra, in the Elbinger Case, supra, p. 165:

"We there repudiated, as too narrow, the principle obtaining in some jurisdictions that in order for a moral consideration to be sufficient to support an executory promise there must have been a pre-existing legal obligation to do the thing promised, which, for some reason, as the statute of limitations, discharge in bankruptcy, or the like, is unenforceable."

In the instant case the decedent was manifestly under a moral obligation to pay the claimants in addition to what they had received for their ten years of service to him. In executing and delivering the notes to them he plainly recognized that obligation, and from any point of view it afforded more than ample consideration for the notes. The notes were negotiable instruments. They recite that they were executed for "value received." There is a presumption that they were given for a consideration. As a moral obligation existed to pay for the great excess of value of the services received by the decedent over the value of the board and lodging received from the decedent by the claimants, that moral obligation will be presumed to be the consideration for the notes. The notes therefore became a legal obligation, as distinguished from a mere unexecuted promise to make a gift of money.

By the Court.—The order of the county court is affirmed.

Cyrowski & Pasternacki (Arthur Majewski, of counsel), for executor.

Nathaniel H. Goldstick, Corporation Counsel, John R. McKinlay, Assistant Corporation Counsel, for claimant.

EDWARDS, J.

This appeal presents a situation contemplated by our appellate rules but too rarely achieved — a statement of facts and a legal question agreed on by the opposing parties. It should be added that opposing counsel have added to this triumph by briefs which are brief and which cogently argue the interesting legal problem involved.

The question is:

"Will the law imply a promise to pay for emergency services rendered to an unconscious patient by a public hospital?"

The facts are:

Sosa Crisan, hereinafter referred to as the "patient," was an 87-year-old widow of Roumanian origin without any relatives.

[571] While shopping at her grocer's on March 17, 1955, she collapsed and was removed in emergency by the Detroit police department to its Receiving Hospital where she was admitted and remained for 14 days. On March 31st, she was transferred to Central Hospital, an overflow or city-physician's hospital, which took patients under contract with the city of Detroit, where she died without ever regaining consciousness on February 9, 1956, some 11 months later.

Prompt investigation by the city disclosed that the patient owned her own home, whereupon she was classified as a patient with assets and rejected by the Wayne county board of social welfare as, therefore, ineligible for relief.

The city took no steps to appoint a guardian for the patient.

Subsequent investigation disclosed that the patient had $50 in cash, and enjoyed an income of $33 per month as rent from an upper flat. The value of the home is $7,000.

After her death, the appellee (city of Detroit, claimant) presented its claim against her estate, viz.:

    14 days at Receiving at $29.20/day ....  $  408.80    315 days at Central at $8.90/day ......   2,803.50    ambulance .............................       6.00                                             _________                    Total .................  $3,218.30

The referee allowed the claim in its entirety and thereafter the probate and circuit courts affirmed the same. Motion for new trial was denied, and the patient's executor prosecutes the instant appeal.

Appellant's contentions are that there was no meeting of the minds of the parties as to charges for the services rendered, that neither Mrs. Crisan (because of her mental condition), nor the Detroit department of health (because it was only empowered to operate a public hospital, and not to make any charges) was able to contract, and that, under these [572] circumstances, no contract, actual or implied, could arise.

The trial judge answered these arguments succinctly:

"It is obvious that there was no express contract or one implied in fact because following her collapse decedent was never able consciously to express her assent. Nevertheless, one who supplies services to another, although acting without the other's knowledge or consent, is entitled to restitution therefor from the other if he acted unofficiously and with intent to charge therefor and the services were necessary to preserve the other's life or health, and the one supplying it had no reason to know that the other would not consent to receiving them if mentally competent, and it was impossible for the recipient to give consent because of her physical or mental condition (Restatement, Restitution, § 116). This principle has been approved by the Michigan Supreme Court (In re Dzwonkiewicz Estate, 231 Mich 165).

"The executor's contention that his obligation to pay must be determined by the decedent's ability, tested during her lifetime, is not tenable. The authorities upon which he relies are concerned with a statutory obligation to pay when a person shall have been committed to a hospital through legal process. CL 1948, § 330.21, as amended (Stat Ann § 14.811, as amended).^[1] The executor also contends that the city of Detroit may not recover because it was under a duty to furnish treatment regardless of the patient's ability to repay. He directs our attention to no authority for this proposition, and, absent some express limitation, we must conclude that the city of Detroit may charge for services rendered by Receiving Hospital. The city of Detroit is accordingly entitled to recover under a contract implied in law. The order of the probate court is [573] therefore affirmed and the cause is remanded for further proceedings."

As to the right of Receiving Hospital to make charges to nonwelfare patients, there is indeed astonishingly little authority. The corporation counsel points to State policy providing for reimbursement in parallel situations involving hospitalization expenses paid by counties or the State department of social welfare.^[2]

[574] While the statutes cited to us are obviously not directly applicable to the present case, they tend to negative the assumption for which appellant seeks our endorsement — namely, that a "public" hospital must perforce be one which renders only free care. No statutory, charter, or ordinance provision is cited which imposes a duty of providing free medical care to persons who are able to pay. Like the trial judge, we decline to supply such a requirement.

As to the more difficult question of whether or not on these facts a promise to pay will be implied in law, the Restatement provision relied upon by the trial judge provides as follows:

"A person who has supplied things or services to another, although acting without the other's knowledge or consent, is entitled to restitution therefor from the other if

"(a) he acted unofficiously and with intent to charge therefor, and

"(b) the things or services were necessary to prevent the other from suffering serious bodily harm or pain, and

"(c) the person supplying them had no reason [575] to know that the other would not consent to receiving them, if mentally competent; and

"(d) it was impossible for the other to give consent or, because of extreme youth or mental impairment, the other's consent would have been immaterial." Restatement, Restitution, § 116.

This Court appears to have considered the problem before us in 2 cases — In re Dzwonkiewicz Estate, 231 Mich 165, and In re Weber's Estate, 256 Mich 61. In each, the Court found a promise to pay implied in law.

In the Dzwonkiewicz Case, there was a statute (CL 1915, § 13968) which made a guardian liable for the "just debts" of a minor, and which is not applicable here. We read the Weber Case, however, as authority for holding that Michigan has previously adopted the essence of the Restatement section which we have quoted.

There is surprisingly little case authority to be found in the reports of the other States upon the problem with which we are concerned. In Cotnam v. Wisdom, 83 Ark 601 (104 SW 164, 12 LRA NS 1090, 119 Am St Rep 157, 13 Ann Cas 25), the supreme court of Arkansas held (Ann Cas headnote):

"A surgeon summoned by a spectator in an emergency to attend an injured and unconscious person may recover the reasonable value of his services from the estate of the patient although the patient dies without ever regaining consciousness."

The court (p 605) relied heavily for its reasoning upon a New Hampshire case which said:

"We regard it as well settled by the cases referred to in the briefs of counsel, many of which have been commented on at length by Mr. Shirley for the defendant, that an insane person, an idiot, or a person utterly bereft of all sense and reason by the sudden stroke of accident or disease, may be held liable, [576] in assumpsit, for necessaries furnished to him in good faith while in that unfortunate and helpless condition. And the reasons upon which this rests are too broad, as well as too sensible and humane, to be overborne by any deductions which a refined logic may make from the circumstance that in such cases there can be no contract or promise in fact, — no meeting of the minds of the parties. The cases put it on the ground of an implied contract; and by this is not meant, as the defendant's counsel seems to suppose, an actual contract, — that is, an actual meeting of the minds of the parties, an actual, mutual understanding, to be inferred from language, acts, and circumstances, by the jury, — but a contract and promise, said to be implied by the law, where, in point of fact, there was no contract, no mutual understanding, and so no promise. The defendant's counsel says it is usurpation for the court to hold, as matter of law, that there is a contract and a promise, when all the evidence in the case shows that there was not a contract, nor the semblance of one. It is doubtless a legal fiction, invented and used for the sake of the remedy. If it was originally usurpation, certainly it has now become very inveterate, and firmly fixed in the body of the law." Sceva v. True, 53 NH 627, 630.

See, also, 3 Page on Contracts (2d ed), § 1521.

The rationale of the New Hampshire and Arkansas courts is similar to that of the Restatement rule relied on by the circuit judge. The first comment under the Restatement rule quoted above is:

"Comment:

"a. The rule stated in this section exists in order that a person needing help in an emergency and not able to ask for it should obtain it, the attainment of such a result being aided by assuring compensation to the person rendering the aid if the other is solvent." Restatement, Restitution, § 116, p 484.

[577] The judgment appealed from is affirmed. Costs to appellee.

DETHMERS, C.J., and CARR, KELLY, SMITH, BLACK, KAVANAGH, and SOURIS, JJ., concurred.

[1] See, currently, PA 1960, No 117. — REPORTER.

[2]"The county department shall enter into an agreement signed by the patient or a legally responsible relative or guardian for reimbursement of the net cost to the county in furnishing such hospitalization: Provided, That such an agreement between the patient and the county department shall be deemed to be in existence in respect to an emergency hospitalization. The spouse, parent and adult child or [of?] any such patient being of sufficient ability shall be jointly and severally liable to the county department for the reimbursement of the expenses incurred by the county in furnishing such hospitalization to the extent that such expenses are not reimbursed from another source. Such liability may be enforced in an action at law." PA 1957, No 286, § 66c (CL 1948, § 400.66c, as amended [Stat Ann 1960 Rev § 16.466 (3)]).

"The county department of social welfare is hereby authorized and empowered to collect and receive funds to reimburse the county for expenditures made on behalf of recipients of any from of aid or relief, or hospital care provided at county expense, from such recipients, their relatives legally responsible under the laws of this State for the support of such recipients, or from the estates of recipients, in accordance with the laws of this State, and the rules and regulations of the State department of social welfare, which funds, reimbursed for direct relief, shall be disbursed to carry out the provisions of this act. Agreements for the reimbursement of the county department of social welfare for relief granted to persons or families in their own homes may be required in the cases of applicants whose need for relief is based in whole or in part on inability to obtain funds, moneys, moneys which may be received, income or assets unavailable at the time of application for or grant of relief: Provided, however, That earnings from wages or salaries not due or owing at the time of application for or grant of relief shall not be included in reimbursement agreements. Reimbursements for any form of hospital care provided at county expense shall be collected and paid over by the department of social welfare to the county treasurer for deposit to the fund from which such expenditure was made: Provided, That no county department of social welfare nor any other agency of county government shall collect or receive reimbursements for hospitalization or other treatment for tuberculosis, whether there is an agreement to reimburse the county or not, unless such reimbursement has been ordered by the State commissioner of health or is found acceptable by him as a voluntary reimbursement as provided in section 3a of Act No 314 of the Public Acts of 1927, as added, being section 329.403a of the Compiled Laws of 1948, and no county department of social welfare shall collect or receive reimbursements for hospitalization or other treatment for any other communicable disease or diseases. Nothing in this section shall be construed to affect the civil service status, if any, of county employees now engaged in collecting reimbursements for the county for any form of aid, relief or hospital care, under the supervision of any other county department. All such employees, and all collection records and files in the county on cases investigated by the department of social welfare prior to the effective date hereof, shall be transferred to and be under the supervision, control and jurisdiction of the board of social welfare in such county.

"If a county has acknowledged liability or has reimbursed another county for the cost of any form of aid, relief or hospital care provided at county expense, the county so reimbursed shall credit or remit, as the case may be, to the paying county within 60 days, any additional collections thereon from any other source. It shall be the duty of each county department of social welfare to continue to collect according to its best judgment and ability, if so requested by the county which has acknowledged or paid for any form of aid, relief or hospital care provided at county expense." CLS 1956, § 400.77 (Stat Ann 1960 Rev § 16.477).

8 Ala. 131

KIRKSEY
v.
KIRKSEY.

JANUARY TERM, 1845.

Error to the Circuit Court of Talladega.

[132] ASSUMPSIT by the defendant, against the plaintiff in error. The question is presented in this Court, upon a case agreed, which shows the following facts:

The plaintiff was the wife of defendant's brother, but had for some time been a widow, and had several children. In 1840, the plaintiff resided on public land, under a contract of lease, she had held over, and was comfortably settled, and would have attempted to secure the land she lived on. The defendant resided in Talladega county, some sixty, or seventy miles off. On the 10th October, 1840, he wrote to her the following letter:

"Dear sister Antillico—Much to my mortification, I heard, that brother Henry was dead, and one of his children. I know that your situation is one of grief, and difficulty. You had a bad chance before, but a great deal worse now. I should like to come and see you, but cannot with convenience at present. . . . I do not know whether you have a preference on the place you live on, or not. If you had, I would advise you to obtain your preference, and sell the land and quit the country, as I understand it is very unhealthy, and I know society is very bad. If you will come down and see me, I will let you have a place to raise your family, and I have more open land than I can tend; and on the account of your situation, and that of your family, I feel like I want you and the children to do well."

Within a month or two after the receipt of this letter, the plaintiff abandoned her possession, without disposing of it, and removed with her family, to the residence of the defendant, who put her in comfortable houses, and gave her land to cultivate for two years, at the end of which time he notified her to remove, and put her in a house, not comfortable, in the woods, which he afterwards required her to leave.

A verdict being found for the plaintiff, for two hundred dollars, the above facts were agreed, and if they will sustain the action, the judgment is to be affirmed, otherwise it is to be reversed.

RICE, for plaintiff in error, cited 4 Johns. 235; 10 id. 246; 6 Litt. 101; 2 Cowen, 139; 1 Caine's, 47.

W. P. CHILTON and PORTER, for defendant in error, cited 1 Kinne's Law Com. 216, 218; Story on Con. 115; Chitty on Con. [133] 29; 18 Johns. 337 ; 2 Peters, 182 ; 1 Mar. 535; 5 Cranch, 142 ; 8 Mass. 200; 6 id. 58; 4 Maun. 63; 1 Conn. 519.

ORMOND, J.—The inclination of my mind, is, that the loss and inconvenience, which the plaintiff sustained in breaking up, and moving to the defendant's, a distance of sixty miles, is a sufficient consideration to support the promise, to furnish her with a house, and land to cultivate, until she could raise her family. My brothers, however think, that the promise on the part of the defendant, was a mere gratuity, and that an action will not lie for its breach. The judgment of the Court below must therefore be, reversed, pursuant to the agreement of the parties.

57 Neb. 51

ANDREW D. RICKETTS, EXECUTOR,
v.
KATIE SCOTHORN.

No. 8326.
FILED DECEMBER 8, 1898.

[52] ERROR from the district court of Lancaster county. Tried below before HOLMES, J. Affirmed.

The opinion contains a statement of the case.

Ricketts & Wilson, for plaintiff in error:

A promissory note which is not given for a valuable consideration, as distinguished from a good consideration, cannot be enforced. (Stenberg v. State, 48 Neb. 299; Kirkpatrick v. Taylor, 43 Ill. 207; Blanchard v. Williamson, 70 Ill. 647; Pratt v. Trustees, 93 Ill. 475; Williams v. Forbes, 28 N.E. Rep. [Ill.] 463; Richardson v. Richardson, 36 N. E. Rep. [Ill.] 608; Fink v. Fink, 18 Johns. [N.Y.] 145; Hadley v. Reed, 58 Hun [N.Y.] 608; Hill v. Buckminster, 22 Mass. 391; Carr v. Silloway, 111 Mass. 24.)

It was necessary to allege and prove a consideration. (Courtney v. Doyle, 92 Mass. 122.)

The question of consideration was one to be proved preliminary to the admission of the note in evidence, and. it was for the court to decide this preliminary fact before admitting the note in evidence. (Robinson v. Ferry, 11 Conn. 460; Merrill v. Berkshire, 11 Pick. [Mass.] 269; Bartlett v. Smith, 11 Mees. & W. [Eng.] 483.)

Defendant in error's liberty to continue in her employment or to enter the employment of another was as untrammelled at the time and after she received the note as it had ever been, so far as the evidence shows. The evidence does not establish a consideration. (Mecorney v. Stanley, 62 Mass. 87; Manter v. Churchill, 127 Mass. 31; First Nat. Bank of Arlington v. Cecil, 32 Pac. Rep. [Ore.] 393.)

Where the controlling facts are undisputed, and different conclusions cannot be drawn therefrom, what the verdict should be is a question of law for the court, and it is the duty of the court to direct a verdict. (Gardner v. Michigan C. R. Co., 150 U. S. 349; Northern P. R. Co. v. Austin, 24 U. S. App. 336; Powell v. Powell, 23 Mo. App. 365.)

[53] Lamb & Adams, contra:

There was a sufficient consideration. (Talbott v. Stemmons, 89 Ky. 222; Doyle v. Dixon, 97 Mass. 213; Parker v. Urie, 21 Pa. St. 305; Appeal of Clark, 19 Atl. Rep. [Conn.] 322; Emery v. Darling, 33 N. E. Rep. [O.] 715.)

A promissory note imports a consideration. (Flint v. Phipps, 19 Pac. Rep. [Ore.] 543; Wilson v. Wilson, 38 Pac. Rep. [Ore.] 189.)

To uphold a contract, it is not necessary that the promisor should receive a consideration. It is sufficient if the promisee or other beneficiary sustains the least injury or detriment, or parts with anything of the least value on the faith of the contract. (Houck v. Frisbee, 66 Mo. App. 16.)

Forbearance from doing an act is evidence from which the jury may infer an agreement to forbear. (Boyd v. Freize, 5 Gray [Mass.] 553; Walker v. Sherman, 11 Met. [Mass.] 172; Breed v. Hillhouse, 7 Conn. 523.)

It is not necessary that a consideration should exist at the time the promise is made. Before revocation of the promise, performance of the acts required of promisee renders the promise obligatory. (Train v. Gold, 5 Pick. [Mass.] 380; Hilton v. Southwick, 17 Me. 303; L'Amoreux v. Gould, 57 Am. Dec. [N.Y.] 524; Brown v. Ray, 51 Am. Dec. [N. Car.] 379.)

The note was properly admitted in evidence. (Stevenson v. Gunning, 25 Atl. Rep. [Vt.] 697; Martin v. Stone, 29 Atl. Rep. [N.H.] 845.)

Additional references as to sufficiency of consideration: Hamer v. Sidway, 124 N.Y. 538; Lindell v. Rokes, 60 Mo. 249; Earle v. Angell, 157 Mass. 249; Bretton v. Prettiman, Sir T. Raym. [Eng.] 153; Wilkinson v. Oliveira, 27 E. C. L. [Eng.] 490.

SULLIVAN, J.

In the district court of Lancaster county the plaintiff Katie Scothorn recovered judgment against the defendant [54] Andrew D. Ricketts, as executor of the last will and testament of John C. Ricketts, deceased. The action was based upon a promissory note, of which the following is a copy:

May the first, 1801. I promise to pay to Katie Scothorn on demand, $2,000, to be at 6 per cent per annum.

J. C. RICKETTS.

In the petition the plaintiff alleges that the consideration for the execution of the note was that she should surrender her employment as bookkeeper for Mayer Bros, and cease to work for a living. She also alleges that the note was given to induce her to abandon her occupation, and that, relying on it, and on the annual interest, as a means of support, she gave up the employment in which she was then engaged. These allegations of the petition are denied by the executor. The material facts are undisputed. They are as follows: John O. Ricketts, the maker of the note, was the grandfather of the plaintiff. Early in May,—presumably on the day the note bears date,—he called on her at the store where she was working. What transpired between them is thus described by Mr. Flodene, one of the plaintiff's witnesses:

A. Well the old gentleman came in there one morning about 9 o'clock,—probably a little before or a little after, but early in the morning,— and he unbuttoned his vest and took out a piece of paper in the shape of a note; that is the way it looked to me; and he says to Miss Scothorn, "I have fixed out something that you have not got to work any more." He says, "None of my grandchildren work and you don't have to."

Q. Where was she?

A. She took the piece of paper and kissed him; and kissed the old gentleman and commenced to cry.

It seems Miss Scothorn immediately notified her employer of her intention to quit work and that she did soon after abandon her occupation. The mother of the plaintiff was a witness and testified that she had a conversation with her father, Mr, Ricketts, shortly after the [55] note was executed in which he informed her that he had given the note to the plaintiff to enable her to quit work; that none of his grandchildren worked and he did not think she ought to. For something more than a year the plaintiff was without an occupation; but in September, 1892, with the consent of her grandfather, and by his assistance, she secured a position as bookkeeper with Messrs. Funke & Ogden. On June 8, 1894, Mr. Ricketts died. He had paid one year's interest on the note, and a short time before his death expressed regret that he had not been able to pay the balance. In the summer or fall of 1892 he stated to his daughter, Mrs. Scothorn, that if he could sell his farm in Ohio he would pay the note out of the proceeds. He at no time repudiated the obligation. We quite agree with counsel for the defendant that upon this evidence there was nothing to submit to the jury, and that a verdict should have been directed peremptorily for one of the parties. The testimony of Flodene and Mrs. Scothorn, taken together, conclusively establishes the fact that the note was not given in consideration of the plaintiff pursuing, or agreeing to pursue, any particular line of conduct. There was no promise on the part of the plaintiff to do or refrain from doing anything. Her right to the money promised in the note was not made to depend upon an abandonment of her employment with Mayer Bros, and future abstention from like service. Mr. Ricketts made no condition, requirement, or request. He exacted no quid pro quo. He gave the note as a gratuity and looked for nothing in return. So far as the evidence discloses, it was his purpose to place the plaintiff in a position of independence where she could work or remain idle as she might choose. The abandonment by Miss Scothorn of her position as bookkeeper was altogether voluntary. It was not an act done in fulfillment of any contract obligation assumed when she accepted the note. The instrument in suit being given without any valuable consideration, was nothing more than a promise to make a gift in the future of the [56] sum of money therein named. Ordinarily, such promises are not enforceable even when put in the form of a promissory note. (Kirkpatrick v. Taylor, 43 Ill. 207; Phelps v. Phelps, 28 Barb. [N.Y.] 121; Johnston v. Griest, 85 Ind. 503; Fink v. Cox, 18 Johns. [N.Y.] 145.) But it has often been held that an action on a note given to a church, college, or other like institution, upon the faith of which money has been expended or obligations incurred, could not be successfully defended on the ground of a want of consideration. (Barnes v. Perine, 12 N.Y. 18; Philomath College v. Hartless, 6 Ore. 158; Thompson v. Mercer County, 40 Ill. 379; Irwin v. Lombard University, 56 O. St. 9.) In this class of cases the note in suit is nearly always spoken of as a gift or donation, but the decision is generally put on the ground that the expenditure of money or assumption of liability by the donee, on the faith of the promise, constitutes a valuable and sufficient consideration. It seems to us that the true reason is the preclusion of the defendant, under the doctrine of estoppel, to deny the consideration. Such seems to be the view of the matter taken by the supreme court of Iowa in the case of Simpson Centenary College v. Tuttle, 71 Ia. 596, where Rothrock, J., speaking for the court, said:

Where a note, however, is based on a promise to give for the support of the objects referred to, it may still be open to this defense [want of consideration], unless it shall appear that the donee has, prior to any revocation, entered into engagements or made expenditures based on such promise, so that he must suffer loss or injury if the note is not paid. This is based on the equitable principle that, after allowing the donee to incur obligations on the faith that the note would be paid, the donor would be estopped from pleading want of consideration.

And in the case of Reimensnyder v. Gans, 110 Pa. St. 17, 2 Atl. Rep. 425, which was an action on a note given as a donation to a charitable object, the court said: "The fact is that, as Ave may see from the case of Ryerss v. Trustees, 33 Pa. St. 114, ft contract of the kind here [57] involved is enforceable rather by way of estoppel than on the ground of consideration in the original undertaking." It has been held that a note given in expectation of the payee performing certain services, but without any contract binding him to serve, will not support an action. (Hulse v. Hulse, 84 Eng. Com. Law 709.) But when the payee changes his position to his disadvantage, in reliance on the promise, a right of action does arise. (McClure v. Wilson, 43 Ill. 356; Trustees v. Garvey, 53 Ill. 401.)

Under the circumstances of this case is there an equitable estoppel which ought to preclude the defendant from alleging that the note in controversy is lacking in one of the essential elements of a valid contract? We think there is. An estoppel in pais is defined to be "a right arising from acts, admissions, or conduct which have induced a change of position in accordance with the real or apparent intention of the party against whom they are alleged." Mr. Pomeroy has formulated the following definition:

Equitable estoppel is the effect of the voluntary conduct of a party whereby he is absolutely precluded, both at law and in equity, from asserting rights which might perhaps have otherwise existed, either of property, or contract, or of remedy, as against another person who in good faith relied upon such conduct, and has been led thereby to change his position for the worse, and who on his part acquires some corresponding right either of property, of contract, or of remedy. (2 Pomeroy, Equity Jurisprudence 804.)

According to the undisputed proof, as shown by the record before us, the plaintiff was a working girl, holding a position in which she earned a salary of $10 per week. Her grandfather, desiring to put her in a position of independence, gave her the note, accompanying it with the remark that his other grandchildren did not work, and that she would not be obliged to work any longer. In effect he suggested that she might abandon her employment and rely in the future upon the bounty which he promised, lie, doubtless, desired that she should give [58] up her occupation, but whether he did or not, it is entirely certain that he contemplated such action on her part as a reasonable and probable consequence of his gift. Having intentionally influenced the plaintiff to alter her position for the worse on the faith of the note being paid when due, it would be grossly inequitable to permit the maker, or his executor, to resist payment on the ground that the promise was given without consideration. The petition charges the elements of an equitable estoppel, and the evidence conclusively establishes them. If errors intervened at the trial they could not have been prejudicial. A verdict for the defendant would be unwarranted.

The judgment is right and is

AFFIRMED.

246 N. Y. 369
ALLEGHENY COLLEGE, Appellant,
v.
THE NATIONAL CHAUTAUQUA COUNTY BANK OF JAMESTOWN, as Executor of MARY Y. JOHNSTON, Deceased, Respondent.
Supreme Court of New York, Appellate Division, Fourth Department

Allegheny College v. Nat. Chautauqua County Bank, 219 App. Div. 852, reversed.

(Argued October 18, 1927; decided November 22, 1927.) 

APPEAL, by permission, from a judgment of the Appellate Division of the Supreme Court in the fourth judicial department, entered April 13, 1927, unanimously affirming a judgment in favor of defendant entered upon a dismissal of the complaint by the court on trial at an Equity Term. Clarence G. Pickard, C. A. Pickard and Arthur L. Bates for appellant. The subscription paper executed by Mary Yates Johnston was founded upon a legal consideration. (Barnes v. Perine, 12 N. Y. 18; Matter of Conger, 113 Misc. Rep. 129; Eliassof v. DeWandelaer, 30 App. Div. 155; Coyne v. Weaver, 84 X. Y. 386; Ga Nun v. Palmer, 210 N. Y. 603; Roberts v. Cobb, 103 N. Y. 600; Mechanicville War Chest, Inc., v. Butterfield, 110 Misc. Hep. 257; Richmondville Union Seminary v. McDonald, 34 N. Y. 379; Genesee College v. Dodge, 26 N. Y. 213; Locke v. Taylor, 161 App. Div. 44.)

Robert H. Jackson, Harry R. Lewis and Benjamin S. Dean for respondent. The instrument is only a promise to make a gift or subscription and lacks consideration which the law of New York requires for actionability. (Hamilton College v. Stewart, 1 N. Y. 581; Presbyterian Church v. Cooper, 112 N. Y. 517; Twenty-third St. Church v. Cornell, 117 N. Y. 601; Holmes v. Roper, 141 N. Y. 64; Dougherty v. Salt, 227 N. Y. 202; Assets Realization Co. v. Howard, 211 N. Y. 430; Tucker v. Alexander off, 183 U. S. 424; Cottage Church v. Kendall, 121 Mass. 528; Montpelier Seminary v. Smith, 69 Vt. 382; New Jersey Hospital v. Wright, 95 N. J. L. 462; U. of Penn. v. Coxe, 277 Penn. St. 512; Gait v. Swain, 9 Geattan [Va.], 633.)

CARDOZO, Ch. J. The plaintiff, Allegheny College, is an institution of liberal learning at Meadville, Pennsylvania. In June 1921, a "drive" was in progress to secure for it an additional endowment of $1,250,000. An appeal to contribute to this fund was made to Mary Yates Johnston of Jamestown, New York. In response thereto, she signed and delivered on June 15, 1921, the following writing:

"Estate Pledge,
“Allegheny College Second Century Endowment
"JAMESTOWN, N. Y., June 15, 1921."
“In consideration of my interest in Christian Education, and in consideration of others subscribing, I hereby subscribe and will pay to the order of the Treasurer of Allegheny College, Meadville, Pennsylvania, the sum of Five Thousand Dollars; $5,000.
"This obligation shall become due thirty days after my death, and I hereby instruct my Executor, or Administrator, to pay the same out of my estate. This pledge shall bear interest at the rate of . . . per cent per annum, payable annually, from . . . till paid. The proceeds of this obligation shall be added to the Endowment of said Institution, or expended in accordance with instructions on reverse side of this pledge."

“Name MARY YATES JOHNSTON,
“Address 306 East 6th Street,
“Jamestown, N. Y.
“DAYTON E. MCCLAIN Witness
"T. R. COURTIS Witness
to authentic signature."

On the reverse side of the writing is the following indorsement:

"In loving memory this gift shall be known as the Mary Yates Johnston Memorial Fund, the proceeds from which shall be used to educate students preparing for the Ministry, either in the United States or in the Foreign Field.

"This pledge shall be valid only on the condition that the provisions of my Will, now extant, shall be first met.
"MARY YATES JOHNSTON."

The subscription was not payable by its terms until thirty days after the death of the promisor. The sum of $1,000 was paid, however, upon account in December, 1923, while the promisor was alive. The college set the money aside to be held as a scholarship fund for the benefit of students preparing for the ministry. Later, in July, 1924, the promisor gave notice to the college that she repudiated the promise. Upon the expiration of thirty days following her death, this action was brought against the executor of her will to recover the unpaid balance.

The law of charitable subscriptions has been a prolific source of controversy in this State and elsewhere. We have held that a promise of that order is unenforcible like any other if made without consideration (Hamilton College v. Stewart, 1 N. Y. 581; Presb. Church v. Cooper, 112 N. Y. 517; 23rd St. Bap. Church v. Cornell, 117 N. Y. 601). On the other hand, though professing to apply to such subscriptions the general law of contract, we have found consideration present where the general law of contract, at least as then declared, would have said that it was absent (Barnes v. Ferine, 12 N. Y. 18; Presb. Soc. v. Beach, 74 N. Y. 72; Keuka College v. Ray, 167 N. Y. 96; cf. Eastern States League v. Vail, 97 Vt. 495, 508, and cases cited; Y. M. C. A. v. Estill, 140 Ga. 291; Amherest Academy v. Cowls, 6 Pick. 427; Ladies Collegiate Inst. v. French, 16 Gray, 196; Martin v. Meles, 179 Mass. 114; Robinson v. Nutt, 185 Mass. 345; U. of Pa. v. Coxe, 277 Penn. St. 512; Williston, Contracts, § 116).

A classic form of statement identifies consideration with detriment to the promisee sustained by virtue of the promise (Hamer v. Sidway, 124 N. Y. 538; Anson, Contracts [Corbin's ed.], p. 116; 8 Holdsworth, History of English Law, 10). So compendious a formula is little more than a half truth. There is need of many a supplementary gloss before the outline can be so filled in as to depict the classic doctrine. "The promise and the consideration must purport to be the motive each for the other, in whole or at least in part. It is not enough that the promise induces the detriment or that the detriment induces the promise if the other half is wanting" (Wise. & Mich. Ry. Co. v. Powers, 191 U. S. 379, 386; McGovern v. City of N. Y., 234 N. Y. 377, 389; Walton Water Co. v. Village of Walton, 238 N. Y. 46, 51; 1 Williston, Contracts, §139; Langdell, Summary of the Law of Contracts, pp. 82-88). If A promises B to make him a gift, consideration may be lacking, though B has renounced other opportunities for betterment in the faith that the promise will be kept.

The half truths of one generation tend at times to perpetuate themselves in the law as the whole truths of another, when constant repetition brings it about that qualifications, taken once for granted, are disregarded or forgotten. The doctrine of consideration has not escaped the common lot. As far back as 1881, Judge HOLMES in his lectures on the Common Law (p. 292), separated the detriment which is merely a consequence of the promise from the detriment which is in truth the motive or inducement, and yet added that the courts "have gone far in obliterating this distinction." The tendency toward effacement has not lessened with the years. On the contrary, there has grown up of recent days a doctrine that a substitute for consideration or an exception to its ordinary requirements can be found in what is styled " a promissory estoppel " (Williston, Contracts, §§139, 116). Whether the exception has made its way in this State to such an extent as to permit us to say that the general law of consideration has been modified accordingly, we do not now attempt to say. Cases such as Siegel v. Spear & Co. (234 N. Y. 479) and DeCicco v. Schweizer (221 N. Y. 431) may be signposts on the road. Certain, at least, it is that we have adopted the doctrine of promissory estoppel as the equivalent of consideration in connection with our law of charitable subscriptions. So long as those decisions stand, the question is not merely whether the enforcement of a charitable subscription can be squared with the doctrine of consideration in all its ancient rigor. The question may also be whether it can be squared with the doctrine of consideration as qualified by the doctrine of promissory estoppel.

We have said that the cases in this State have recognized this exception, if exception it is thought to be. Thus, in Barnes v. Perine (12 N. Y. 18) the subscription was made without request, express or implied, that the church do anything on the faith of it. Later, the church did incur expense to the knowledge of the promisor, and in the reasonable belief that the promise would be kept. We held the promise binding, though consideration there was none except upon the theory of a promissory estoppel. In Presbyterian Society v. Beach (74 X. Y. 72) a situation substantially the same became the basis for a like ruling. So in Roberts v. Cobb (103 N. Y. 600) and Keuka College v. Ray (167 N. Y. 96) the moulds of consideration as fixed by the old doctrine were subjected to a like expansion. Very likely, conceptions of public policy have shaped, more or less subconsciously, the rulings thus made. Judges have been affected by the thought that "defences of that character" are "breaches of faith toward the public, and especially toward those engaged in the same enterprise, and an unwarrantable disappointment of the reasonable expectations of those interested" (W. F. ALLEN, J., in Barnes v. Perine, supra, page 24; and cf. Eastern States League v. Vail, 97 Vt. 495, 505, and cases there cited). The result speaks for itself irrespective of the motive. Decisions which have stood so long, and which are supported by so many considerations of public policy and reason, will not be overruled to save the symmetry of a concept which itself came into our law, not so much from any reasoned conviction of its justice, as from historical accidents of practice and procedure (8 Holdsworth, History of English Law, 7 et seq.). The concept survives as one of the distinctive features of our legal system. We have no thought to suggest that it is obsolete or on the way to be abandoned. As in the case of other concepts, however, the pressure of exceptions has led to irregularities of form.

It is in this background of precedent that we are to view the problem now before us. The background helps to an understanding of the implications inherent in subscription and acceptance. This is so though we may find in the end that without recourse to the innovation of promissory estoppel the transaction can be fitted within the mould of consideration as established by tradition. The promisor wished to have a memorial to perpetuate her name. She imposed a condition that the "gift" should "be known as the Mary Yates Johnston Memorial Fund." The moment that the college accepted $1,000 as a payment on account, there was an assumption of a duty to do whatever acts were customary or reasonably necessary to maintain the memorial fairly and justly in the spirit of its creation. The college could not accept the money, and hold itself free thereafter from personal responsibility to give effect to the condition (Dinan v. Coneys, 143 N. Y. 544, 547; Brown v. Knapp, 79 N. Y. 136; Gridley v. Gridley, 24 N. Y. 130; Grossman v. Schenker, 206 N. Y. 466, 469; 1 Williston, Contracts, §§90, 370). More is involved in the receipt of such a fund than a mere acceptance of money to be held to a corporate use  (cf. Martin v. Meles, 179 Mass. 114, citing Johnson v. Otterbein University, 41 Ohio St. 527, 531, and Presb. Church v. Cooper, 112 N. Y. 517). The purpose of the founder would be unfairly thwarted or at least inadequately served if the college failed to communicate to the world, or in any event to applicants for the scholarship, the title of the memorial. By implication it undertook, when it accepted a portion of the "gift," that in its circulars of information and in other customary ways, when making announcement of this scholarship, it would couple with the announcement the name of the donor. The donor was not at liberty to gain the benefit of such an undertaking upon the payment of a part and dis- appoint the expectation that there would be payment of the residue. If the college had stated after receiving $1,000 upon account of the subscription that it would apply the money to the prescribed use, but that in its circulars of information and when responding to prospective applicants it would deal with the fund as an anonymous donation, there is little doubt that the subscriber would have been at liberty to treat this statement as the repudiation of a duty impliedly assumed, a repudiation justifying a refusal to make payments in the future. Obligation in such circumstances is correlative and mutual. A case much in point is N. J. Hospital v. Wright (95 N. J. L. 402, 464), where a subscription for the maintenance of a bed in a hospital was held to be enforcible by virtue of an implied promise by the hospital that the bed should be maintained in the name of the subscriber (cf. Bd. of Foreign Missions v. Smith, 209 Tenn. St. 361). A parallel situation might arise upon the endowment of a chair or a fellowship in a university by the aid of annual payments with the condition that it should commemorate the name of the founder or that of a member of his family. The university would fail to live up to the fair meaning of its promise if it were to publish in its circulars of information and elsewhere the existence of a chair or a fellowship in the prescribed subject, and omit the benefactor's name. A duty to act in ways beneficial to the promisor and beyond the application of the fund to the mere uses of the trust would be cast upon the promisee by the acceptance of the money. We do not need to measure the extent either of benefit to the promisor or of detriment to the promisee implicit in this duty. "If a person chooses to make an extravagant promise for an inadequate consideration it is his own affair" (8 Holdsworth, History of English Law, p. 17). It was long ago said that "when a thing is to be done by the plaintiff, be it never so small, this is a sufficient consideration to ground an action" (Sturlyn v. Albany, 1587, Cro. Eliz. 67, quoted by Holdsworth, supra; cf. Walton Water Co. v. Village of Walton, 238 N. Y. 46, 51). The longing for posthumous remembrance is an emotion not so weak as to justify us in saying that its gratification is a negligible good.

We think the duty assumed by the plaintiff to perpetuate the name of the founder of the memorial is sufficient in itself to give validity to the subscription within the rules that define consideration for a promise of that order. When the promisee subjected itself to such a duty at the implied request of the promisor, the result was the creation of a bilateral agreement (Williston, Contracts, §§60-a, 68, 90, 370; Brown v. Knapp, supra; Grossman v. Schenker, supra; Williams College v. Danforth, 12 Pick. 541, 544; Ladies Collegiate Inst. v. French, 16 Gray, 196, 200). There was a promise on the one side and on the other a return promise, made, it is true, by implication, but expressing an obligation that had been exacted as a condition of the payment. A bilateral agreement may exist though one of the mutual promises be a promise "implied in fact," an inference from conduct as opposed to an inference from words (Williston, Contracts, §§90, 22-a; Pettibone v. Moore, 75 Hun, 461, 464). We think the fair inference to be drawn from the acceptance of a payment on account of the subscription is a promise by the college to do what may be necessary on its part to make the scholarship effective. The plan conceived by the subscriber will be mutilated and distorted unless the sum to be accepted is adequate to the end in view. Moreover, the time to affix her name to the memorial will not arrive until the entire fund has been collected. The college may thus thwart the purpose of the payment on account if at liberty to reject a tender of the residue. It is no answer to say that a duty would then arise to make restitution of the money. If such a duty may be imposed, the only reason for its existence must be that there is then a failure of "consideration." To say that there is a failure of consideration is to concede that a consideration has been promised since otherwise it could not fail. No doubt there are times and situations in which limitations laid upon a promisee in connection with the use of what is paid by a subscriber lack the quality of a consideration, and are to be classed merely as conditions (Williston, Contracts, §112; Page, Contracts, §523).

"It is often difficult to determine whether words of condition in a promise indicate a request for consideration or state a mere condition in a gratuitous promise. An aid, though not a conclusive test in determining which construction of the promise is more reasonable is an inquiry whether the happening of the condition will be a benefit to the promisor. If so, it is a fair inference that the happening was requested as a consideration"

(Williston, supra, §112). Such must be the meaning of this transaction unless we are prepared to hold that the college may keep the payment on account, and thereafter nullify the scholarship which is to preserve the memory of the subscriber. The fair implication to be gathered from the whole transaction is assent to the condition and the assumption of a duty to "go forward with performance (DeWolf Co. v. Harvey, 161 Wis. 535; Pullman Co. v. Meyer, 195 Ala. 397, 401; Braniff v. Baier, 101 Kan. 117; cf. Corbin, Offer & Acceptance, 26 Yale L. J. 169, 177, 193; McGovney, Irrevocable Offers, 27 Harv. L. R. 644; Sir Frederick Pollock, 28 L. Q. R. 100, 101). The subscriber does not say: I hand you $1,000, and you may make up your mind later, after my death, whether you will undertake to commemorate my name. What she says in effect is this: I hand you $1,000, and if you are unwilling to commemorate me, the time to speak is now. The conclusion thus reached makes it needless to consider whether, aside from the feature of a memorial, a promissory estoppel may result from the assumption of a duty to apply the fund, so far as already paid, to special purposes not mandatory under the provisions of the college charter (the support and education of students preparing for the ministry), an assumption induced by the belief that other payments sufficient in amount to make the scholarship effective would be added to the fund thereafter upon the death of the subscriber (Ladies Collegiate Inst. v. French, 16 Gray, 196; Barnes v. Perine, 12 N. Y. 18, and cases there cited).

The judgment of the Appellate Division and that of the Trial Term should be reversed, and judgment ordered for the plaintiff as prayed for in the complaint, with costs in all courts.

KELLOGG, J. (dissenting). The Chief Judge finds in the expression "In loving memory this gift shall be known as the Mary Yates Johnston Memorial Fund” an offer on the part of Mary Yates Johnston to contract with Allegheny College. The expression makes no such appeal to me. Allegheny College was not requested to perform any act through which the sum offered might bear the title by which the offeror states that it shall be known. The sum offered was termed a "gift” by the offeror. Consequently, I can see no reason why we should strain ourselves to make it, not a gift, but a trade. Moreover, since the donor specified that the gift was made "In consideration of my interest in Christian education, and in consideration of others subscribing," considerations not adequate in law, I can see no excuse for asserting that it was otherwise made in consideration of an act or promise on the part of the donee, constituting a sufficient quid quo pro to convert the gift into a contract obligation. To me the words used merely expressed an expectation or wish on the part of the donor and failed to exact the return of an adequate consideration. But if an offer indeed was present, then clearly it was an offer to enter into a unilateral contract. The offeror was to be bound provided the offeree performed such acts as might be necessary to make the gift offered become known under the proposed name. This is evidently the thought of the Chief Judge, for he says: "She imposed a condition that the 'gift' should be known as the Mary Yates Johnston Memorial Fund." In other words, she proposed to exchange her offer of a donation in return for acts to be performed. Even so there was never any acceptance of the offer and, therefore, no contract, for the acts requested have never been performed. The gift has never been made known as demanded. Indeed, the requested acts, under the very terms of the assumed offer, could never have been performed at a time to convert the offer into a promise. This is so for the reason that the donation was not to take effect until after the death of the donor, and by her death her offer was withdrawn. (Williston on Contracts, sec. 62.) Clearly, although a promise of the college to make the gift known, as requested, may be implied, that promise was not the acceptance of an offer which gave rise to a contract. The donor stipulated for acts, not promises.

"In order to make a bargain it is necessary that the acceptor shall give in return for the offer or the promise exactly the consideration which the offeror requests. If an act is requested, that very act and no other must be given. If a promise is requested, that promise must be made absolutely and unqualifiedly."

(Williston on Contracts, sec. 73.)

"It does not follow that an offer becomes a promise because it is accepted; it may be, and frequently is, conditional, and then it does not become a promise until the conditions are satisfied; and in case of offers for a consideration, the performance of the consideration is always deemed a condition."

(Langdell, Summary of the Law of Contracts, sec. 4.) It seems clear to me that there was here no offer, no acceptance of an offer, and no contract. Neither do I agree with the Chief Judge that this court  “found consideration present where the general law of contract, at least as then declared, would have said that it was absent" in the cases of Barnes v. Ferine (12 N. Y. 18), Presbyterian Society v. Beach (74 N. Y. 72) and Keuka College v. Ray (167 N. Y. 96). In the Keuka College case an offer to contract, in consideration of the performance of certain acts by the offeree, was converted into a promise by the actual performance of those acts. This form of contract has been known to the law from time immemorial (Langdell, sec. 46) and for at least a century longer than the other type, a bilateral contract. (Williston, sec. 13.) It may be that the basis of the decisions in Barnes v. Perine and Presbyterian, Society v. Beach (supra) was the same as in the Keuka College case. (See Presbyterian Church of Albany v. Cooper, 112 N. Y. 517.) However, even if the basis of the decisions be a so-called " promissory estoppel," nevertheless they initiated no new doctrine. A so-called " promissory estoppel," although not so termed, was held sufficient by Lord MANSFIELD and his fellow judges as far back as the year 1765. (Pillans v. Van Mierop, 3 Burr. 1663.) Such a doctrine may be an anomaly; it is not a novelty. Therefore, I can see no ground for the suggestion that the ancient rule which makes consideration necessary to the formation of every contract is in danger of effacement through any decisions of this court. To me that is a cause for gratulation rather than regret. However, the discussion may be beside the mark, for I do not understand that the holding about to be made in this case is other than a holding that consideration Was given to convert the offer into a promise. With that result I cannot agree and, accordingly, must dissent.

POUND, CRANE, LEHMAN and O'BRIEN, JJ., concur with CARDOZO, Ch. J.; KELLOGG, J. dissents in opinion, in which ANDREWS, J., concurs.

Judgment accordingly.

234 N.Y. 479
WILLIAM SIEGEL, Respondent,
v.
SPEAR & COMPANY, Appellant.
Court of Appeals of New York.

January 16, 1923.

[479] Bailment — where gratuitous bailee of furniture agrees, before receiving same, to procure insurance for owner's benefit and fails to do so it is liable for its loss by fire while in its charge.

Where plaintiff, who had purchased furniture from defendant and was about to leave the city, arranged with defendant's creditman that the plaintiff should send his furniture by his own truck to the defendant's storehouse where defendant would keep it free of charge, and there is evidence sufficient to sustain a finding that, at the time of making these arrangements, and while the furniture was still in plaintiff's possession, the creditman also promised and agreed to insure the furniture for plaintiff's benefit, the promise was part of the whole transaction and was linked up with the gratuitous bailment. The bailee, if such a contract was within its creditman's agency — and his authority to act is not raised by any sufficient exception — was then under as much of an obligation to procure insurance as ho was to take care of the goods, and where no insurance was placed upon the furniture and it was destroyed by flre after delivery at the warehouse the defendant is liable for the loss. (Thome v. Deas, 4 Johns. 84, 99, distinguished and questioned.)

Siegel v. Spear & Co., 195 App. Div. 845, affirmed.

(Submitted November 22, 1922; decided January 16, 1923.)

APPEAL, by permission, from a judgment of the Appellate Division of the Supreme Court in the first judicial department, entered May 17, 1921, which affirmed a determination of the Appellate Term affirming a judgment of the City Court of the city of New York in favor of plaintiff entered upon a verdict.

Alfred A. Walter and Edwin B. Wolff for appellant. There was no consideration for the defendant's alleged promise to effect insurance. (Thorne v. Deas, 4 Johns. 84; Glanzer v. Shepard, 233 N. Y. 236; Nellis v. DeForest, 16 Barb. 61; Ainsworth v. Backus, 4 Hun, 414; Condon v. [480] Exton-Hall Brokerage V. Agency, 80 Misc. Rep. 369; Rose v. U. S. Tel. Co., 3 Abb. Pr. [N. S.] 408; 34 How. Pr. 308; 6 Robt. 305; Boniface v. Relyea, 5 Abb. Pr. [N. S.] 259; 36 How. Pr. 457, 465; 6 Robt. 397; Doupe v. Gennin, 37 How. Pr. 5; 1 Sweeney, 25; Harrigan v. Cahill, 100 Misc. Rep. 48; 164 N. Y. Supp. 1005; Stone v. Demarest, 95 Misc. Rep. 543; 159 N. Y. Supp. 800; Miller v. Inter. Harvester Co., 193 App. Div. 258; 184 N. Y. Supp. 91.) There was no valid contract to secure the issuance of a policy of insurance. (May on Ins. [4th ed.] § 43; Bradley v. Standard L. & Ace. Ins. Co., 112 App. Div. 536; Baptist Church v. Brooklyn Fire Ins. Co., 28 N. Y. 153.)

Lawrence B. Cohen and Gilbert M. Levy for respondent. The plaintiff's abandonment of his purpose to insure, in reliance on the defendant's promise, was a sufficient consideration for the defendant's promise. (Trustees v. Smith, 118 N. Y. 634; Draper v. O. C. Fire Relief Assn., 190 N. Y. 16; Witherell v. Kelly, 195 App. Div. 227.)

CRANE, J.

The plaintiff commenced this action in the City Court of the city of New York to recover his loss sustained by failure of the defendant to insure his household furniture stored in its storehouse. The action is based upon an alleged agreement to insure made with the defendant's creditman. So far the plaintiff has been successful, the Appellate Division, however, certifying that in its opinion there is a question of law involved which should be reviewed by this court.

In August of 1917 and January of 1918 the plaintiff purchased of the defendant certain household furniture for the sum of $909.25 and took it to his apartment in New York city. He gave back to the defendant two chattel mortgages, which provided for monthly payments of the purchase price, and also that the furniture should not be removed from the plaintiff's-residence without the written consent of the mortgagee.

[481] By May of 1918 the plaintiff had paid in all $295. In that month, desiring to move from the city for the summer months and give up his apartment, the plaintiff went to the defendant's place of business in New York city to see about storing his furniture until his return. It was arranged with the defendant's creditman, McGrath, that the plaintiff should send his furniture by his own truck to the defendant's storehouse and that the defendant would keep it for him free of charge. It is claimed that McGrath at the time of making these arrangements also promised and agreed to insure the furniture for the plaintiff's benefit. The furniture had not been insured by the plaintiff at any time. The conversation is given by Mr. Siegel as follows:

"At that time he said, 'You had better transfer your insurance policy over to our warehouse.' I said 'I haven't any insurance. I never thought of taking it out, as I never had time to take it out.' But I said: ' Before the furniture comes down I will have my insurance man, who insures my life, have the furniture insured and transferred over to your place.' He said, 'That won't be necessary to get that from him; I will do it for you; it will be a good deal cheaper; I handle lots of insurance; when you get the next bill — you can send a check for that with the next installment.'"

The furniture was sent to the defendant's storehouse about the 15th of May and about the 15th of the following June was destroyed by fire. No insurance had been placed upon it.

Upon these facts the plaintiff has recovered the amount of his loss. The defendant raises at least two objections to this result. It claims first, that there was no consideration for the alleged agreement made with McGrath to insure the furniture and, second, that McGrath had no authority to make any such contract even if he did.

We are inclined to think that if the contract were made — and we must assume it was as there is evi-[482]dence to sustain the findings of the jury to this effect — there was in the nature of the case a consideration sufficient to sustain the promise. It is, of course, a fact that the defendant undertook to store the plaintiff's property without any compensation. The fact that it had a chattel mortgage upon the property did not affect its relationship as a bailee without pay. Under these circumstances it was not liable for the destruction of the goods by fire unless due to its gross neglect. (Van Zile on Bailments & Carriers, § 93; First Nat. Bank of Lyons v. Ocean Nat. Bank, 60 N. Y. 278.) There is no such element in this case.

But if in connection with taking the goods McGrath also voluntarily undertook to procure insurance for the plaintiff's benefit, the promise was part of the whole transaction and was linked up with the gratuitous bailment. The bailee, if such a contract were within McGrath's agency, was then under as much of an obligation to procure insurance as he was to take care of the goods.

When McGrath stated that he would insure the furniture it was still in the plaintiff's possession. It was after his statements and promises that the plaintiff sent the furniture to the storehouse. The defendant or McGrath entered upon the execution of the trust. It is in this particular that this case differs from Thorne v. Deas (4 Johns. 84, 99) so much relied upon by the defendant. In that case A and B were joint owners of a vessel. A voluntarily undertook to get the vessel insured but neglected to do so. The vessel having been lost at sea it was held that no action would lie against A for the non-performance of his promise, although B had relied upon that promise to his loss. It was said that there was no consideration for the promise. In that case there was the mere naked promise of A that he would insure the vessel. B parted with nothing to A. He gave up possession of none of his property to A, nor of any [483] interest in his vessel. The case would have been decided differently, no doubt, if he had. As Chancellor KENT said in referring to the earlier cases: "There was no dispute or doubt, but that an action upon the case lay for a misfeasance, in the breach of a trust undertaken voluntarily."

The same may be said regarding the case of Brawn v. Lyford (103 Me. 362).

In the case of Rutgers v. Lucet (2 Johns. Cas. 92, 95) the law on this point was stated to be as follows:

"A mere agreement to undertake a trust, in futuro, without compensation, it is true, is not obligatory; but when once undertaken, and the trust actually entered upon, the bailee is bound to perform it, according to the terms of his agreement. The confidence placed in him, and his undertaking to execute the trust, raise a sufficient consideration; a contrary doctrine would tend to injure and deceive his employer, who might be unwilling to consent to the bailment on any other terms."

In Hammond v. Hussey (51 N. H. 40, 50) the court, quoting Professor Parsons, says: " If a person makes a gratuitous promise, and then enters upon the performance of it, he is held to a full execution of all he has undertaken."

Where one had gratuitously undertaken to carry the money of a bailor to a certain place and deliver it to another and after receiving the money the bailee gave it to a neighbor who undertook to make delivery and lost it, it was held that the bailee had violated his trust in handling the money, that he was guilty of gross negligence in not fulfilling the terms of the bailment. (Colyar v. Taylor, 41 Tenn. 372; Van Zile on Bailments & Carriers, § 98; Davis v. Gay, 141 Mass. 531, 534; Isham v. Post, 141 N. Y. 100, 106; Glanzer v. Shepard, 233 N. Y. 236; 6 Ruling Case Law, p. 656, § 67)

From this aspect of the case we think there was a consideration for the agreement to insure. This renders [484] it unnecessary to determine whether the plaintiff in refraining from insuring through his own agent at the suggestion of McGrath surrendered any right which would furnish a consideration for McGrath's promise.

I find that Thome v. Deas (supra) has been seldom cited upon this question of consideration and whether or not we would feel bound to follow it to-day must be left open until the question comes properly before us.

As to McGrath's authority to act in this matter, we do not find the point raised by any sufficient exception. For the reasons here stated, the judgment must be affirmed, with costs.

HISCOCK, Ch. J., HOGAN, CARDOZO, POUND, MCLAUGHLIN and ANDREWS, JJ., concur.

Judgment affirmed.

322 S.W. 2d 163

Anna Sacks FEINBERG (Plaintiff), Respondent,
v.
PFEIFFER COMPANY, a Corporation, Formerly Known as S.
Pfeiffer Manufacturing Co., a Corporation
(Defendant), Appellant.

Nos. 30183, 30204.
St. Louis Court of Appeals, Missouri.
March 17, 1959.
Motion for Rehearing or for Transfer to Supreme Court Denied.
April 13, 1959.

[322 S.W.2d 164] Robert S. Allen; Lewis, Rice, Tucker, Allen & Chubb, St. Louis, for appellant.

J. Leonard Kline, Sylvan Agatstein, St. Louis, for respondent.

DOERNER, Commissioner.

This is a suit brought in the Circuit Court of the City of St. Louis by plaintiff, a former employee of the defendant corporation, on an alleged contract whereby defendant agreed to pay plaintiff the sum of $200 per month for life upon her retirement. A jury being waived, the case was tried by the court alone. Judgment below was for plaintiff for $5,100, the amount of the pension claimed to be due as of the date of the trial, together with interest thereon, and defendant duly appealed.

The parties are in substantial agreement on the essential facts. Plaintiff began working for the defendant, a manufacturer of pharmaceuticals, in 1910, when she was but 17 years of age. By 1947 she had attained the position of bookkeeper, office manager, and assistant treasurer of the defendant, and owned 70 shares of its stock out of a total of 6,503 shares issued and outstanding. Twenty shares had been given to her by the defendant or its then president, she had purchased 20, and the remaining 30 she had acquired by a stock split or stock dividend. Over the years she received substantial dividends on the stock she owned, as did all of the other stockholders. Also, in addition to her salary, plaintiff from 1937 to 1949, inclusive, received each year a bonus varying in amount from $300 in the beginning to $2,000 in the later years.

On December 27, 1947, the annual meeting of the defendant's Board of Directors was held at the Company's offices in St. Louis, presided over by Max Lippman, its then president and largest individual stockholder. The other directors present were George L. Marcus, Sidney Harris, Sol Flammer, and Walter Weinstock, who, with Max Lippman, owned 5,007 of the 6,503 shares then issued and outstanding. At that meeting the Board of Directors adopted the following resolution, which, because it is the crux of the case, we quote in full:

The Chairman thereupon pointed out that the Assistant Treasurer, Mrs. Anna Sacks Feinberg, has given the corporation many years of long and faithful service. Not only has she served the corporation devotedly, but with exceptional ability and skill. The President pointed out that although all of the officers and directors sincerely hoped and desired that Mrs. Feinberg would continue in her present position for as long as she felt able, nevertheless, in view of the length of service which she has contributed provision should be made to afford her retirement privileges and benefits which should become a firm obligation of the corporation to be available to her whenever she should see fit to retire from active duty, however many years in the future such retirement may become effective. It was, accordingly, [322 S.W.2d 165] proposed that Mrs. Feinberg's salary which is presently $350.00 per month, be increased to $400.00 per month, and that Mrs. Feinberg would be given the privilege of retiring from active duty at any time she may elect to see fit so to do upon a retirement pay of $200.00 per month for life, with the distinct understanding that the retirement plan is merely being adopted at the present time in order to afford Mrs. Feinberg security for the future and in the hope that her active services will continue with the corporation for many years to come. After due discussion and consideration, and upon motion duly made and seconded, it was —

Resolved, that the salary of Anna Sacks Feinberg be increased from $350.00 to $400.00 per month and that she be afforded the privilege of retiring from active duty in the corporation at any time she may elect to see fit so to do upon retirement pay of $200.00 per month, for the remainder of her life.

At the request of Mr. Lippman his sons-in-law, Messrs. Harris and Flammer, called upon the plaintiff at her apartment on the same day to advise her of the passage of the resolution. Plaintiff testified on cross-examination that she had no prior information that such a pension plan was contemplated, that it came as a surprise to her, and that she would have continued in her employment whether or not such a resolution had been adopted. It is clear from the evidence that there was no contract, oral or written, as to plaintiff's length of employment, and that she was free to quit, and the defendant to discharge her, at any time.

Plaintiff did continue to work for the defendant through June 30, 1949, on which date she retired. In accordance with the foregoing resolution, the defendant began paying her the sum of $200 on the first of each month. Mr. Lippman died on November 18, 1949, and was succeeded as president of the company by his widow. Because of an illness, she retired from that office and was succeeded in October, 1953, by her son-in-law, Sidney M. Harris. Mr. Harris testified that while Mrs. Lippman had been president she signed the monthly pension check paid plaintiff, but fussed about doing so, and considered the payments as gifts. After his election, he stated, a new accounting firm employed by the defendant questioned the validity of the payments to plaintiff on several occasions, and in the Spring of 1956, upon its recommendation, he consulted the Company's then attorney, Mr. Ralph Kalish. Harris testified that both Ernst and Ernst, the accounting firm, and Kalish told him there was no need of giving plaintiff the money. He also stated that he had concurred in the view that the payments to plaintiff were mere gratuities rather than amounts due under a contractual obligation, and that following his discussion with the Company's attorney plaintiff was sent a check for $100 on April 1, 1956. Plaintiff declined to accept the reduced amount, and this action followed. Additional facts will be referred to later in this opinion.

Appellant's first assignment of error relates to the admission in evidence of plaintiff's testimony over its objection, that at the time of trial she was sixty-five and a half years old, and that she was no longer able to engage in gainful employment because of the removal of a cancer and the performance of a colocholecystostomy operation on November 25, 1957. Its complaint is not so much that such evidence was irrelevant and immaterial, as it is that the trial court erroneously made it one basis for its decision in favor of plaintiff. As defendant concedes, the error (if it was error) in the admission of such evidence would not be a ground for reversal, since, this being a jury-waived case, we are constrained by the statutes to review it upon both the law and the evidence, Sec. 510.310 RSMo 1949, V.A.M.S., and to render such judgment as the court below ought [322 S.W.2d 166] to have given. Section 512.160, Minor v. Lillard, Mo., 289 S.W.2d 1; Thumm v. Lohr, Mo.App., 306 S.W.2d 604. We consider only such evidence as is admissible, and need not pass upon questions of error in the admission and exclusion of evidence. Hussey v. Robinson, Mo., 285 S.W.2d 603. However, in fairness to the trial court it should be stated that while he briefly referred to the state of plaintiff's health as of the time of the trial in his amended findings of fact, it is obvious from his amended grounds for decision and judgment that it was not, as will be seen, the basis for his decision.

Appellant's next complaint is that there was insufficient evidence to support the court's findings that plaintiff would not have quit defendant's employ had she not known and relied upon the promise of defendant to pay her $200 a month for life, and the finding that, from her voluntary retirement until April 1, 1956, plaintiff relied upon the continued receipt of the pension installments. The trial court so found, and, in our opinion, justifiably so. Plaintiff testified, and was corroborated by Harris, defendant's witness, that knowledge of the passage of the resolution was communicated to her on December 27, 1947, the very day it was adopted. She was told at that time by Harris and Flammer, she stated, that she could take the pension as of that day, if she wished. She testified further that she continued to work for another year and a half, through June 30, 1949; that at that time her health was good and she could have continued to work, but that after working for almost forty years she thought she would take a rest. Her testimony continued:

Q. Now, what was the reason — I'm sorry. Did you then quit the employment of the company after you — after this year and a half? A. Yes.

Q. What was the reason that you left? A. Well, I thought almost forty years, it was a long time and I thought I would take a little rest.

Q. Yes. A. And with the pension and what earnings my husband had, we figured we could get along.

Q. Did you rely upon this pension? A. We certainly did.

Q. Being paid?

A. Very much so. We relied upon it because I was positive that I was going to get it as long as I lived.

Q. Would you have left the employment of the company at that time had it not been for this pension?

A. No.

Mr. Allen: Just a minute, I object to that as calling for a conclusion and conjecture on the part of this witness.

The Court: It will be overruled.

Q. (Mr. Agatstein continuing): Go ahead, now. The question is whether you would have quit the employment of the company at that time had you not relied upon this pension plan?

A. No, I wouldn't.

Q. You would not have. Did you ever seek employment while this pension was being paid to you —

A. (interrupting): No.

Q. Wait a minute, at any time prior — at any other place?

A. No, sir.

Q. Were you able to hold any other employment during that time?

A. Yes, I think so.

Q. Was your health good?

A. My health was good.

It is obvious from the foregoing that there was ample evidence to support the findings of fact made by the court below.

We come, then, to the basic issue in the case. While otherwise defined in defendant's third and fourth assignments of error, it is thus succinctly stated in the argument in its brief: “. . . whether plaintiff has proved that she has a right to recover from defendant based upon a legally binding [322 S.W.2d 167] contractual obligation to pay her $200 per month for life.”

It is defendant's contention, in essence, that the resolution adopted by its Board of Directors was a mere promise to make a gift, and that no contract resulted either thereby, or when plaintiff retired, because there was no consideration given or paid by the plaintiff. It urges that a promise to make a gift is not binding unless supported by a legal consideration; that the only apparent consideration for the adoption of the foregoing resolution was the “many years of long and faithful service” expressed therein; and that past services are not a valid consideration for a promise. Defendant argues further that there is nothing in the resolution which made its effectiveness conditional upon plaintiff's continued employment, that she was not under contract to work for any length of time but was free to quit whenever she wished, and that she had no contractual right to her position and could have been discharged at any time.

Plaintiff concedes that a promise based upon past services would be without consideration, but contends that there were two other elements which supplied the required element: First, the continuation by plaintiff in the employ of the defendant for the period from December 27, 1947, the date when the resolution was adopted, until the date of her retirement on June 30, 1949. And, second, her change of position, i. e., her retirement, and the abandonment by her of her opportunity to continue in gainful employment, made in reliance on defendant's promise to pay her $200 per month for life.

We must agree with the defendant that the evidence does not support the first of these contentions. There is no language in the resolution predicating plaintiff's right to a pension upon her continued employment. She was not required to work for the defendant for any period of time as a condition to gaining such retirement benefits. She was told that she could quit the day upon which the resolution was adopted, as she herself testified, and it is clear from her own testimony that she made no promise or agreement to continue in the employ of the defendant in return for its promise to pay her a pension. Hence there was lacking that mutuality of obligation which is essential to the validity of a contract. Middleton v. Holecraft, Mo.App., 270 S.W.2d 90; Solace v. T. J. Moss Tie Co., Mo.App., 142 S.W.2d 1079; Aslin v. Stoddard County, 341 Mo. 138, 106 S.W.2d 472; Fuqua v. Lumbermen's Supply Co., 229 Mo.App. 210, 76 S.W.2d 715; Hudson v. Browning, 264 Mo. 58, 174 S.W. 393; Campbell v. American Handle Co., 117 Mo.App. 19, 94 S.W. 815.

But as to the second of these contentions we must agree with plaintiff. By the terms of the resolution defendant promised to pay plaintiff the sum of $200 a month upon her retirement. Consideration for a promise has been defined in the Restatement of the Law of Contracts, Section 75, as:

(1) Consideration for a promise is

(a) an act other than a promise, or

(b) a forbearance, or

(c) the creation, modification or destruction of a legal relation, or

(d) a return promise, bargained for and given in exchange for the promise.

As the parties agree, the consideration sufficient to support a contract may be either a benefit to the promisor or a loss or detriment to the promisee. Industrial Bank & Trust Co. v. Hesselberg, Mo., 195 S.W.2d 470; State ex rel. Kansas City v. State Highway Commission, 349 Mo. 865, 163 S.W.2d 948; Duvall v. Duncan, 341 Mo. 1129, 111 S.W.2d 89; Thompson v. McCune, 333 Mo. 758, 63 S.W.2d 41.

Section 90 of the Restatement of the Law of Contracts states that: “A promise which the promisor should reasonably expect to induce action or forbearance of a [322 S.W.2d 168] definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.” This doctrine has been described as that of “promissory estoppel,” as distinguished from that of equitable estoppel or estoppel in pais, the reason for the differentiation being stated as follows:

It is generally true that one who has led another to act in reasonable reliance on his representations of fact cannot afterwards in litigation between the two deny the truth of the representations, and some courts have sought to apply this principle to the formation of contracts, where, relying on a gratuitous promise, the promisee has suffered detriment. It is to be noticed, however, that such a case does not come within the ordinary definition of estoppel. If there is any representation of an existing fact, it is only that the promisor at the time of making the promise intends to fulfill it. As to such intention there is usually no misrepresentation and if there is, it is not that which has injured the promisee. In other words, he relies on a promise and not on a misstatement of fact; and the term “promissory” estoppel or something equivalent should be used to make the distinction.

Williston on Contracts, Rev. Ed., Sec. 139, Vol. 1.

In speaking of this doctrine, Judge Learned Hand said in Porter v. Commissioner of Internal Revenue, 2 Cir., 60 F.2d 673, 675, that “. . . 'promissory estoppel' is now a recognized species of consideration.”

As pointed out by our Supreme Court in In re Jamison's Estate, Mo., 202 S.W.2d 879, 887, it is stated in the Missouri Annotations to the Restatement under Section 90 that:

"'There is a variance between the doctrine underlying this section and the theoretical justifications that have been advanced for the Missouri decisions.'"

That variance, as the authors of the Annotations point out, is that:

This §90, when applied with §85, means that the promise described is a contract without any consideration. In Missouri the same practical result is reached without in theory abandoning the doctrine of consideration. In Missouri three theories have been advanced as ground for the decisions (1) Theory of act for promise. The induced 'action or forbearance' is the consideration for the promise. Underwood Typewriter Co. v. Century Realty Co. (1909) 220 Mo. 522, 119 S.W. 400, 25 L.R.A., N.S., 1173. See Sec. 76. (2) Theory of promissory estoppel. The induced 'action or forbearance' works an estoppel against the promisor. (Citing School District of Kansas City v. Sheidley (1897) 138 Mo. 672, 40 S. W. 656 [37 L.R.A. 406]) . . . (3) Theory of bilateral contract. When the induced 'action or forbearance' is begun, a promise to complete is implied, and we have an enforceable bilateral contract, the implied promise to complete being the consideration for the original promise.

(Citing cases.)

Was there such an act on the part of plaintiff, in reliance upon the promise contained in the resolution, as will estop the defendant, and therefore create an enforceable contract under the doctrine of promissory estoppel? We think there was. One of the illustrations cited under Section 90 of the Restatement is: “2. A promises B to pay him an annuity during B's life. B thereupon resigns a profitable employment, as A expected that he might. B receives the annuity for some years, in the meantime becoming disqualified from again obtaining good employment. A's promise is binding.” This illustration is objected to by defendant as not being applicable to the case at hand. The reason advanced by it is [322 S.W.2d 169] that in the illustration B became “disqualified” from obtaining other employment before A discontinued the payments, whereas in this case the plaintiff did not discover that she had cancer and thereby became unemployable until after the defendant had discontinued the payments of $200 per month. We think the distinction is immaterial. The only reason for the reference in the illustration to the disqualification of A is in connection with that part of Section 90 regarding the prevention of injustice. The injustice would occur regardless of when the disability occurred. Would defendant contend that the contract would be enforceable if the plaintiff's illness had been discovered on March 31, 1956, the day before it discontinued the payment of the $200 a month, but not if it occurred on April 2nd, the day after? Furthermore, there are more ways to become disqualified for work, or unemployable, than as the result of illness. At the time she retired plaintiff was 57 years of age. At the time the payments were discontinued she was over 63 years of age. It is a matter of common knowledge that it is virtually impossible for a woman of that age to find satisfactory employment, much less a position comparable to that which plaintiff enjoyed at the time of her retirement.

The fact of the matter is that plaintiff's subsequent illness was not the “action or forbearance” which was induced by the promise contained in the resolution. As the trial court correctly decided, such action on plaintiff's part was her retirement from a lucrative position in reliance upon defendant's promise to pay her an annuity or pension. In a very similar case, Ricketts v. Scothorn, 57 Neb. 51, 77 N.W. 365, 367, 42 L.R.A. 794, the Supreme Court of Nebraska said:

. . . According to the undisputed proof, as shown by the record before us, the plaintiff was a working girl, holding a position in which she earned a salary of $10 per week. Her grandfather, desiring to put her in a position of independence, gave her the note accompanying it with the remark that his other grandchildren did not work, and that she would not be obliged to work any longer. In effect, he suggested that she might abandon her employment, and rely in the future upon the bounty which he promised. He doubtless desired that she should give up her occupation, but, whether he did or not, it is entirely certain that he contemplated such action on her part as a reasonable and probable consequence of his gift. Having intentionally influenced the plaintiff to alter her position for the worse on the faith of the note being paid when due, it would be grossly inequitable to permit the maker, or his executor, to resist payment on the ground that the promise was given without consideration.

The Commissioner therefore recommends, for the reasons stated, that the judgment be affirmed.

PER CURIAM. The foregoing opinion by DOERNER, C., is adopted as the opinion of the court. The judgment is, accordingly, affirmed.

WOLFE, P. J., and ANDERSON and RUDDY, JJ., concur.

PETERS, C. J., DANNEHY, SANTANIELLO, CALLAHAN and KLINE, JS.

[207] Thomas E. Crosby, for the appellants (defendants).

Joseph D. Garrison, with whom was Nancy E. Fey, for the appellee (plaintiff).

PETERS, C. J.

This case arises out of the failure of a school board to rehire a nontenured teacher despite representations that she would receive a new employment contract. The plaintiff, Maria D'Ulisse-Cupo, filed a three count complaint against the defendants, the board of directors of Notre Dame High School and the principal of the school, George Schmitz, seeking damages premised on liability for breach of contract and negligent misrepresentation. The trial court rendered judgment against her after granting the motion of the defendants to strike all three counts of her complaint for failure to state a cause of action. Upon appeal to the Appellate Court, that court found error and remanded the case for further trial court proceedings on all counts. D'Ulisse-Cupo v. Board of Directors of Notre Dame High School, 6 Conn. App. 153, 503 A.2d 1192 (1986). We granted certification at the request of the defendants and now conclude that the Appellate Court's judgment must be reversed with respect to the plaintiff's contract counts, so that further trial court proceedings will be limited to the plaintiff's tort claim only.

[208] Since this appeal is before us pursuant to a motion to strike, we take the facts to be those alleged in the plaintiff's complaint and construe the complaint in the manner most favorable to the pleader. Norwich v. Silverberg, 200 Conn. 367, 370, 511 A.2d 336 (1986); Mead v. Burns, 199 Conn. 651, 655, 509 A.2d 11 (1986); Cavallo v. Derby Savings Bank, 188 Conn. 281, 283, 449 A.2d 986 (1982); Sheets v. Teddy's Frosted Foods, Inc., 179 Conn. 471, 472, 427 A.2d 385 (1980); Stradmore Development Corporation v. Commissioners, 164 Conn. 548, 550-51, 324 A.2d 919 (1973). "`For purposes of appeal, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted....'" Mead v. Burns, supra; DeMello v. Plainville, 170 Conn. 675, 677, 368 A.2d 71 (1976); McAnerney v. McAnerney, 165 Conn. 277, 282, 334 A.2d 437 (1973).

The plaintiff alleged the following facts in her complaint. From September, 1981, to June, 1983, she taught Spanish and Italian to ninth and tenth grade students at Notre Dame High School in West Haven. During that period, she was employed under an employment contract which expired in June, 1983. On or about March 21, 1983, the defendant Schmitz, the school principal, orally represented to the plaintiff, during a performance review, that "there would be no problem with her teaching certain courses and levels the following year, that everything looked fine for rehire for the next year, and that she should continue her planning for the exchange program" which she organized for the school. Shortly thereafter, during the week of April 11, 1983, Schmitz or his authorized representative posted a written notice on a bulletin board in the school stating: "All present faculty members will be offered contracts for next year." Upon her return from an exchange trip to Italy, the plaintiff was again informed that she would have a teaching contract for the following year. On [209] or about May 4, 1983, however, the plaintiff was told by school officials that, due to staff cutbacks in various departments, her teaching contract would not be renewed.

The complaint further alleged that Schmitz interviewed the plaintiff for a position in the English department on or about May 27, 1983. Schmitz told the plaintiff and other teachers that the defendants would do everything possible to avoid discharging them. Subsequently, instead of hiring the plaintiff for the position available in the English department, the defendants hired an outside applicant for that position. Furthermore, the defendants allegedly failed to explore alternative job opportunities for the plaintiff or to offer her any substitute teaching positions for which she was qualified and available.

The three counts of the plaintiff's complaint sought recovery of damages on the following legal theories: (1) breach of contract arising out of the defendants' failure to rehire the plaintiff despite oral and written promises of a new contract, on which the plaintiff relied to her detriment; (2) liability in tort because of negligent misrepresentions that the plaintiff would be rehired to teach for a third year, representations on which the plaintiff relied to her detriment; and (3) breach of contract arising out of the defendants' oral promises to avoid discharging teachers unnecessarily and to offer the plaintiff substitute teaching positions, promises on which the plaintiff relied to her detriment. The complaint further alleged that, as a result of these wrongful actions by the defendants, the plaintiff suffered the following damages: the stress of unemployment, loss of esteem, damage to her professional career and reputation, lost wages and fringe benefits, and mental and physical pain and suffering.

[210] The defendants moved to strike the complaint on the ground that it failed to state a claim upon which relief could be granted. The trial court granted the motion as to all three counts for reasons articulated in its memorandum of decision. On the first count, which alleged, inter alia, that the plaintiff had been wrongfully discharged, the court concluded that no cause of action had been stated because the doctrine of wrongful discharge protects only employees at will. Magnan v. Anaconda Industries, Inc., 193 Conn. 558, 569, 479 A.2d 781 (1984); Sheets v. Teddy's Frosted Foods, Inc., 179 Conn. 471, 477, 427 A.2d 385 (1980). Relying on the allegations in the complaint, the court found that the plaintiff was not an employee at will, but rather an employee hired pursuant to a term contract of fixed duration. The court therefore found that the plaintiff had not been discharged from her employment; she simply had not been rehired upon the expiration of her contract. The court struck the second count, sounding in negligent misrepresentation, because the plaintiff did not allege that the defendants had "fail[ed] to exercise reasonable care or competence in obtaining or communicating the information." 3 Restatement (Second), Torts (1979) § 552. The court determined that the third count, which alleged a further claim for breach of contract, failed to establish such a claim because there was no allegation that the defendants had offered the plaintiff future employment or that she had accepted such an offer. Alternatively, the court found that the third count failed to state a claim grounded in detrimental reliance because there was no allegation that the defendants, by virtue of their representations to the plaintiff, had "reasonably expect[ed] to induce action or forbearance" of a definite and substantial character. 1 Restatement (Second), Contracts § 90 (1979).

In reviewing the judgment of the trial court, the Appellate Court addressed each count of the complaint [211] separately. The court initially determined that the first count, although cast as a claim for wrongful discharge, was in fact a claim based on a theory of implied contract arising out of the defendants' alleged promises to rehire the plaintiff. D`Ulisse-Cupo v. Board of Directors of Notre Dame High School, supra, 157.<sup>[1]</sup> The complaint contained allegations that the defendants had made representations concerning rehiring and promises that "all present faculty members will be offered contracts for next year." The court determined that these allegations, coupled with the allegation that the plaintiff had relied on these promises to her detriment, formed the basis of an actionable claim for breach of an implied promise to rehire. Id., 159.<sup>[2]</sup> With respect [212] to the second count, the court concluded that, even absent formal invocation of all of the language of § 552 of the Restatement Second of Torts (1979), the plaintiff's allegation of negligent misrepresentation was sufficient to withstand a motion to strike. D`Ulisse-Cupo v. Board of Directors of Notre Dame High School, supra, 160. Addressing the third count, the court found that, although the plaintiff had not pleaded that the defendants "reasonably expected to induce action or forbearance" in making various representations to the plaintiff, that count likewise stated a claim for breach of an implied contract based on a theory of promissory estoppel. Id. The Appellate Court therefore set aside the judgment of the trial court and remanded the case for further proceedings.

In their appeal to this court following our granting of their petition for certification, the defendants challenge each of these conclusions of the Appellate Court. We agree with their claims with regard to the contract counts, counts one and three, but we disagree with respect to the second count alleging liablity for tortious misrepresentation.

I

We will address jointly the defendants' attack on counts one and three, both of which contest the Appellate Court's conclusions that the various oral and written representations made by the defendants are promises that are enforceable under the doctrine of promissory estoppel. In contesting the first count, the defendants [213] maintained that the oral and written representations they had made regarding their intent to rehire the plaintiff for a third year did not rise to the level of promises which are enforceable based on detrimental reliance. They further argued that the third count should also be stricken because their subsequent oral representations to the plaintiff, that they would make every effort to avoid discharging teachers and to find alternate employment for the plaintiff, likewise did not amount to promises on which the plaintiff could reasonably have relied. We find both of these arguments persuasive.

Under the law of contract, a promise is generally not enforceable unless it is supported by consideration. E. Farnsworth, Contracts (1982) § 2.9, p. 89; A. Corbin, Contracts (1963) § 193, p. 188. This court has recognized, however, the "development of liability in contract for action induced by reliance upon a promise, despite the absence of common-law consideration normally required to bind a promisor; see Restatement (Second), Contracts § 90 (1973)." Sheets v. Teddy's Frosted Foods, Inc., supra, 475; Hebrew University Assn. v. Nye, 148 Conn. 223, 232, 169 A.2d 641 (1961); see A. Corbin, supra, § 194, p. 193. Section 90 of the Restatement Second states that under the doctrine of promissory estoppel "[a] promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise." A fundamental element of promissory estoppel, therefore, is the existence of a clear and definite promise which a promisor could reasonably have expected to induce reliance. Thus, a promisor is not liable to a promisee who has relied on a promise if, judged by an objective standard, he had no reason to expect any reliance at all. E. Farnsworth, supra, § 2.19, p. 95.

[214] In reviewing the legal sufficiency of the claims based on detrimental reliance alleged in the first and third counts, the question before us is whether the various oral and written statements made by the defendants constituted promises within the meaning of § 90 of the Restatement Second. Count one alleges three distinct representations on which the plaintiff allegedly relied to her detriment. The first is the defendant Schmitz's oral representation "that there would be no problem with her teaching certain courses and levels the following year, that everything looked fine for her rehire for the next year, and that she should continue her planning for the exchange program." The second is the notice posted on the school bulletin board stating: "All present faculty members will be offered contracts for next year."^[3] The third is a subsequent representation to the plaintiff again informing her that she would have a contract for the following year.

We agree with the defendants that these representations do not invoke a cause of action for promissory estoppel because they are neither sufficiently promissory nor sufficiently definite to support contractual liability. The statements alleged to be actionable in the first count were, on their face, no more than representations indicating that the defendants intended to enter into another employment contract with the plaintiff at some time in the future. There is no claim that these representations were not made in good faith. Contrary to the plaintiff's assertion, these representations manifested no present intention on the part of the defendants [215] to undertake immediate contractual obligations to the plaintiff. See, e.g., Local 1330, United Steel Workers v. United States Steel Corporation, 631 F.2d 1264, 1279 (6th Cir. 1980); Abbington v. Dayton Malleable, Inc., 561 F. Sup. 1290, 1297 (S.D. Ohio 1983), aff'd, 738 F.2d 438 (6th Cir. 1984); A & M Fix-It, Inc. v. Schwinn Bicycle Co., 494 F. Sup. 175, 178 (D. Utah 1980); Pacific Cascade Corporation v. Nimmer, 25 Wash. App. 552, 559, 608 P.2d 266 (1980). Furthermore, none of the representations contained any of the material terms that would be essential to an employment contract, such as terms regarding the duration and conditions of the plaintiff's employment, and her salary and fringe benefits. Augeri v. C.F. Wooding Co., 173 Conn. 426, 429-30, 378 A.2d 538 (1977); A. Corbin, supra, § 95. At most, the defendants made representations to the plaintiff concerning the expectation of a future contract, but they stopped short of making the plaintiff a definite promise of employment on which she could reasonably have relied.

The oral promises alleged in the third count, on which the plaintiff also claims to have relied to her detriment, are even more tenuous than those alleged in the first count. After determining that student enrollment levels had declined, the defendant Schmitz allegedly told the plaintiff, in May of 1983, that the defendants would do everything possible to avoid discharging teachers. Nonetheless, the defendants subsequently hired an outside applicant, rather than the plaintiff, for a one year position available in the English department. The defendants also failed to offer the plaintiff substitute teaching positions for which she was allegedly qualified and available. At oral argument before this court, although the defendants conceded having made conciliatory statements of this nature to the plaintiff and other teachers, the defendants continued to maintain their position that these representations were not [216] intended as a guarantee of future employment on which the plaintiff or others were intended to rely. Possibly, as the plaintiff contends, the defendants did not do everything within their power to retain the plaintiff as an employee. In light of the vagueness and indefiniteness of their representations, however, and our underlying concern that "courts should not lightly intervene to impair the exercise of managerial discretion"; Sheets v. Teddy's Frosted Foods, Inc., supra, 477; we conclude that an offer to use best efforts does not, in and of itself, impose contractual liability in the circumstances alleged in this case.

Because we disagree with the Appellate Court in its characterization of the plaintiff's complaint with respect to counts one and three, we reverse its judgment relating thereto. We note, for the sake of completeness, that the plaintiff has abandoned any claim that she may recover from the defendants, under count one, on a theory of wrongful discharge.^[4] No further proceedings [217] are warranted, therefore, with respect to counts one and three.

II

The defendants' final challenge to the judgment of the Appellate Court claims error in its ruling that the second count states a cause of action in tort for negligent misrepresentation. The second count incorporated by reference all but one of the factual allegations detailed in the paragraphs set forth in the first count, and further alleged that "[t]he defendants negligently misrepresented the facts to the plaintiff, causing her damages as pled." The defendants contend that this count must be stricken because it does not allege that the defendants "fail[ed] to exercise reasonable care or competence in obtaining or communicating the information," which is the language used in § 552 of the Restatement Second of Torts (1979) to define negligence for purposes of such a claim. According to the defendants, the mere allegation that "[t]he defendants negligently misrepresented the facts to the plaintiff," even coupled with the facts alleged in the first count in support of that claim, was insufficient to sustain a cause of action for negligent misrepresentation. We disagree.

This court has long recognized liability for negligent misrepresentation. We have held that even an innocent misrepresentation of fact "may be actionable if the declarant has the means of knowing, ought to know, or has the duty of knowing the truth." Richard v. A. Waldman & Sons, Inc., 155 Conn. 343, 346, 232 A.2d 307 (1967); see also J. Frederick Scholes Agency v. Mitchell, 191 Conn. 353, 359, 464 A.2d 795 (1983); Johnson v. Healy, 176 Conn. 97, 102, 405 A.2d 54 (1978); Warman v. Delaney, 148 Conn. 469, 473, 172 A.2d 188 (1961); Boucher v. Valus, 6 Conn. Cir. Ct. 661, 665-66, 298 A.2d 238 (1972). The governing principles are set forth in similar terms in § 552 of the Restatement [218] Second of Torts (1979): "One who, in the course of his business, profession or employment ... supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information." See also Ultramares Corporation v. Touche, 255 N.Y. 170, 174 N.E. 441 (1931); Glanzer v. Shepard, 233 N.Y. 236, 135 N.E. 275 (1922); W. Prosser & W.P. Keeton, Torts (5th Ed. 1984) § 107, p. 745.

The defendants argue, initially, that if they cannot be held liable in contract for their representations based on promissory estoppel, they likewise cannot be held liable in tort for negligent misrepresentation. For purposes of a cause of action for negligent misrepresentation, however, the plaintiff need not prove that the representations made by the defendants were promissory. It is sufficient to allege that the representations contained false information. The gravamen of the defendants' alleged negligence is that the defendants made unconditional representations of their plans to rehire the plaintiff, when in fact the defendants knew or should have known that hiring plans would be contingent upon student enrollment levels for the following year.^[5]Richard v. A. Waldman & Sons, Inc., supra, 346; 3 Restatement (Second), Torts (1979) § 552, comment. The defendants ultimately relied on declining student enrollment levels as the justification for the staff cutbacks that resulted in the elimination of the plaintiff's teaching position. If the plaintiff's complaint [219] otherwise contains the necessary elements of negligent misrepresentation, it survives a motion to strike even though the first and third counts grounded in promissory estoppel must fall.

The defendants further object to the allegation of negligent misrepresentation on the ground that the complaint fails to explain the nature of the defendants' negligence, and instead alleges, in mere conclusory fashion, that the defendants "negligently misrepresented" certain facts. The defendants insist that the second count is fatally defective because it lacks an express allegation that the defendants "fail[ed] to exercise reasonable care or competence in obtaining or communicating the information." 3 Restatement (Second), Torts (1979) § 552. They offer no authority, however, for the proposition that the pleader must use the precise language of the Restatement Second to establish a claim for negligent misrepresentation. Although numerous courts have quoted directly from the Restatement Second in describing the elements of an action for negligent misrepresentation, we have discovered no cases, nor have the defendants furnished any, in which a court has struck a claim for negligent misrepresentation merely because the complaint lacked such an allegation. Stagen v. Stewart West Coast Title Co., 149 Cal. App. 3d 114, 119, 196 Cal. Rptr. 732 (1983); Eby v. York-Division, Borg-Warner, 455 N.E.2d 623, 628 (Ind. App. 1983); Tober's, Inc. v. Portsmouth Housing Authority, 116 N.H. 660, 663, 367 A.2d 603 (1976); Berry v. Playboy Enterprises, Inc., 195 N.J. Super. 520, 531, 480 A.2d 941 (1984), cert. denied, 99 N.J. 231, 491 A.2d 720 (1985); Rosenthal v. Blum, 529 S.W.2d 102, 104 (Tex. Civ. App. 1975). To the contrary, the case law in numerous jurisdictions suggests that courts liberally construe the pleadings in a way so as to sustain such a claim, particularly where the allegations in a complaint indicate, on their face, that an employer [220] failed to exercise reasonable care in making representations to an employee on which the employee relied to his detriment. McAfee v. Rockford Coca-Cola Bottling Co., 40 Ill. App. 3d 521, 527, 352 N.E.2d 50 (1976); Eby v. York-Division, Borg-Warner, supra, 629; Berry v. Playboy Enterprises, Inc., supra, 531-32; see also Muraoka v. Budget Rent-A-Car, Inc., 160 Cal. App. 3d 107, 119, 206 Cal. Rptr. 476 (1984); First National Bank v. Collins, 44 Colo. App. 228, 230, 616 P.2d 154 (1980); Rosenthal v. Blum, supra, 105.

In our view, the plaintiff's allegation that "the defendants negligently misrepresented the facts to the plaintiff" necessarily implied that the defendants did not exercise reasonable care or competence in communicating with the plaintiff about her prospects for reemployment.^[6] Although the complaint could have alleged the nature of the defendants' negligence more precisely, the lack of linguistic specificity does not warrant striking the second count. As the Appellate Court noted, under the rules of practice governing pleading, a party may plead legal effect as long as the pleading "fairly [apprises] the adverse party of the state of facts which it is intended to prove." Practice Book § 109; see Practice Book § 108. We agree with the Appellate Court that the facts alleged by the plaintiff in this case fairly apprised the defendants of her intent to pursue a claim for negligent misrepresentation. Moreover, if the defendants were in doubt as to the nature of this claim or the legal theory underlying it, they could "have sought a more particular description of the negligence charged" by filing a request to revise. Scribner v. O'Brien, Inc., 169 Conn. 389, 399, 363 A.2d 160 (1975);

[221] Practice Book § 147; Fuessenich v. DiNardo, 195 Conn. 144, 148, 487 A.2d 514 (1985); Manning v. Michael, 188 Conn. 607, 617, 452 A.2d 1157 (1982). The defendants in this case never filed such a request. We conclude, therefore, that the Appellate Court correctly determined that the plaintiff's allegation of negligent misrepresentation contained in the second count is sufficient to withstand a motion to strike. We affirm their holding that further proceedings are required on the second count.

The judgment of the Appellate Court is reversed in part and the court is directed to remand the case for further proceedings in the trial court with respect to count two only.

In this opinion the other justices concurred.

[1] The plaintiff framed the first count, at least in part, as a claim for wrongful discharge. The Appellate Court first interpreted this claim as an allegation of wrongful termination arising out of the defendants' failure to rehire the plaintiff. D'Ulisse-Cupo v. Board of Directors of Notre Dame High School, 6 Conn. App. 153, 157, 503 A.2d 1192 (1986). The court therefore analyzed this claim in the context of recent case law in this state addressing the doctrine of wrongful discharge. See Magnan v. Anaconda Industries, Inc., 193 Conn. 558, 479 A.2d 781 (1984); Sheets v. Teddy's Frosted Foods, Inc., 179 Conn. 471, 427 A.2d 385 (1980); Finley v. Aetna Life & Casualty Co., 5 Conn. App. 394, 499 A.2d 64 (1985). The court's reliance on this line of cases, particularly on Finley v. Aetna Life & Casualty Co., supra, was misplaced because the right to recover in tort for wrongful discharge extends only to employees at will. As a general rule, contracts of permanent employment, or for an indefinite term, are terminable at will. Somers v. Cooley Chevrolet Co., 146 Conn. 627, 629, 153 A.2d 426 (1959); Fisher v. Jackson, 142 Conn. 734, 736, 118 A.2d 316 (1955). The doctrine of wrongful discharge, a narrow exception to this rule, provides that an employer may be liable for discharge of an at will employee at least in cases "where the discharge contravenes a clear mandate of public policy." Sheets v. Teddy's Frosted Foods, Inc., supra, 474. The plaintiff in this case, who was employed by the defendants pursuant to a term contract of fixed duration, was not an employee at will. She therefore was not entitled to invoke the doctrine of wrongful discharge.

[2] The Appellate Court incorrectly analyzed the first and third counts based on a theory of breach of an implied in fact contract. "A contract implied in fact, like an express contract, depends on actual agreement." Therrien v. Safeguard Mfg. Co., 180 Conn. 91, 94, 429 A.2d 808 (1980); Brighenti v. New Britain Shirt Corporation, 167 Conn. 403, 406, 356 A.2d 181 (1974); Corriveau v. Jenkins Bros., 144 Conn. 383, 387, 132 A.2d 67 (1957). Neither the first count nor the third count alleges that the defendants "agreed, either by words or action or conduct, to undertake any form of actual contract commitment" to the plaintiff. Therrien v. Safeguard Mfg. Co., supra, 94-95. Thus, the plaintiff's only viable claim for recovery in contract rests on the doctrine of promissory estoppel. We therefore review the legal sufficiency of the first and third counts by analyzing them as claims based on promissory estoppel.

[3] The plaintiff seeks to equate this notice with statements regarding terms of employment made by an employer in a personnel policy manual. In Finley v. Aetna Life & Casualty Co., 202 Conn. 190, 520 A.2d 208 (1987), we concluded that it is a question of fact for the jury whether statements made in a policy manual constitute a binding employment contract which modifies an otherwise at will employment relationship. We conclude that in this case the general notice regarding rehiring that was posted on the bulletin board is not the equivalent of such statements made in a policy manual.

[4] Practice Book § 4013 (a) (1) (formerly § 3012 [a]), made applicable to proceedings after certification by Practice Book § 4140 (formerly § 3158), provides in relevant part: "If the appellee wishes to present for review alternate grounds upon which the judgment may be affirmed, or if he wishes to present for review adverse rulings or decisions of the court which should be considered on appeal in the event the appellant is awarded a new trial... he shall file a preliminary statement of issues within fourteen days from the filing of the appellant's preliminary statement of issues." An appellee who is aggrieved by the decision of the Appellate Court may file a cross petition for certification within ten days of the filing of the appellant's petition. Practice Book § 4131 (formerly § 3141); State v. Torrence, 196 Conn. 430, 434 n.6, 493 A.2d 865 (1985); see Hartford v. Freedom of Information Commission, 201 Conn. 421, 433, 518 A.2d 49 (1986). If the plaintiff wished to pursue her claim for wrongful discharge, she should have filed in this court a cross petition for certification, which she failed to do. Moreover, the plaintiff conceded at oral argument that she was not an employee at will. Having been employed under a term contract, she was not within the class of persons protected by the doctrine of wrongful discharge. She further conceded that the use of the term "wrongful discharge" in paragraph twelve of her complaint was inaccurate because she was never discharged; she simply was not rehired upon the expiration of her contract.

[5] The complaint alleges generally that the "plaintiff relied to her detriment on these representations" and does not specifically describe the nature of the plaintiff's detrimental reliance. The plaintiff explained at oral argument that her reliance was in the nature of forbearance. She did not search for other employment, relying instead on the defendants' representations that she would be rehired.

[6] Negligence has been defined as the "failure to use such care as a reasonably prudent and careful person would use under similar circumstances; it is the doing of some act which a person of ordinary prudence would not have done under similar circumstances...." Black's Law Dictionary (5th Ed. 1979).

I. M. Singer, Corpus Christi, for appellant.

Chas. F. Guenther, Jr., San Antonio, R. G. Harris, San Antonio, W. Pat Camp, San Antonio, for appellee.

McGILL, Justice.

This is an appeal from a judgment of the 57th judicial District Court of Bexar County. Appellant was plaintiff and appellee was defendant in the trial court. The parties will be so designated.

Plaintiff sued defendant to recover $2,000 with interest at the rate of 8% per annum from April 2, 1942, alleged to be due on the following instrument, being a translation from the original, which is written in the Greek language:

'Peiraeus

April 2, 1942

'Mr. George Batsakis

Konstantinou Diadohou #7

Peiraeus

'Mr. Batsakis:

'I state by my present (letter) that I received today from you the amount of two thousand dollars ($2,000.00) of United States of America money, which I borrowed from you for the support of my family during these difficult days and because it is impossible for me to transfer dollars of my own from America.

'The above amount I accept with the expressed promise that I will return to you again in American dollars either at the end of the present war or even before in the event that you might be able to find a way to collect them (dollars) from my representative in America to whom I shall write and give him an order relative to this You understand until the final execution (payment) to the above amount an eight per cent interest will be added and paid together with the principal.

'I thank you and I remain yours with respects.

'The recipient,

(Signed) Eugenia The. Demotsis.'

Trial to the court without the intervention of a jury resulted in a judgment in favor of plaintiff for $750.00 principal, and interest at the rate of 8% per annum from April 2, 1942 to the date of judgment, totaling $1163.83, with interest thereon at the rate of 8% per annum until paid. Plaintiff has perfected his appeal.

The court sustained certain special exceptions of plaintiff to defendant's first amended original answer on which the case was tried, and struck therefrom paragraphs II, III and V. Defendant excepted to such action of the court, but has not cross-assigned error here. The answer, stripped of such paragraphs, consisted of a general denial contained in paragraph I thereof, and of paragraph IV, which is as follows:

'IV. That under the circumstances alleged in Paragraph II of this answer, the consideration upon which said written instrument sued upon by plaintiff herein is founded, is wanting and has failed to the extent of $1975.00, and defendant pleads specially under the verification hereinafter made the want and failure of consideration stated, and now tenders, as defendant has heretofore tendered to plaintiff, $25.00 as the value of the loan of money received by defendant from plaintiff, together with interest thereon.

'Further, in connection with this plea of want and failure of consideration defendant alleges that she at no time received from plaintiff himself or from anyone for plaintiff any money or thing of value other than, as hereinbefore alleged, the original loan of 500,000 drachmae. That at the time of the loan by plaintiff to defendant of said 500,000 drachmae the value of 500,000 drachmae in the Kingdom of Greece in dollars of money of the United States of America, was $25.00, and also at said time the value of 500,000 drachmae of Greek money in the United States of America in dollars was $25.00 of money of the United States of America. The plea of want and failure of consideration is verified by defendant as follows.'

The allegations in paragraph II which were stricken, referred to in paragraph IV, were that the instrument sued on was signed and delivered in the Kingdom of Greece on or about April 2, 1942, at which time both plaintiff and defendant were residents of and residing in the Kingdom of Greece, and

'Plaintiff (emphasis ours) avers that on or about April 2, 1942 she owned money States of America, but was then and there States of America, but was then and there in the Kingdom of Greece in straitened financial circumstances due to the conditions produced by World War II and could not make use of her money and property and credit existing in the United States of America. That in the circumstances the plaintiff agreed to and did lend to defendant the sum of 500,000 drachmae, which at that time, on or about April 2, 1942, had the value of $25.00 in money of the United States of America. That the said plaintiff, knowing defendant's financial distress and desire to return to the United States of America, exacted of her the written instrument plaintiff sues upon, which was a promise by her to pay to him the sum of $2,000.00 of United States of America money.'

Plaintiff specially excepted to paragraph IV because the allegations thereof were insufficient to allege either want of consideration or failure of consideration, in that it affirmatively appears therefrom that defendant received what was agreed to be delivered to her, and that plaintiff breached no agreement. The court overruled this exception, and such action is assigned as error. Error is also assigned because of the court's failure to enter judgment for the whole unpaid balance of the principal of the instrument with interest as therein provided.

Defendant testified that she did receive 500,000 drachmas from plaintiff. It is not clear whether she received all the 500,000 drachmas or only a portion of them before she signed the instrument in question. Her testimony clearly shows that the understanding of the parties was that plaintiff would give her the 500,000 drachmas if she would sign the instrument. She testified:

'Q. ..... who suggested the figure of $2,000.00?

A. That was how he asked me from the beginning. He said he will give me five hundred thousand drachmas provided I signed that I would pay him $2,000.00 American money.'

The transaction amounted to a sale by plaintiff of the 500,000 drachmas in consideration of the execution of the instrument sued on, by defendant. It is not contended that the drachmas had no value. Indeed, the judgment indicates that the trial court placed a value of $750.00 on them or on the other consideration which plaintiff gave defendant for the instrument if he believed plaintiff's testimony. Therefore the plea of want of consideration was unavailing. A plea of want of consideration amounts to a contention that the instrument never became a valid obligation in the first place. National Bank of Commerce v. Williams, 125 Tex. 619, 84 S.W.2d 691.

Mere inadequacy of consideration will not void a contract. 10 Tex.Jur., Contracts, Sec. 89, p. 150; Chastain v. Texas Christian Missionary Society, Tex.Civ.App., 78 S.W.2d 728, loc. cit. 731(3), Wr. Ref.

Nor was the plea of failure of consideration availing. Defendant got exactly what she contracted for according to her own testimony. The court should have rendered judgment in favor of plaintiff against defendant for the principal sum of $2,000.00 evidenced by the instrument sued on, with interest as therein provided. We construe the provision relating to interest as providing for interest at the rate of 8% per annum. The judgment is reformed so as to award appellant a recovery against appellee of $2,000.00 with interest thereon at the rate of 8% per annum from April 2, 1942. Such judgment will bear interest at the rate of 8% per annum until paid on $2,000.00 thereof and on the balance interest at the rate of 6% per annum. As so reformed, the judgment is affirmed.

Reformed and affirmed.

Page 886

        Broderick, Craig & Bourque, Manchester, for plaintiff furnished no brief.

        Frederic T. Greenhalge, Pittsfield (by brief and orally), for defendants.

        KENISON, Chief Justice.

        RSA 399-B:2 (supp) as enacted by laws 1961, 245:7 provides as follows: 'Statement Required. Any person engaged in the business of extending credit shall furnish to each person to whom such credit is extended, concurrently with the consummation of the transaction or agreement to extend credit, a clear statement in writing setting forth the finance charges, expressed in dollars, rate of interest, or monthly rate of charge, or a combination thereof, to be borne by such person in connection with such extension of credit as originally scheduled.' Credit is defined broadly in the act and includes any '* * * contract of sale of property or services, either for present or future delivery, under which part or all of the price is payable subsequent to the making of such sale or contract * * *.' RSA 399-B:1 I (supp). The definition of finance charges '* * * includes charges such as interest, fees, service charges, discounts, and other charges associated with the extension of credit.' RSA 399-B:1 II.

        The first question is whether credit was extended to the defendants in compliance with the statute. The application for financing (Exhibit No. 2) and the approval of the financing (Exhibit A) informed the defendants of the monthly payments, the time credit was extended (60 months) and the total amount of the credit extended but neither of them informed the defendants the rate of interest, or the amount of interest or other charges or fees they were paying. This is not even a token compliance with the statute which requires '* * * a clear statement in writing setting forth the finance charges, expressed in dollars, rate of interest, or monthly rate of charge or a combination thereof * * *.' RSA 399-B:2 (supp). The obvious purpose of the statute was to place the burden on the lender to inform the borrower in writing of the finance charges he was to pay. This [105 N.H. 438] burden was not met in this case. Annot. 116 A.L.R. 1363. Disclosure statutes are designed to inform the uninformed and this includes many average individuals who have neither the capability nor the strength to calculate the cost of the credit that has been extended to them. Economic Institutions and Value Survey: The Consumer in the Market Place--A Survey of the Law of Informed Buying, 38 Notre Dame Lawyer 555, 582-588 (1963); Ford Motor Co. v. F. T. C., 6 Cir., 120 F.2d 175, 182 (6th Cir. 1941). RSA 339-B:3 (supp) provides that '[n]o person shall extend credit in contravention of this chapter.' We conclude that the extension of credit to the defendants was in violation of the disclosure statute.

Page 888

        The parties have agreed that the plaintiff did not willfully violate the disclosure statute and this eliminates any consideration of RSA 399-B:4 (supp) which provides a criminal penalty of a fine of not more than five hundred dollars or imprisonment not more than sixty days, or both. This brings us to the second question whether the agreement is 'void so as to prevent the plaintiff from recovering for its breach.'

        'At first thought it is sometimes supposed that an illegal bargain is necessarily void of legal effect, and that an 'illegal contract' is self-contradictory. How can the illegal be also legal? The matter is not so simple.' 6 A Corbin, Contracts, s. 1373 (1962). The law is not always black or white and it is in the flexibility of the gray areas that justice can be done by a consideration of the type of illegality, the statutory purpose and the circumstances of the particular case. 'It is commonly said that illegal bargains are void. This statement, however, is clearly not strictly accurate.' 5 Williston, Contracts (Rev. ed. 1937) s. 1630. The same thought is well summarized in 6 A Corbin, Contracts, s. 1512 (1962): 'It has often been said that an agreement for the doing of that which is forbidden by statute is itself illegal and necessarily unenforceable. This is an unsafe generalization, although most such agreements are unenforceable.' This section was cited in the recent case of William Coltin & Co. v. Manchester Savings Bank, 105 N.H. 254, 197 A.2d 208, holding unenforceable a contract for a broker's commission for the sale of real estate without a license in violation of a statute.

        In examining the exhibits and agreed facts in this case we find that to settle the principal debt of $1,759 the defendants signed instruments obligating them to pay $42.81 for 60 months, making[105 N.H. 439] a total payment of $2,568.60, or an increase of $809.60 over the contract price. In reliance upon the total payment the defendants were to make, the plaintiff pay a sales commission of $800. Counsel suggests that the goods and services to be furnished the defendants thus had a value of only $959, for which they would pay an additional $1,609.60 computed as follows:

"Value of goods and services                 $  959.00
 Commission                         800.00)
 Interest and carrying charges      809.60)   1,609.60
                                    -------  ----------
                     Total payment           $2,568.60"

        In the circumstances of the present case we conclude that the purpose of the disclosure statute will be implemented by denying recovery to the plaintiff on its contract and granting the defendants' motion to dismiss. Burque v. Brodeur, 85 N.H. 310, 158 A. 127; Park, Board of Aviation Trustees v. Manchester, 96 N.H. 331, 76 A.2d 514; Albertson & Co. v. Shenton, 78 N.H. 216, 98 A. 516.

        There is another and independent reason why the recovery should be barred in the present case because the transaction was unconscionable. 'The courts have often avoided the enforcement of unconscionable provisions in long printed standardized contracts, in part by the process of 'interpretation' against the parties using them, and in part by the method used by Lord Nelson at Copenhagen.' 1 Corbin, Contracts, s. 128 (1963). Without using either of these methods reliance can be placed upon the Uniform Commercial Code (U.C.C. 2-302(1)). See RSA 382-A:2-302(1) which reads as follows: 'If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce

Page 889

        Inasmuch as the defendants have received little or nothing of value and under the transaction they entered into they were paying $1,609 for goods and services valued at far less, the contract should not be enforced because of its unconscionable features. This is not a new thought or a new rule in this jurisdiction. See Morrill v. Bank, 90 N.H. 358, 365, 9 A.2d 519, 525; 'It has long been the law in this state that contracts may be declared void because unconscionable and oppressive * * *.'

        [105 N.H. 440] The defendants' motion to dismiss should be granted. In view of the result reached it is unnecessary to consider any other questions and the order is

        Remanded.

        All concurred.

Present: LIACOS, C.J., WILKINS, ABRAMS, NOLAN, & LYNCH, JJ.

James J. McNulty for the defendants.

Nicholas J. Decoulos for the plaintiff.

LYNCH. J.

This case arises from a contract between Gail A. Waters (plaintiff) and "the DeVito defendants"^[2] (defendants), whereby the plaintiff was to assign her annuity policy having a cash value of $189,000 to the defendants in exchange [65] change for $50,000. The plaintiff brought suit to rescind the contract on the ground of unconscionability. Defendant Min Ltd. counterclaimed seeking declaratory relief and specific enforcement of the contract. A Superior Court judge, sitting without a jury, found for the plaintiff, ordered that the annuity be returned to the plaintiff on repayment of $18,000 with interest, and dismissed the counterclaim of Min Ltd. The defendants appealed and we took the matter on our own motion. We now affirm the judgment.

We summarize the relevant facts from the judge's findings. The plaintiff was injured in an accident when she was twelve years old. At the age of eighteen, she settled her claim and, with the proceeds, purchased the annuity contract in question from the defendant Commercial Union Insurance Company. When the plaintiff was twenty-one, she became romantically involved with the defendant Thomas Beauchemin, an ex-convict, who introduced her to drugs. Beauchemin suggested that she sell her annuity contract, introduced her to one of the defendants, and represented her in the contract negotiations. She was naive, insecure, vulnerable in contract matters, and unduly influenced by Beauchemin. The defendants drafted the contract documents with the assistance of legal counsel, but the plaintiff had no such representation. At least some portions of the contract were executed in unusual circumstances: i.e., part of the contract was signed on the hood of an automobile in a parking lot, part was signed in a restaurant. The defendants agreed to pay $50,000 for the annuity policy which would return to them as owners of the policy $694,000 over its guaranteed term of twenty-five years, and which had a cash value at the time the contract was executed of $189,000.

Beauchemin acted for himself and as agent of the defendants. For example, the defendants forgave a $100 debt of Beauchemin as deposit for the purchase of the annuity policy. From a subsequent $25,000 payment, the defendants deducted $7,000 that Beauchemin owed them.

Based on the foregoing, the judge found the contract unconscionable.

[66] The defendants contend that the judge erred by (1) finding the contract unconscionable (and by concluding the defendants assumed no risks and therefore finding the contract oppressive); (2) refusing them specific performance; and (3) failing to require the plaintiff to return all the funds received from them.

1. Unconscionability. The defendants argue that the evidence does not support the finding that the contract was unconscionable or that they assumed no risks and therefore that the contract was oppressive. "[W]e may not set aside findings of fact `unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge of the credibility of the witnesses.' Mass. R. Civ. P. 52 (a), 365 Mass. 816 (1974)." First Pa. Mortgage Trust v. Dorchester Sav. Bank, 395 Mass. 614, 621 (1985). Also, we may not reverse the judge's findings or conclusions if they are not tainted by an error of law. See Blackwell v. E.M. Helides, Jr., Inc., 368 Mass. 225, 226 (1975).

The doctrine of unconscionability has long been recognized by common law courts in this country and in England. See Banaghan v. Malaney, 200 Mass. 46 (1908); Boynton v. Hubbard, 7 Mass. 112 (1810); Kleinberg v. Ratett, 252 N.Y. 236 (1929); Campbell Soup Co. v. Wentz, 172 F.2d 80 (3d Cir.1948); 14 S. Williston, Contracts § 1632 (3d ed. 1972), and cases cited; Leff, Unconscionability and the Code — The Emperor's New Clause, 115 U. Pa. L. Rev. 485, 531-533 nn. 184-202 (1967). "Historically, a [contract] was considered unconscionable if it was `such as no man in his senses and not under delusion would make on the one hand, and as no honest and fair man would accept on the other.' Hume v. United States, 132 U.S. 406[, 411] (1889), quoting Earl of Chesterfield v. Janssen, 38 Eng. Rep. 82, 100 (Ch. 1750). Later, a contract was determined unenforceable because unconscionable when `the sum total of its provisions drives too hard a bargain for a court of conscience to assist.' Campbell Soup Co. v. Wentz, 172 F.2d 80, 84 (3d Cir.1948)." Covich v. Chambers, 8 Mass. App. Ct. 740, 750 n. 13 (1979).

[67] The doctrine of unconscionability has also been codified in the Uniform Commercial Code (code), G.L.c. 106, § 2-302 (1990 ed.),^[3] and, by analogy, it has been applied in situations outside the ambit of the code. See, e.g., Zapatha v. Dairy Mart, Inc., 381 Mass. 284, 291 (1980) (termination clause in franchise agreement not considered unconscionable); Commonwealth v. DeCotis, 366 Mass. 234, 242 (1974) (extraction of resale fees for no rendered services deemed unfair act or practice under G.L.c. 93A, § 2 [a]). See also Meehan v. New England School of Law, 522 F. Supp. 484, 494 (D. Mass. 1981) (applying Zapatha and concluding contract clause waiving tenure rights not unconscionable because plaintiff attorney carefully negotiated clear, easily identifiable language in clause); Scheele v. Mobil Oil Corp., 510 F. Supp. 633, 637 (D. Mass. 1981) (relying on Zapatha to deny defendant's motion to dismiss where motion claimed code related only to sale of goods and not mutual termination agreements). As explained in Bronstein v. Prudential Ins. Co., 390 Mass. 701, 708 (1984), "[in Zapatha] the court applied statutory policy to common law contract issues, which, for centuries have been within the province of this court." Accordingly, although we are not here concerned with a sale of goods or a commercial transaction, Zapatha is instructive on [68] the principles to be applied in testing this transaction for unconscionability.

Unconscionability must be determined on a case-by-case basis, with particular attention to whether the challenged provision could result in oppression and unfair surprise to the disadvantaged party and not to allocation of risk because of "superior bargaining power." Zapatha, supra at 292-293. Courts have identified other elements of the unconscionable contract. For example, gross disparity in the consideration alone "may be sufficient to sustain [a finding that the contract is unconscionable]," since the disparity "itself leads inevitably to the felt conclusion that knowing advantage was taken of [one party]." Jones v. Star Credit Corp., 59 Misc.2d 189, 192 (N.Y. Sup. Ct. 1969). See, e.g., Matter of Friedman, 64 A.D.2d 70, 85 (N.Y. 1978) (contract unconscionable because art dealer's "consideration" inadequate where widow conveyed more than 300 works of art to dealer and received neither the payment of purchase price nor right to receive a fixed price within a definite time, only dealer's promise of payment if and when sales made); Nelson v. Nelson, 57 Wash.2d 321, 323-324 (1960) (contract found unconscionable where defendant agreed to exchange equity in her property — worth more than $4,750 — for equity in the plaintiff's property valued at $2,750). High pressure sales tactics and misrepresentation have been recognized as factors rendering a contract unconscionable. Industralease Automated & Scientific Equip. Corp. v. R.M.E. Enters., Inc., 58 A.D.2d 482, 488-490 (N.Y. 1977). If the sum total of the provisions of a contract drive too hard a bargain, a court of conscience will not assist its enforcement. Campbell Soup Co., supra at 84.

The judge found that Beauchemin introduced the plaintiff to drugs, exhausted her credit card accounts to the sum of $6,000, unduly influenced her, suggested that the plaintiff sell her annuity contract, initiated the contract negotiations, was the agent of the defendants, and benefited from the contract [69] between the plaintiff and the defendants.^[4] The defendants were represented by legal counsel; the plaintiff was not. See Zapatha, supra at 294. The cash value of the annuity policy at the time the contract was executed was approximately four times greater than the price to be paid by the defendants. For payment of not more than $50,000 the defendants were to receive an asset that could be immediately exchanged for $189,000, or they could elect to hold it for its guaranteed term and receive $694,000. In these circumstances the judge could correctly conclude the contract was unconscionable.

The defendants assumed no risk and the plaintiff gained no advantage. Gross disparity in the values exchanged is an important factor to be considered in determining whether a contract is unconscionable. "[C]ourts [may] avoid enforcement of a bargain that is shown to be unconscionable by reason of gross inadequacy of consideration accompanied by other relevant factors." 1 A. Corbin, Contracts § 128, at 551 (1963 & Supp. 1991). Moreover, an unconscionable contract is "such as no man in his senses and not under delusion would make on the one hand, and as no honest and fair man would accept on the other." Hume v. United States, 132 U.S. 406, 411 (1889), quoting Earl of Chesterfield v. Janssen, supra. See In re Estate of Vought, 76 Misc.2d 755 (N.Y. Sur. Ct. 1973) (assignment of interest in spendthrift trust for $66,000 under provisions which guaranteed assignees ultimate return of $1,100,000).

We are satisfied that the disparity of interests in this contract is "so gross that the court cannot resist the inference that it was improperly obtained and is unconscionable." In re Estate of Vought, supra at 760.

[70] 2. Amount of repayment order. The defendants also argue that the judge erred in failing to require the plaintiff to return the full amount paid by them for the annuity.^[5]

The judge's order was consistent with his findings that Beauchemin was the agent of the defendants, and that the plaintiff only received $18,000 for her interest in the annuity.

Judgment affirmed.

[1] Cube Ltd., Robert A. DeVito, David A. DeVito, and Michael D. Steamer. The defendants Commercial Union Insurance Company and Thomas Beauchemin did not appeal from the judgment.

[2] The judge referred to the defendants Min Ltd., Cube Ltd., David A. DeVito, Robert A. DeVito, and Michael D. Steamer, collectively as "the DeVito defendants" because their identities and roles were not made clear at trial. The plaintiff originally agreed to assign her rights and interest in a certain annuity policy to Cube Ltd., which later transferred all its interest in the annuity to Min Ltd. David A. DeVito is president of Cube Ltd. Michael D. Steamer is business manager of Min Ltd. Robert A. DeVito conducted negotiations with the plaintiff regarding the annuity policy.

[3]General Laws c. 106, § 2-302 (1990 ed.), reads as follows:

"§ 2-302. Unconscionable Contract or Clause.

"(1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.

"(2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose, and effect to aid the court in making the determination."

The standards of determining a contract unconscionable set forth in G.L.c. 106, § 2-302, are the same standards expressed in Restatement (Second) of Contracts § 208 (1981). "The issue is one of law for the court, and the test is to be made as of the time the contract was made." Zapatha v. Dairy Mart, Inc., 381 Mass. 284, 291 (1980).

[4] These latter two findings were grounds enough for the judge to rescind the contract. See 1 H.C. Black, Rescission of Contracts § 32 (2d ed. 1929), and cases cited. The plaintiff relied on Beauchemin to represent her in the contract negotiations. Accordingly, he was obligated to act on her behalf and in her interest. Id. Instead, he acted in his own self-interest and caused benefits to inure to himself by having his debts forgiven and requiring he be named beneficiary of the annuity policy.

[5] The defendants paid $18,000 cash after deducting $7,000 for a debt which was owed to them by Beauchemin. The remaining $25,000 due on the contract was never paid.

Appeal from the District Court of the United States for the Northern District of California.

Chickering & Gregory, for appellant.

Marshall B. Woodworth and Edward J. Banning, for appellees.

Before GILBERT and ROSS, Circuit Judges, and HAWLEY, District Judge.

ROSS, Circuit Judge.

The libel in this case was based upon a contract alleged to have been entered into between the libelants and the appellant corporation on the 22d day of May, 1900, at Pyramid Harbor, Alaska, by which it is claimed the appellant promised to pay each of the libelants, among other things, the sum of $100 for services rendered and to be rendered. In its answer the respondent denied the execution, on its part, of the contract sued upon, averred that it was without consideration, and for a third defense alleged that the work performed by the libelants for it was performed under other and different contracts than that sued on, and that, prior to the filing of the libel, each of the libelants was paid by the respondent the full amount due him thereunder, in consideration of which each of them executed a full release of all his claims and demands against the respondent.

The evidence shows without conflict that on March 26, 1900, at the city and county of San Francisco, the libelants entered into a written contract with the appellants, whereby they agreed to go from San Francisco to Pyramid Harbor, Alaska, and return, on board such vessel as might be designated by the appellant, and to work for the appellant during the fishing season of 1900, at Pyramid Harbor, as sailors and fishermen, agreeing to do "regular ship's duty, both up and down, discharging and loading; and to do any other work whatsoever when requested to do so by the captain or agent of the Alaska Packers' Association." By the terms of this agreement, the appellant was to pay each of the libelants $50 for the season, and two cents for each red salmon in the catching of which he took part.

On the 15th day of April, 1900, 21 of the libelants of the libelants signed shipping articles by which they shipped as seamen on the Two Brothers, a vessel chartered by the appellant for the voyage between San Francisco and Pyramid Harbor, and also bound themselves to perform the same work for the appellant provided for by the previous contract of March 26th; the appellant agreeing to pay them therefor the sum of $60 for the season, and two cents each for each red salmon in the catching of which they should respectively take part. Under these contracts, the libelants sailed on board the Two Brothers for Pyramid Harbor, where the appellants had about $150,000 invested in a salmon cannery. The libelants arrived there early in April of the year mentioned, and began to unload the vessel and fit up the cannery. A few days thereafter, to wit, May 19th, they stopped work in a body, and demanded of the company's superintendent there in charge $100 for services in operating the vessel to and from Pyramid Harbor, instead of the sums stipulated for in and by the contracts; stating that unless they were paid this additional wage they would stop work entirely, and return to San Francisco. The evidence showed, and the court below found, that it was impossible for the appellant to get other men to take the places of the libelants, the place being remote, the season short and just opening; so that, after endeavoring for several days without success to induce the libelants to proceed with their work in accordance with their contracts, the company's superintendent, on the 22d day of May, so far yielded to their demands as to instruct his clerk to copy the contracts executed in San Francisco, including the words "Alaska Packers' Association" at the end, substituting, for the $50 and $60 payments, respectively, of those contracts, the sum of $100, which document, so prepared, was signed by the libelants before a shipping commissioner whom they had requested to be brought from Northeast Point; the superintendent, however, testifying that he at the time told the libelants that he was without authority to enter into any such contract, or to in any way alter the contracts made between them and the company in San Francisco. Upon the return of the libelants to San Francisco at the close of the fishing season, they demanded pay in accordance with the terms of the alleged contract of May 22d, when the company denied its validity, and refused to pay other than as provided for by the contracts of March 26th and April 5th, respectively. Some of the libelants, at least, consulted counsel, and, after receiving his advice, those of them who had signed the shipping articles before the shipping commissioner at San Francisco went before that officer, and received the amount due them thereunder, executing in consideration thereof a release in full, and the others paid at the office of the company, also receipting in full for their demands.

On the trial in the court below, the libelants undertook to show that the fishing nets provided by the respondent were defective, and that it was on that account that they demanded increased wages. On that point, the evidence was substantially conflicting, and the finding of the court was against the libelants the court saying:

"The contention of libelants that the nets provided them were rotten and unserviceable is not sustained by the evidence. The defendants' interest required that libelants should be provided with every facility necessary to their success as fishermen, for on such success depended the profits defendant would be able to realize that season from its packing plant, and the large capital invested therein. In view of this self-evident fact, it is highly improbable that the defendant gave libelants rotten and unserviceable nets with which to fish. It follows from this finding that libelants were not justified in refusing performance of their original contract." 112 Fed. 554.

The evidence being sharply conflicting in respect to these facts, the conclusions of the court, who heard and saw the witnesses, will not be disturbed. The Alijandro, 6 C.C.A. 54, 56 Fed. 621; The Lucy, 20 C.C.A. 660, 74 Fed. 572; The Glendale, 26 C.C.A. 500, 81 Fed. 633. The Coquitlam, 23 C.C.A. 438, 77 Fed. 744; Gorham Mfg. Co. v. Emery-Bird-Thayer Dry Goods Co., 43 C.C.A. 511, 104 Fed. 243.

The real questions in the case as brought here are questions of law, and, in the view that we take of the case, it will be necessary to consider but one of those. Assuming that the appellant's superintendent at Pyramid Harbor was authorized to make the alleged contract of May 22d, and that he executed it on behalf of the appellant, was it supported by a sufficient consideration? From the foregoing statement of the case, it will have been seen that the libelants agreed in writing, for certain stated compensation, to render their services to the appellant in remote waters where the season for conducting fishing operations is extremely short, and in which enterprise the appellant had a large amount of money invested; and, after having entered upon the discharge of their contract, and at a time when it was impossible for the appellant to secure other men in their places, the libelants, without any valid cause, absolutely refused to continue the services they were under contract to perform unless the appellant would consent to pay them more money. Consent to such a demand, under such circumstances, if given, was, in our opinion, without consideration, for the reason that it was based solely upon the libelants' agreement to render the exact services, and none other, that they were already under contract to render. The case shows that they willfully and arbitrarily broke that obligation. As a matter of course, they were liable to the appellant in damages, and it is quite probable, as suggested by the court below in its opinion, that they may have been unable to respond in damages. But we are unable to agree with the conclusions there drawn, from these facts, in these words:

"Under such circumstances, it would be strange, indeed, if the law would not permit the defendant to waive the damages caused by the libelants' breach, and enter into the contract sued upon,- a contract mutually beneficial to all the parties thereto, in that it gave to the libelants reasonable compensation for their labor, and enabled the defendant to employ to advantage the large capital it had invested in its canning and fishing plant."

Certainly, it cannot be justly held, upon the record in this case, that there was any voluntary waiver on the part of the appellant of the breach of the original contract. The company itself knew nothing of such breach until the expedition returned to San Francisco, and the testimony is uncontradicted that its superintendent at Pyramid Harbor, who, it is claimed, made on its behalf the contract sued on, distinctly informed the libelants that he had no power to alter the original or to make a new contract, and it would, of course, follow that, if he had no power to change the original, he would have no authority to waive any rights thereunder. The circumstances of the present case bring it, we think, directly within the sound and just observations of the supreme court of Minnesota in the case of King v. Railway Co., 61 Minn. 482, 63 N.W. 1105:

"No astute reasoning can change the plain fact that the party who refuses to perform, and thereby coerces a promise from the other party to the contract to pay him an increased compensation for doing that which he is legally bound to do, takes an unjustifiable advantage of the necessities of the other party. Surely it would be a travesty on justice to hold that the party so making the promise for extra pay was estopped from asserting that the promise was without consideration. A party cannot lay the foundation of an estoppel by his own wrong, where the promise is simply a repetition of a subsisting legal promise. There can be no consideration for the promise of the other party, and there is no warrant for inferring that the parties have voluntarily rescinded or modified their contract. The promise cannot be legally enforced, although the other party has completed his contract in reliance upon it."

In Lingenfelder v. Brewing Co., 103 Mo. 578, 15 S.W. 844, the court, in holding void a contract by which the owner of a building agreed to pay its architect an additional sum because of his refusal to otherwise proceed with the contract, said:

"It is urged upon us by respondents that this was a new contract. New in what? Jungenfeld was bound by his contract to design and supervise this building. Under the new promise, he was not to do anything more or anything different. What benefit was to accrue to Wainwright? He was to receive the same service from Jungenfeld under the new, that Jungenfeld was bound to tender under the original, contract. What loss, trouble, or inconvenience could result to Jungenfeld that he had not already assumed? No amount of metaphysical reasoning can change the plain fact that Jungenfeld took advantage of Wainwright's necessities, and extorted the promise of five per cent. on the refrigerator plant as the condition of his complying with his contract already entered into. Nor had he even the flimsy pretext that Wainwright had violated any of the conditions of the contract on his part. Jungenfeld himself put it upon the simple proposition that 'if he, as an architect, put up the brewery, and another company put up the refrigerating machinery, it would be a detriment to the Empire Refrigerating Company,’ of which Jungenfeld was president. To permit plaintiff to recover under such circumstances would be to offer a premium upon bad faith, and invite men to violate their most sacred contracts that they may profit by their own wrong. That a promise to pay a man for doing that which he is already under contract to do is without consideration is conceded by respondents. The rule has been so long imbedded in the common law and decisions of the highest courts of the various states that nothing but the most cogent reasons ought to shake it. (Citing a long list of authorities.) But it is 'carrying coals to Newcastle' to add authorities on a proposition so universally accepted, and so inherently just and right in itself. The learned counsel for respondents do not controvert the general proposition. They contention is, and the circuit court agreed with them, that, when Jungenfeld declined to go further on his contract, the defendant then had the right to sue for damages, and not having elected to sue Jungenfeld, but having acceded to his demand for the additional compensation defendant cannot now be heard to say his promise is without consideration. While it is true Jungenfeld became liable in damages for the obvious breach of his contract, we do not think it follows that defendant is estopped from showing its promise was made without consideration. It is true that as eminent a jurist as Judge Cooley, in Goebel v. Linn, 47 Mich. 489, 11 N.W. 284, 41 Am.Rep. 723, held that an ice company which had agreed to furnish a brewery with all the ice they might need for their business from November 8, 1879, until January 1, 1881, at $1.75 per ton, and afterwards in May, 1880, declined to deliver any more ice unless the brewery would give it $3 per ton, could recover on a promissory note given for the increased price. Profound as is our respect for the distinguished judge who delivered the opinion, we are still of the opinion that his decision is not in accord with the almost universally accepted doctrine, and is not convincing; and certainly so much of the opinion as holds that the payment, by a debtor, of a part of his debt then due, would constitute a defense to a suit for the remainder, is not the law of this state, nor, do we think, of any other where the common law prevails. What we hold is that, when a party merely does what he has already obligated himself to do, he cannot demand an additional compensation therefor; and although, by taking advantage of the necessities of his adversary, he obtains a promise for more, the law will regard it as nudum pactum, and will not lend its process to aid in the wrong."

The case of Goebel v. Linn, 47 Mich. 489, 11 N.W. 284, 41 Am.Rep. 723, is one of the eight cases relied upon by the court below in support of its judgment in the present case, five of which are by the supreme court of Massachusetts, one by the supreme court of Vermont, and one other Michigan case,- that of Moore v. Locomotive Works, 14 Mich. 266. The Vermont case referred to is that of Lawrence v. Davey, 28 Vt. 264, which was one of the three cases cited by the court in Moore v. Locomotive Works, 14 Mich. 272, 273, as authority for its decision. In that case there was a contract to deliver coal at specified terms and rates. A portion of it was delivered, and plaintiff then informed the defendant that he could not deliver at those rates, and, if the latter intended to take advantage of it, he should not deliver any more; and that he should deliver no more unless the defendant would pay for the coal independent of the contract. The defendant agreed to do so, and the coal was delivered. On suit being brought for the price, the court said:

"Although the promise to waive the contract was after some portion of the coal sought to be recovered had been delivered, and so delivered that probably the plaintiff, if the defendant had insisted upon strict performance of the contract, could not have recovered anything for it, yet, nevertheless, the agreement to waive the contract, and the promise, and, above all, the delivery of coal after this agreement to waive the contract, and upon the faith of it, will be a sufficient consideration to bind the defendant to pay for the coal already received"

The doctrine of that case was impliedly overruled by the supreme court of Vermont in the subsequent case of Cobb v. Cowdery, 40 Vt. 25, 94 Am.Dec. 370, where it was held that:

"A promise by a party to do what he is bound in law to do is not an illegal consideration, but is the same as no consideration at all, and is merely void; in other words, it is insufficient, but not illegal. Thus, if the master of a ship promise his crew an addition to their fixed wages in consideration for and as an incitement to, their extraordinary exertions during a storm, or in any other emergency of the voyage, this promise is nudum pactum; the voluntary performance of an act which it was before legally incumbent on the party to perform being in law an insufficient consideration; and so it would be in any other case where the only consideration for the promise of one party was the promise of the other party to do, or his actual doing, something which he was previously bound in law to do. Chit. Cont. (10th Am.Ed.) 51; Smith, Cont. 87; 3 Kent, Com.. 185."

The Massachusetts cases cited by the court below in support of its judgment commence with the case of Munroe v. Perkins, 9 Pick. 305, 20 Am.Dec. 475, which really seems to be the foundation of all of the cases in support of that view. In that case, the plaintiff had agreed in writing to erect a building for the defendants. Finding his contract a losing one, he had concluded to abandon it, and resumed work on the oral contract of the defendants that, if he would do so, they would pay him what the work was worth without regard to the terms of the original contract. The court said that whether the oral contract was without consideration

—"Depends entirely on the question whether the first contract was waived. The plaintiff having refused to perform that contract, as he might do, subjecting himself to such damages as the other parties might show they were entitled to recover, he afterward went on, upon the faith of the new promise, and finished the work. This was a sufficient consideration. If Payne and Perkins were willing to accept his relinquishment of the old contract, and proceed on a new agreement, the law, we think, would not prevent it."

The case of Goebel v. Linn, 47 Mich. 489, 11 N.W. 284, 41 Am.Rep. 723, presented some unusual and extraordinary circumstances. But, taking it as establishing the precise rule adopted in the Massachusetts cases, we think it not only contrary to the weight of authority, but wrong on principle.

In addition to the Minnesota and Missouri cases above cited, the following are some of the numerous authorities holding the contrary doctrine: Vanderbilt v. Schreyer, 91 N.Y. 392; Ayres v. Railroad Co., 52 Iowa, 478, 3 N.W. 522; Harris v. Carter, 3 Ellis & B. 559; Frazer v. Hatton, 2 C.B.(N.S.) 512; Conover v. Stillwell, 34 N.J. Law, 54; Reynolds v. Nugent, 25 Ind. 328; Spencer v. McLean (Ind. App.) 50 N.E. 769, 67 Am.St.Rep. 271; Harris v. Harris (Colo. App.) 47 Pac. 841; Moran v. Peace, 72 Ill.App. 139; Carpenter v. Taylor (N.Y.) 58 N.E. 53; Westcott v. Mitchell (Me.) 50 Atl. 21; Robinson v. Jewett, 116 N.Y. 40, 22 N.E. 224; Sullivan v. Sullivan, 99 Cal. 187, 33 Pac. 862; Blyth v. Robinson, 104 Cal. 230, 37 Pac. 904; Skinner v. Mining Co. (C.C.) 96 Fed. 735; 1 Beach, Cont. § 166; Langd. Cont. § 54; 1 Pars.Cont. (5th Ed.) 457; Ferguson v. Harris (S.C.) 17 S.E. 782, 39 Am.St.Rep. 745.

It results from the views above expressed that the judgment must be reversed, and the cause remanded, with directions to the court below to enter judgment for the respondent, with costs. It is so ordered.

231 N.Y. 196

Louis SCHWARTZREICH, Respondent,
v.
BAUMAN-BASCH, INCORPORATED, Appellant.

Contract — trial — where record shows question of fact it is error for trial justice to set aside verdict and dismiss complaint — contract may be set aside by parties and new one made at one and the same time — charge.

1. Where, in an action to recover on a contract for services, defended on the ground that there was no consideration for the contract as the plaintiff was already bound under a prior agreement to do the same work for the same period for a lesser salary, the record shows that a [197] question of fact was presented and that the evidence most favorable for the plaintiff would sustain a finding that the first contract was destroyed, canceled or abrogated by the consent of both parties, it was error for the trial justice to set aside a verdict in favor of plaintiff and dismiss the complaint and a reversal of such ruling was proper.

2. A contract of employment may be set aside or terminated by the parties to it and a new one made or substituted in its place and it is competent to end the one and make the other at the same time.

3. A charge, by the trial justice, therefore, to the effect that if the jury find that the old contract was, prior to or at the time of the execution of the new contract, "cancelled and revoked by the parties by their mutual consent then it is your duty to find that there was a consideration for the making of the contract in suit" and "the test question is whether by word or by act, either prior to or at the time of the signing" of the new contract "these parties mutually agreed that the old contract from that instant should be null and void," is correct and a reinstatement of the verdict was proper.

Schwartzreich v. Bauman-Basch, Inc., 188 App. Div. 960, affirmed.

(Submitted April 27, 1921; decided May 10, 1921.)

APPEAL, by permission, from a judgment of the Appellate Division of the Supreme Court in the first judicial department, entered June 28, 1919, affirming a determination of the Appellate Term, which reversed a judgment in favor of defendant entered upon an order of the trial justice in the City Court of the city of New York setting aside a verdict in favor of plaintiff and directing a dismissal of the complaint and reinstated said verdict.

Louis Boehm and Samuel Zeiger for appellant. Not only was there lacking evidence of a cancellation of the first contract for $90 before the second contract for $100 was agreed upon, but it affirmatively appears from plaintiff's own testimony that such cancellation was not even mentioned. (Disker v. Herten, 73 App. Div. 453; 175 N. Y. 480; Sanders v. Pottlitzer Bros. Fruit Co., 144 N. Y. 209; Pratt v. Hudson R. R. R. Co., 21 N. Y. 305; Belmar Contracting Co. v. State, 185 N. Y. Supp. 734.) A promise to do that which one is already legally obligated to do does not furnish a consideration sufficient to support a [198] contract. (Teele v. Mayer, 173 App. Div. 869; Weed v. Spears, 193 N. Y. 289; Carpenter v. Taylor, 164 N. Y. 171; Vanderbilt v. Schreyer, 91 N. Y. 392.) Both sides having offered all their proof, and both plaintiff and defendant having testified as to what took place when the second contract was signed, and the contract itself being plain and unambiguous, a question of law was presented for the decision of the trial court, and its dismissal of the complaint on the merits was proper. (Carpenter v. Taylor, 164 N. Y. 171.)

I. Maurice Wormser and I. Gainsburg for respondent. The trial court erred in dismissing the complaint on the merits. There was, at the very least, a clean-cut issue of fact for the jury, whether the $90 contract was canceled and rescinded by the parties, and a new $100 contract made. (Harris v. Carter, 3 El. & Bl. 559; Hart v. Lawman, 39 Barb. 410; Lattimore v. Harsen, 14 Johns. 330; Spier v. Hyde, 78 App. Div. 151, 159; Bailey v. Elm City Lumber Co., 167 App. Div. 42, 45; Stewart v. Keteltas, 36 N. Y. 338; Wood v. Knight, 35 App. Div. 21; International Cont. Co. v. Lamont, 15.5 U. S. 303; Am. Ex. Nat. Bank v. Smith, 61 Misc. Rep. 49; 113 N. Y. Supp. 236; Galway v. Prignano, 134 N. Y. Supp. 571.)

CRANE, J. On the 31st day of August, 1917, the plaintiff entered into the following employment agreement with the defendant:

"BAUMAN-BASCH, INC., 

"Coats & Wraps,

"31-33 East 32nd Street,

"New York

"Agreement entered into this 31st day of August, 1917, by and between Bauman-Basch, Inc., a domestic corporation, party of the first part, and Louis Schwartzreich, of the Borough of Bronx, City of New York, party of the second part, Witnesseth:

[199] "The party of the first part does hereby employ the party of the second part, and the party of the second part agrees to enter the services of the party of the first part as a designer of coats and wraps.

"The employment herein shall commence on the 22nd day of November, 1917, and shall continue for twelve months thereafter. The party of the second part shall receive a salary of Ninety ($90.00) per week, payable weekly.

"The party of the second part shall devote his entire time and attention to the business of the party of the first part, and shall use his best energies and endeavors in the furtherance of its business.

"In witness whereof, the party of the first part has caused its seal to be affixed hereto and these presents to be signed, and the party of the second part has here- unto set his hand and seal the day and year first above written.

"BAUMAN-BASCH, INC.

 S. BAUMAN

"LOUIS SCHWARTZREICH.

"In the presence of:"

In October the plaintiff was offered more money by another concern. Mr. Bauman, an officer of the Bauman-Basch, Inc., says that in that month he heard that the plaintiff was going to leave and thereupon had with him the following conversation.

"A. I called him in the office, and I asked him, 'Is that true that you want to leave us?' and he said 'Yes,' and I said, 'Mr. Schwartzreich, how can you do that; you are under contract with us?' He said, 'Somebody offered me more money.' * * * I said, 'How much do they offer you?' He said, 'They offered him $115 a week.' * * * I said, 'I cannot get a designer now, and, in view of the fact that I have to send my sample line out on the road, I will give you a hundred dollars a week rather than to let you go.' He said, 'If you will give me $100, I will stay.'"

[200] Thereupon Mr. Bauman dictated to his stenographer a new contract, dated October 17, 1917, in the exact words of the first contract and running for the same period, the salary being $100 a week, which contract was duly executed by the parties and witnessed. Duplicate originals were kept by the plaintiff and defendant.

Simultaneously with the signing of this new contract, the plaintiff's copy of the old contract was either given to or left with Mr. Bauman. He testifies that the plaintiff gave him the paper but that he did not take it from him. The signatures to the old contract plaintiff tore off at the time according to Mr. Bauman.

The plaintiff's version as to the execution of the new contract is as follows:

"A. I told Mr. Bauman that I have an offer from Scheer & Mayer of $110 a week, and I said to him, 'Do you advise me as a friendly matter — will you advise me as a friendly matter what to do; you see I have a contract with you, and I should not accept the offer of $110 a week, and I ask you, as a matter of friendship, do you advise me to take it or not.' At the minute he did not say anything, but the day afterwards he came to me in and he said, 'I will give you $100 a week, and I want you to stay with me.' I said, 'All right, I will accept it; it is very nice of you that you do that, and I appreciate it very much.'"

The plaintiff says that on the 17th of October when the new contract was signed, he gave his copy of the old contract back to Mr. Bauman, who said: "You do not want this contract any more because the new one takes its place."

The plaintiff remained in the defendant's employ until the following December when he was discharged. He brought this action under the contract of October 17th for his damages.

The defense, insisted upon through all the courts, is that there was no consideration for the new contract as [201] the plaintiff was already bound under his agreement of August 31, 1917, to do the same work for the same period at $90 a week.

The trial justice submitted to the jury the question whether there was a cancellation of the old contract and charged as follows:

"If you find that the $90 contract was prior to or at the time of the execution of the $100 contract cancelled and revoked by the parties by their mutual consent, then it is your duty to find that there was a consideration for the making of the contract in suit, viz., the $100 contract and, in that event, the plaintiff would be entitled to your verdict for such damages as you may find resulted proximately, naturally and necessarily in consequence of the plaintiff's discharge prior to the termination of the contract period of which I shall speak later on."

Defendant's counsel thereupon excepted to that portion of the charge in which the court permitted the jury to find that the prior contract may have been canceled simultaneously with the execution of the other agreement. Again the court said:

"The test question is whether by word or by act, either prior to or at the time of the signing of the $100 contract, these parties mutually agreed that the old contract from that instant should be null and void."

The jury having rendered a verdict for the plaintiff the trial justice set it aside and dismissed the complaint on the ground that there was not sufficient evidence that the first contract was canceled to warrant the jury's findings.

The above quotations from the record show that a question of fact was presented and that the evidence most favorable for the plaintiff would sustain a finding that the first contract was destroyed, canceled or abrogated by the consent of both parties.

The Appellate Term was right in reversing this ruling. Instead of granting a new trial, however, it reinstated [202] the verdict of the jury and the judgment for the plaintiff. The question remains, therefore, whether the charge of the court, as above given, was a correct statement of the law or whether on all the evidence in the plaintiff's favor a cause of action was made out.

Can a contract of employment be set aside or terminated by the parties to it and a new one made or substituted in its place? If so, is it competent to end the one and make the other at the same time?

It has been repeatedly held that a promise made to induce a party to do that which he is already bound by contract to perform is without consideration. But the cases in t'his state, while enforcing this rule, also recognize that a contract may be canceled by mutual consent and a new one made. Thus Vanderbilt v. Schreyer (91 N. Y. 392, 402) held that it was no consideration for a guaranty that a party promise to do only that which he was before legally bound to perform. This court stated, however:

"It would doubtless be competent for parties to cancel an existing contract and make a new one to complete the same work at a different rate of compensation, but it seems that it would be essential to its validity that there should be a valid cancellation of the original contract. Such was the case of Lattimore v. Harsen (14 Johns. 330)."

In Cosgray v. New England Piano Co. (10 App. Div. 351, 353) it was decided that where the plaintiff had bound himself to work for a year at $30 a week, there was no consideration for a promise thereafter made by the defendant that he should notwithstanding receive $1,800 a year. Here it will be noticed there was no termination of the first agreement which gave occasion for BARTLETT, J., to say in the opinion:

"The case might be different if the parties had, by word of mouth, agreed wholly to abrogate and do away with a pre-existing written contract in regard to service [203] and compensation, and had substituted for it another agreement."

Any change in an existing contract, such as a modification of the rate of compensation, or a supplemental agreement, must have a new consideration to support it. In such a case the contract is continued, not ended. Where, however, an existing contract is terminated by consent of both parties and a new one executed in its place and stead, we have a different situation and the mutual promises are again a consideration. Very little difference may appear in a mere change of compensation in an existing and continuing contract and a termination of one contract and the making of a new one for the same time and work, but at an increased compensation. There is, however, a marked difference in principle. Where the new contract gives any new privilege or advantage to the promisee, a consideration has been recognized, though in the main it is the same contract. (Triangle Waist Co., Inc., v. Todd, 223 N. Y. 27.)

If this which we are now holding were not the rule, parties having once made a contract would be prevented from changing it no malter how willing and desirous they might be to do so, unless the terms conferred an additional benefit to the promisee.

All concede that an agreement may be rescinded by mutual consent and a new agreement made thereafter on any terms to which the parties may assent. Prof. Williston in his work on Contracts says (Vol. 1, § 130a): "A rescission followed shortly afterwards by a new agreement in regard to the same subject-matter would create the legal obligations provided in the subsequent agreement."

The same effect follows in our judgment from a new contract entered into at the same time the old one is destroyed and rescinded by mutual consent. The determining factor is the rescission by consent. Provided this is the expressed and acted upon intention, the time [204] of the rescission, whether a moment before or at the same time as the making of the new contract, is unimportant. The decisions are numerous and divergent where one of the parties to a contract refuses to perform unless paid an additional amount. Some states hold the new promise to pay the demand binding though there be no rescission. It is said that the new promise is given to secure performance in place of an action for damages for not performing (Parrot v. Mexican Central Railway Co., 207 Mass. 184), or that the new contract is evidence of the rescission of the old one and it is the same as if no previous contract had been made (Coyner v. Lynde, 10 Ind. 282; Connelly v. Devoe, 37 Conn. 570; Goebel v. Linn, 47 Mich. 489), or that unforeseen difficulties and hardships modify the rule (King v. Duluth, M. & N. Ry. Co., 61 Minn. 482), or that the new contract is an attempt to mitigate the damages which may flow from the breach of the first. (Endriss v. Belle Isle Ice Co., 49 Mich. 279.) (See Anson's Law of Contract [Huffcut's Amer. Ed.], p. 114, sec. 138.) To like effect are Blodgett v. Foster (120 Mich. 392); Scanlon v. Northwood (147 Mich. 139); Evans v. Oregon & Washington R. R. Co. (58 Wash. 429); Main Street & A. P. R. R. Co. v. Los Angeles Traction Co. (129 Cal. 301).

The contrary has been held in such cases as Carpenter v. Taylor (164 N. Y. 171); Price v. Press Publishing Co. (117 App. Div. 854); Davis & Company v. Morgan (117 Ga. 504); Alaska Packers' Association v. Domenico (117 Fed. Rep. 99); Conover v. Stillwell (34 N. J. L. 54, 57); Erny v. Sauer (234 Penn. St. 330). In none of these cases, however, was there a full and complete rescission of the old contract and it is this with which we are dealing in this case. Rescission is not presumed; it is expressed; the old contract is not continued with modifications; it is ended and a new one made.

The efforts of the courts to give a legal reason for holding good a promise to pay an additional compensation [205] for the fulfillment of a pre-existing contract is commented upon in note upon Abbott v. Doane (163 Mass. 433) in 34 L. R. A. 33, 39, and the result reached is stated as follows: "The almost universal rule is that without any express rescission of the old contract, the promise is made simply for additional compensation, making the new promise a mere nudum pactum." As before stated, in this case we have an express rescission and a new contract.

There is no reason that we can see why the parties to a contract may not come together and agree to cancel and rescind an existing contract, making a new one in its place. We are also of the opinion that reason and authority support the conclusion that both transactions can take place at the same time.

For the reasons here stated, the charge of the trial court was correct, and the judgments of the Appellate Division and the Appellate Term should be affirmed, with costs.

HISCOCK, Ch. J., HOGAN, CARDOZO, MCLAUGHLIN and ANDREWS, JJ., concur; CHASE, J., dissents.

Judgments affirmed.

Defendants were large brewers and had a contract with an ice company to supply them with ice during the season of 1880 at one dollar and seventy-five cents a ton, or two dollars if the crop was short. The contract was made in November, 1879. The following winter was so mild that the ice crop was a failure. In May the defendants were notified by the ice company that no more ice would be furnished them under the contract. Defendants had then on hand a considerable amount of beer that would be spoiled without ice, and under stress of the circumstances they made a new arrangement with the ice company, and agreed to pay three dollars and a half per ton for the ice. At this rate ice was received and paid for afterwards. A note given for ice at this rate in October being sued, defendants disputed its validity, claiming that it was obtained without consideration and under duress.

Held (1) that it was entirely competent for the parties to enter into the new arrangement if they saw fit. Moore v. Detroit Locomotive Works, 14 Mich. ----.

(2) That the note was not without consideration, being given for ice received.

(3) That the refusal of the ice company to perform its contract, and the exaction of a higher price, was not legal duress. Hackley v. Headley, 45 Mich. ----; [S.C. 8 N.W.REP. 511.]

Error to superior court of Detroit.

[11 N.W. 284]

Maybury & Conely and Fred A. Baker, for plaintiffs in error.

Atkinson & Atkinson and C.J. Reilly, for defendants in error.

COOLEY, J.

The action in this case is upon a promissory note given by defendants, October 20, 1880, to the Belle Isle Ice Company, and by that company transferred to the plaintiffs after it fell due. The execution of the note is admitted, and the only question in the case is, whether the defendants have established any defence to it. The defence set up is that the note was obtained without consideration, and by means of duress. The facts which are supposed to show duress are the following: November 8, 1879, the Belle Isle Ice Company entered into a contract with the defendants below, who are brewers in the city of Detroit, whereby the company, undertook to furnish defendants at their brewery all the ice they might need for their business from that date until January 1, 1881. The ice was to be delivered on orders, and the price was to be one dollar and seventy-five cents per ton, and in case of the scarcity of ice during the season of 1880, two dollars per ton. Ice was furnished under this contract until May, 1880, when defendants were notified by Mr. Lorman, the manager or president of the ice company, that owing to the failure of the ice crop the preceding winter the company could and would furnish no more at the price stipulated. Other brewers in the city who held similar contracts received the like notification. This led to a meeting of several of the brewers with the president of the company and one of his associates, at which the brewers were informed that instructions were given to the teamsters of the company to deliver no more ice until the parties had agreed to pay more for it. Five dollars a ton was at first demanded, but the company finally agreed to deliver for three dollars and a half. Mr. Goebel who was a witness on behalf of the defendants explained the situation thus: “We had to pay most anything, if they asked $20; if we had no ice one day or two, if we had been without ice, all our stock would have been spoiled; if we hadn't ice for two days, all our stock of beer would have been spoiled, we cannot run our business one day without ice; it would spoil our beer; it cools the cellar and cools the beer. At that time I could not procure ice of anybody; they waited just long enough not to give us a chance to buy ice of anybody else; *** we could not contract with anybody for ice as there was

[11 N.W. 285]

not any; all ice was contracted for then-all the ice of the icemen right here in the market; there were several men came over who had boat loads to sell and offered us ice; I told Lorman we had a chance to buy ice, and he told us we should not; he would see our contract filled; this was during the spring months, before this conversation. At the time of this conversation no ice was obtainable in this market; not in such large quantities as we wanted. *** We never had less than 2,000 or 3,000 barrels of beer on hand. At 2,500 at $6 a barrel would be $15,000, which would have been an entire loss, besides ruining the whole business, the whole trade; we could not have had any customers; we could not have brewed any more; the brewing would have stopped also.” The consequence was, as he says, that they were forced to assent to the terms imposed upon them. From that time defendants paid $3.50 per ton for the ice as it was delivered to them, up to the first day of January following. Notes were given for the ice at this rate from time to time, and with the exception of the one in suit, paid as they fell due.

This statement is a sufficient presentation of the facts for the purposes of a decision. The defendants claim a set-off of the sums paid by them for ice in excess of two dollars a ton. It is very manifest that there is no ground for saying that the note in suit was given without consideration. It was given for ice which was furnished by the payee to the defendants; which was owned by the payee and bought by the defendants, and for which defendants concede their liability to make payment. What the defendants disputed is, the justice of compelling them to pay the sum stipulated in the note when according to their previous contract they ought to have received the ice for a sum much smaller. The defence, therefore, is not that the consideration has failed, but that a note for a sum greater than the contract price has been extorted under circumstances amounting to duress. It is to be observed of these circumstances that if we confine our attention to the very time when the arrangement for an increased price was made the defendants make out a very plausible case. They had then a very considerable stock of beer on hand, and the case they make is one in which they must have ice at any cost, or they must fail in business. If the ice company had the ability to perform their contract, but took advantage of the circumstances to extort a higher price from the necessities of the defendants, its conduct was reprehensible, and it would perhaps have been in the interest of good morals if defendants had temporarily submitted to the loss and brought suit against the ice company on their contract. No one disputes that at their option they might have taken that course, and that the ice company would have been responsible for all damages legally attributable to the breach of its contract.

But the defendants did not elect to take that course. They chose for reasons which they must have deemed sufficient at the time to submit to the company's demand and pay the increased price rather than rely upon their strict rights under the existing contract. What these reasons were is not explained to us except as above shown. It is obvious that there might be reasons that would go beyond the immediate injury to the business. Suppose, for example, the defendants had satisfied themselves that the ice company under the very extraordinary circumstances of the entire failure of the local crop of ice must be ruined if their existing contracts were to be insisted upon and must be utterly unable to respond in damages; it is plain that then, whether they chose to rely upon their contract or not, it could have been of little or no value to them. Unexpected and extraordinary circumstances had rendered the contract worthless; and they must either make a new arrangement, or, in insisting on holding the ice company to the existing contract, they would ruin the ice company and thereby at the same time ruin themselves. It would be very strange if under such a condition of things the existing contract, which unexpected events had rendered of no value,

[11 N.W. 286]

could stand in the way of a new arrangement, and constitute a bar to any new contract which should provide for a price that would enable both parties to save their interests.

We do not know that the condition of things was as supposed, but that it may have been is plain enough. What is certain is, that the parties immediately concerned and who knew all the facts, joined in making a new arrangement out of which the note in suit has grown. The case of Moore v. Detroit Locomotive Works, 14 Mich. 266, where a similar case was fully considered, is ample authority for supporting the new arrangement. If unfair advantage was taken of defendants, whereby they were forced into a contract against their interests, it is very remarkable that they submitted to abide by it as they did for nearly eight months without in the mean time taking any steps for their protection. Whatever compulsion there was in the case was to be found in the danger to their business in consequence of the threat made at the beginning of May to cut off the supply of ice; but the force of the threat would be broken the moment they could make arrangement for a supply elsewhere; and there is no showing that such a supply was unattainable. The force of the threat was therefore temporary; and the defendants, as soon as they were able to supply their needs elsewhere, might have been in position to act independently and to deal with the ice company as freely as they might with any other party who declined to keep his engagements. On any view, therefore, which we may take of the law, the defence must fail.

But if our attention were to be restricted to the very day when notice was given that ice would no longer be supplied at the contract price, we could not agree that the case was one of duress. It is not shown to be a case even of a hard bargain; and the price charged was probably not too much under the circumstances. But for the pre-existing contract the one now questioned would probably have been fair enough, and if made with any other party would not have been complained of. The duress is therefore to be found in the refusal to keep the previous engagements. How far this falls short of legal duress was so recently considered by us in Hackley v. Headley, 45 Mich. ----, [S.C. 8 N.W.REP. 511,] that further discussion now would serve no valuable purpose. In that case there was a dispute respecting the amount of a debt. The debtor refused to pay unless the creditor would accept in full the amount conceded by him to be owing. The creditor insisted that a large sum was due him, but being in immediate need of money, the circumstances were such that he felt compelled, as he claimed, to accept the sum offered. Afterwards he repudiated the arrangement, as having been made under duress.

This court on a careful examination of the authorities, found no support for the claim in legal principles. The following language made use of in disposing of the case is not without relevancy here: “In what did the alleged duress consist in the present case? Merely in this, that the debtors refused to pay on demand a debt already due, though the plaintiff was in great need of the money, and might be financially ruined in case he failed to obtain it. It is not pretended that Hackley & McGordon had done anything to bring Headley to the condition which made the money so important to him at this very time, or that they were in any manner responsible for his pecuniary embarassments except as they failed to pay this demand. The duress, then, is to be found exclusively in their failure to meet promptly their pecuniary obligation. But this, according to the plaintiff's claim, would have constituted no duress whatever if he had not happened to be in pecuniary straits; and the validity of negotiations, according to this claim, must be determined, not by the defendant's conduct, but by the plaintiff's necessities. The same contract which would be valid if made with a man easy in his circumstances becomes invalid when the contracting party is pressed with the necessity of immediately meeting his bank paper. But this would be a most dangerous as well

[11 N.W. 287]

as a most unequal doctrine; and if accepted, no one could well know when he would be safe in dealing on the ordinary terms of negotiations with a party who professed to be in great need.”

We are of opinion that the defence failed, and that the judgment should be affirmed with costs.

(The other justices concurred.)

[2575] Paul D. Clement, for Petitioners.

Edwin S. Kneedler, for Respondents.

H. Bartow Farr, III, appointed by this Court, as amicus curiae.

Michael A. Carvin, for respondents National Federation of Independent Business.

Donald B. Verrilli, Jr., Solicitor General, Washington, D.C, for Respondents.

Karen R. Harned, Washington, Randy E. Barnett, Washington, DC, Michael A. Carvin, Gregory G. Katsas, C. Kevin Marshall, Hashim M. Mooppan, Yaakov M. Roth, Jones Day, Washington, DC, for Private Petitioners.

[2576] Pamela Jo Bondi, Attorney General of Florida, Scott D. Makar, Solicitor General, Louis F. Hubener, Timothy D. Osterhaus, Blaine H. Winship, Tallahassee, FL, Paul D. Clement, Erin E. Murphy, Bancroft PLLC, Washington, DC, Greg Abbott, Attorney General of Texas, Austin, TX, Alan Wilson, Attorney General of South Carolina, Columbia, SC, Luther Strange, Attorney General of Alabama, Montgomery, AL, Bill Schuette, Attorney General of Michigan, Lansing, MI, Robert M. McKenna, Attorney General of Washington, Olympia, WA, Jon Bruning, Attorney General of Nebraska, Katherine J. Spohn, Special Counsel to the Attorney General Office of the Attorney General of Nebraska, Lincoln, NE, Mark L. Shurtleff, Attorney General of Utah, Salt Lake City, UT, James D. "Buddy" Caldwell, Attorney General of Louisiana, Baton Rouge, LA, John W. Suthers, Attorney General of Colorado, Denver, CO, Lawrence G. Wasden, Attorney General of Idaho, Boise, ID, Thomas W. Corbett, Jr., Governor, Linda L. Kelly, Attorney General Commonwealth of Pennsylvania, Harrisburg, PA, Marty J. Jackley, Attorney General of South Dakota, Pierre, SD, Gregory F. Zoeller, Attorney General of Indiana, Indianapolis, IN, Samuel S. Olens, Attorney General of Georgia, Atlanta, GA, Joseph Sciarrotta, Jr., General Counsel, Office of Arizona Governor, Janice K. Brewer, Tom Home, Attorney General of Arizona, Phoenix, AZ, Wayne Stenejhem, Attorney General of North Dakota, Bismarck, ND, Brian Sandoval, Governor of Nevada, Carson City, NV, Michael C. Geraghty, Attorney General of Alaska, Juneau, AK, Michael DeWine, Attorney General of Ohio, David B. Rivkin, Lee A. Casey, Baker & Hostetler LLP, Columbus, OH, Matthew Mead, Governor of Wyoming, Cheyenne, WY, William J. Schneider, Attorney General of Maine, Augusta, ME, J.B. Van Hollen, Attorney General of Wisconsin, Madison, WI, Michael B. Wallace, Counsel for the State of Mississippi by and through Governor Phil Bryant, Wise Carter Child & Caraway, P.A., Jackson, MS, Derek Schmidt, Attorney General of Kansas, Topeka, KS, Terry Branstad, Governor of Iowa, Des Moines, IA, for State Petitioners on Severability, State Petitioners on Medicade.

George W. Madison, General Counsel, Washington, D.C., M. Patricia Smith, Solicitor of Labor, Washington, D.C., William B. Schultz, Acting General Counsel, Kenneth Y. Choe, Deputy General Counsel, Washington, D.C., Donald B. Verrilli, Jr., Solicitor General, Tony West, Assistant Attorney General, Edwin S. Kneedler, Deputy Solicitor General, Beth S. Brinkmann, Deputy Assistant Attorney General, Leondra R. Kruger, Assistant to the Solicitor General, Mark B. Stern, Alisa B. Klein, Attorneys Department of Justice, Washington, D.C., for Respondents.

George W. Madison, General Counsel, Washington, D.C., M. Patricia Smith, Solicitor of Labor, Washington, D.C., William B. Schultz, Acting General Counsel, Kenneth Y. Choe, Deputy General Counsel, Washington, D.C., Donald B. Verrilli, Jr., Solicitor General, Tony West, Assistant Attorney General, Edwin S. Kneedler, Deputy Solicitor General, Beth S. Brinkmann, Deputy Assistant Attorney General, Joseph R. Palmore, Assistant to the Solicitor General, Mark B. Stern, Alisa B. Klein, Anisha Dasgupta, Dana Kaersvang, Attorneys Department of Justice, Washington, D.C., for Respondents (Severability).

[2577] Chief Justice ROBERTS announced the judgment of the Court and delivered the opinion of the Court with respect to Parts I, II, and III-C, an opinion with respect to Part IV, in which Justice BREYER and Justice KAGAN join, and an opinion with respect to Parts III-A, III-B, and III-D.

Today we resolve constitutional challenges to two provisions of the Patient Protection and Affordable Care Act of 2010: the individual mandate, which requires individuals to purchase a health insurance policy providing a minimum level of coverage; and the Medicaid expansion, which gives funds to the States on the condition that they provide specified health care to all citizens whose income falls below a certain threshold. We do not consider whether the Act embodies sound policies. That judgment is entrusted to the Nation's elected leaders. We ask only whether Congress has the power under the Constitution to enact the challenged provisions.

In our federal system, the National Government possesses only limited powers; the States and the people retain the remainder. Nearly two centuries ago, Chief Justice Marshall observed that "the question respecting the extent of the powers actually granted" to the Federal Government "is perpetually arising, and will probably continue to arise, as long as our system shall exist." McCulloch v. Maryland, 4 Wheat. 316, 405, 4 L.Ed. 579 (1819). In this case we must again determine whether the Constitution grants Congress powers it now asserts, but which many States and individuals believe it does not possess. Resolving this controversy requires us to examine both the limits of the Government's power, and our own limited role in policing those boundaries.

The Federal Government "is acknowledged by all to be one of enumerated powers." Ibid. That is, rather than granting general authority to perform all the conceivable functions of government, the Constitution lists, or enumerates, the Federal Government's powers. Congress may, for example, "coin Money," "establish Post Offices," and "raise and support Armies." Art. I, § 8, cls. 5, 7, 12. The enumeration of powers is also a limitation of powers, because "[t]he enumeration presupposes something not enumerated." Gibbons v. Ogden, 9 Wheat. 1, 195, 6 L.Ed. 23 (1824). The Constitution's express conferral of some powers makes clear that it does not grant others. And the Federal Government "can exercise only the powers granted to it." McCulloch, supra, at 405.

Today, the restrictions on government power foremost in many Americans' minds are likely to be affirmative prohibitions, such as contained in the Bill of Rights. These affirmative prohibitions come into play, however, only where the Government possesses authority to act in the first place. If no enumerated power authorizes Congress to pass a certain law, that law may not be enacted, even if it would not violate any of the express prohibitions in the Bill of Rights or elsewhere in the Constitution.

Indeed, the Constitution did not initially include a Bill of Rights at least partly [2578] because the Framers felt the enumeration of powers sufficed to restrain the Government. As Alexander Hamilton put it, "the Constitution is itself, in every rational sense, and to every useful purpose, A BILL OF RIGHTS." The Federalist No. 84, p. 515 (C. Rossiter ed. 1961). And when the Bill of Rights was ratified, it made express what the enumeration of powers necessarily implied: "The powers not delegated to the United States by the Constitution ... are reserved to the States respectively, or to the people." U.S. Const., Amdt. 10. The Federal Government has expanded dramatically over the past two centuries, but it still must show that a constitutional grant of power authorizes each of its actions. See, e.g., United States v. Comstock, 560 U.S. ___, 130 S.Ct. 1949, 176 L.Ed.2d 878 (2010).

The same does not apply to the States, because the Constitution is not the source of their power. The Constitution may restrict state governments — as it does, for example, by forbidding them to deny any person the equal protection of the laws. But where such prohibitions do not apply, state governments do not need constitutional authorization to act. The States thus can and do perform many of the vital functions of modern government — punishing street crime, running public schools, and zoning property for development, to name but a few — even though the Constitution's text does not authorize any government to do so. Our cases refer to this general power of governing, possessed by the States but not by the Federal Government, as the "police power." See, e.g., United States v. Morrison, 529 U.S. 598, 618-619, 120 S.Ct. 1740, 146 L.Ed.2d 658 (2000).

"State sovereignty is not just an end in itself: Rather, federalism secures to citizens the liberties that derive from the diffusion of sovereign power." New York v. United States, 505 U.S. 144, 181, 112 S.Ct. 2408, 120 L.Ed.2d 120 (1992) (internal quotation marks omitted). Because the police power is controlled by 50 different States instead of one national sovereign, the facets of governing that touch on citizens' daily lives are normally administered by smaller governments closer to the governed. The Framers thus ensured that powers which "in the ordinary course of affairs, concern the lives, liberties, and properties of the people" were held by governments more local and more accountable than a distant federal bureaucracy. The Federalist No. 45, at 293 (J. Madison). The independent power of the States also serves as a check on the power of the Federal Government: "By denying any one government complete jurisdiction over all the concerns of public life, federalism protects the liberty of the individual from arbitrary power." Bond v. United States, 564 U.S. ___, ___, 131 S.Ct. 2355, 2364, 180 L.Ed.2d 269 (2011).

This case concerns two powers that the Constitution does grant the Federal Government, but which must be read carefully to avoid creating a general federal authority akin to the police power. The Constitution authorizes Congress to "regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." Art. I, § 8, cl. 3. Our precedents read that to mean that Congress may regulate "the channels of interstate commerce," "persons or things in interstate commerce," and "those activities that substantially affect interstate commerce." Morrison, supra, at 609, 120 S.Ct. 1740 (internal quotation marks omitted). The power over activities that substantially affect interstate commerce can be expansive. That power has been held to authorize federal regulation of such seemingly local matters as a farmer's decision to grow wheat for himself and his [2579] livestock, and a loan shark's extortionate collections from a neighborhood butcher shop. See Wickard v. Filburn, 317 U.S. 111, 63 S.Ct. 82, 87 L.Ed. 122 (1942); Perez v. United States, 402 U.S. 146, 91 S.Ct. 1357, 28 L.Ed.2d 686 (1971).

Congress may also "lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States." U.S. Const., Art. I, § 8, cl. 1. Put simply, Congress may tax and spend. This grant gives the Federal Government considerable influence even in areas where it cannot directly regulate. The Federal Government may enact a tax on an activity that it cannot authorize, forbid, or otherwise control. See, e.g., License Tax Cases, 5 Wall. 462, 471, 18 L.Ed. 497 (1867). And in exercising its spending power, Congress may offer funds to the States, and may condition those offers on compliance with specified conditions. See, e.g., College Savings Bank v. Florida Prepaid Postsecondary Ed. Expense Bd., 527 U.S. 666, 686, 119 S.Ct. 2219, 144 L.Ed.2d 605 (1999). These offers may well induce the States to adopt policies that the Federal Government itself could not impose. See, e.g., South Dakota v. Dole, 483 U.S. 203, 205-206, 107 S.Ct. 2793, 97 L.Ed.2d 171 (1987) (conditioning federal highway funds on States raising their drinking age to 21).

The reach of the Federal Government's enumerated powers is broader still because the Constitution authorizes Congress to "make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers." Art. I, § 8, cl. 18. We have long read this provision to give Congress great latitude in exercising its powers: "Let the end be legitimate, let it be within the scope of the constitution, and all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the constitution, are constitutional." McCulloch, 4 Wheat., at 421.

Our permissive reading of these powers is explained in part by a general reticence to invalidate the acts of the Nation's elected leaders. "Proper respect for a coordinate branch of the government" requires that we strike down an Act of Congress only if "the lack of constitutional authority to pass [the] act in question is clearly demonstrated." United States v. Harris, 106 U.S. 629, 635, 1 S.Ct. 601, 27 L.Ed. 290 (1883). Members of this Court are vested with the authority to interpret the law; we possess neither the expertise nor the prerogative to make policy judgments. Those decisions are entrusted to our Nation's elected leaders, who can be thrown out of office if the people disagree with them. It is not our job to protect the people from the consequences of their political choices.

Our deference in matters of policy cannot, however, become abdication in matters of law. "The powers of the legislature are defined and limited; and that those limits may not be mistaken, or forgotten, the constitution is written." Marbury v. Madison, 1 Cranch 137, 176, 2 L.Ed. 60 (1803). Our respect for Congress's policy judgments thus can never extend so far as to disavow restraints on federal power that the Constitution carefully constructed. "The peculiar circumstances of the moment may render a measure more or less wise, but cannot render it more or less constitutional." Chief Justice John Marshall, A Friend of the Constitution No. V, Alexandria Gazette, July 5, 1819, in John Marshall's Defense of McCulloch v. Maryland 190-191 (G. Gunther ed. 1969). And there can be no question that it is the responsibility of this Court to enforce the limits on federal power [2580] by striking down acts of Congress that transgress those limits. Marbury v. Madison, supra, at 175-176.

The questions before us must be considered against the background of these basic principles.

I

In 2010, Congress enacted the Patient Protection and Affordable Care Act, 124 Stat. 119. The Act aims to increase the number of Americans covered by health insurance and decrease the cost of health care. The Act's 10 titles stretch over 900 pages and contain hundreds of provisions. This case concerns constitutional challenges to two key provisions, commonly referred to as the individual mandate and the Medicaid expansion.

The individual mandate requires most Americans to maintain "minimum essential" health insurance coverage. 26 U.S.C. § 5000A. The mandate does not apply to some individuals, such as prisoners and undocumented aliens. § 5000A(d). Many individuals will receive the required coverage through their employer, or from a government program such as Medicaid or Medicare. See § 5000A(f). But for individuals who are not exempt and do not receive health insurance through a third party, the means of satisfying the requirement is to purchase insurance from a private company.

Beginning in 2014, those who do not comply with the mandate must make a "[s]hared responsibility payment" to the Federal Government. § 5000A(b)(1). That payment, which the Act describes as a "penalty," is calculated as a percentage of household income, subject to a floor based on a specified dollar amount and a ceiling based on the average annual premium the individual would have to pay for qualifying private health insurance. § 5000A(c). In 2016, for example, the penalty will be 2.5 percent of an individual's household income, but no less than $695 and no more than the average yearly premium for insurance that covers 60 percent of the cost of 10 specified services (e.g., prescription drugs and hospitalization). Ibid.; 42 U.S.C. § 18022. The Act provides that the penalty will be paid to the Internal Revenue Service with an individual's taxes, and "shall be assessed and collected in the same manner" as tax penalties, such as the penalty for claiming too large an income tax refund. 26 U.S.C. § 5000A(g)(1). The Act, however, bars the IRS from using several of its normal enforcement tools, such as criminal prosecutions and levies. § 5000A(g)(2). And some individuals who are subject to the mandate are nonetheless exempt from the penalty — for example, those with income below a certain threshold and members of Indian tribes. § 5000A(e).

On the day the President signed the Act into law, Florida and 12 other States filed a complaint in the Federal District Court for the Northern District of Florida. Those plaintiffs — who are both respondents and petitioners here, depending on the issue — were subsequently joined by 13 more States, several individuals, and the National Federation of Independent Business. The plaintiffs alleged, among other things, that the individual mandate provisions of the Act exceeded Congress's powers under Article I of the Constitution. The District Court agreed, holding that Congress lacked constitutional power to enact the individual mandate. 780 F.Supp.2d 1256 (N.D.Fla.2011). The District Court determined that the individual mandate could not be severed from the remainder of the Act, and therefore struck down the Act in its entirety. Id., at 1305-1306.

The Court of Appeals for the Eleventh Circuit affirmed in part and reversed in [2581] part. The court affirmed the District Court's holding that the individual mandate exceeds Congress's power. 648 F.3d 1235 (2011). The panel unanimously agreed that the individual mandate did not impose a tax, and thus could not be authorized by Congress's power to "lay and collect Taxes." U.S. Const., Art. I, § 8, cl. 1. A majority also held that the individual mandate was not supported by Congress's power to "regulate Commerce ... among the several States." Id., cl. 3. According to the majority, the Commerce Clause does not empower the Federal Government to order individuals to engage in commerce, and the Government's efforts to cast the individual mandate in a different light were unpersuasive. Judge Marcus dissented, reasoning that the individual mandate regulates economic activity that has a clear effect on interstate commerce.

Having held the individual mandate to be unconstitutional, the majority examined whether that provision could be severed from the remainder of the Act. The majority determined that, contrary to the District Court's view, it could. The court thus struck down only the individual mandate, leaving the Act's other provisions intact. 648 F.3d, at 1328.

Other Courts of Appeals have also heard challenges to the individual mandate. The Sixth Circuit and the D.C. Circuit upheld the mandate as a valid exercise of Congress's commerce power. See Thomas More Law Center v. Obama, 651 F.3d 529 (C.A.6 2011); Seven-Sky v. Holder, 661 F.3d 1 (C.A.D.C.2011). The Fourth Circuit determined that the Anti-Injunction Act prevents courts from considering the merits of that question. See Liberty Univ., Inc. v. Geithner, 671 F.3d 391 (2011). That statute bars suits "for the purpose of restraining the assessment or collection of any tax." 26 U.S.C. § 7421(a). A majority of the Fourth Circuit panel reasoned that the individual mandate's penalty is a tax within the meaning of the Anti-Injunction Act, because it is a financial assessment collected by the IRS through the normal means of taxation. The majority therefore determined that the plaintiffs could not challenge the individual mandate until after they paid the penalty.^[1]

The second provision of the Affordable Care Act directly challenged here is the Medicaid expansion. Enacted in 1965, Medicaid offers federal funding to States to assist pregnant women, children, needy families, the blind, the elderly, and the disabled in obtaining medical care. See 42 U.S.C. § 1396a(a)(10). In order to receive that funding, States must comply with federal criteria governing matters such as who receives care and what services are provided at what cost. By 1982 every State had chosen to participate in Medicaid. Federal funds received through the Medicaid program have become a substantial part of state budgets, now constituting over 10 percent of most States' total revenue.

The Affordable Care Act expands the scope of the Medicaid program and increases the number of individuals the States must cover. For example, the Act [2582] requires state programs to provide Medicaid coverage to adults with incomes up to 133 percent of the federal poverty level, whereas many States now cover adults with children only if their income is considerably lower, and do not cover childless adults at all. See § 1396a(a)(10)(A)(i)(VIII). The Act increases federal funding to cover the States' costs in expanding Medicaid coverage, although States will bear a portion of the costs on their own. § 1396d(y)(1). If a State does not comply with the Act's new coverage requirements, it may lose not only the federal funding for those requirements, but all of its federal Medicaid funds. See § 1396c.

Along with their challenge to the individual mandate, the state plaintiffs in the Eleventh Circuit argued that the Medicaid expansion exceeds Congress's constitutional powers. The Court of Appeals unanimously held that the Medicaid expansion is a valid exercise of Congress's power under the Spending Clause. U.S. Const., Art. I, § 8, cl. 1. And the court rejected the States' claim that the threatened loss of all federal Medicaid funding violates the Tenth Amendment by coercing them into complying with the Medicaid expansion. 648 F.3d, at 1264, 1268.

We granted certiorari to review the judgment of the Court of Appeals for the Eleventh Circuit with respect to both the individual mandate and the Medicaid expansion. 565 U.S. ___, 132 S.Ct. 603, 181 L.Ed.2d 420 (2011). Because no party supports the Eleventh Circuit's holding that the individual mandate can be completely severed from the remainder of the Affordable Care Act, we appointed an amicus curiae to defend that aspect of the judgment below. And because there is a reasonable argument that the Anti-Injunction Act deprives us of jurisdiction to hear challenges to the individual mandate, but no party supports that proposition, we appointed an amicus curiae to advance it.^[2]

II

Before turning to the merits, we need to be sure we have the authority to do so. The Anti-Injunction Act provides that "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed." 26 U.S.C. § 7421(a). This statute protects the Government's ability to collect a consistent stream of revenue, by barring litigation to enjoin or otherwise obstruct the collection of taxes. Because of the Anti-Injunction Act, taxes can ordinarily be challenged only after they are paid, by suing for a refund. See Enochs v. Williams Packing & Nav. Co., 370 U.S. 1, 7-8, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962).

The penalty for not complying with the Affordable Care Act's individual mandate first becomes enforceable in 2014. The present challenge to the mandate thus seeks to restrain the penalty's future collection. Amicus contends that the Internal Revenue Code treats the penalty as a tax, and that the Anti-Injunction Act therefore bars this suit.

The text of the pertinent statutes suggests otherwise. The Anti-Injunction Act applies to suits "for the purpose of restraining the assessment or collection of any tax." § 7421(a) (emphasis added). [2583] Congress, however, chose to describe the "[s]hared responsibility payment" imposed on those who forgo health insurance not as a "tax," but as a "penalty." §§ 5000A(b), (g)(2). There is no immediate reason to think that a statute applying to "any tax" would apply to a "penalty."

Congress's decision to label this exaction a "penalty" rather than a "tax" is significant because the Affordable Care Act describes many other exactions it creates as "taxes." See Thomas More, 651 F.3d, at 551. Where Congress uses certain language in one part of a statute and different language in another, it is generally presumed that Congress acts intentionally. See Russello v. United States, 464 U.S. 16, 23, 104 S.Ct. 296, 78 L.Ed.2d 17 (1983).

Amicus argues that even though Congress did not label the shared responsibility payment a tax, we should treat it as such under the Anti-Injunction Act because it functions like a tax. It is true that Congress cannot change whether an exaction is a tax or a penalty for constitutional purposes simply by describing it as one or the other. Congress may not, for example, expand its power under the Taxing Clause, or escape the Double Jeopardy Clause's constraint on criminal sanctions, by labeling a severe financial punishment a "tax." See Bailey v. Drexel Furniture Co., 259 U.S. 20, 36-37, 42 S.Ct. 449, 66 L.Ed. 817 (1922); Department of Revenue of Mont. v. Kurth Ranch, 511 U.S. 767, 779, 114 S.Ct. 1937, 128 L.Ed.2d 767 (1994).

The Anti-Injunction Act and the Affordable Care Act, however, are creatures of Congress's own creation. How they relate to each other is up to Congress, and the best evidence of Congress's intent is the statutory text. We have thus applied the Anti-Injunction Act to statutorily described "taxes" even where that label was inaccurate. See Bailey v. George, 259 U.S. 16, 42 S.Ct. 419, 66 L.Ed. 816 (1922) (Anti-Injunction Act applies to "Child Labor Tax" struck down as exceeding Congress's taxing power in Drexel Furniture).

Congress can, of course, describe something as a penalty but direct that it nonetheless be treated as a tax for purposes of the Anti-Injunction Act. For example, 26 U.S.C. § 6671(a) provides that "any reference in this title to `tax' imposed by this title shall be deemed also to refer to the penalties and liabilities provided by" subchapter 68B of the Internal Revenue Code. Penalties in subchapter 68B are thus treated as taxes under Title 26, which includes the Anti-Injunction Act. The individual mandate, however, is not in subchapter 68B of the Code. Nor does any other provision state that references to taxes in Title 26 shall also be "deemed" to apply to the individual mandate.

Amicus attempts to show that Congress did render the Anti-Injunction Act applicable to the individual mandate, albeit by a more circuitous route. Section 5000A(g)(1) specifies that the penalty for not complying with the mandate "shall be assessed and collected in the same manner as an assessable penalty under subchapter B of chapter 68." Assessable penalties in subchapter 68B, in turn, "shall be assessed and collected in the same manner as taxes." § 6671(a). According to amicus, by directing that the penalty be "assessed and collected in the same manner as taxes," § 5000A(g)(1) made the Anti-Injunction Act applicable to this penalty.

The Government disagrees. It argues that § 5000A(g)(1) does not direct courts to apply the Anti-Injunction Act, because § 5000A(g) is a directive only to the Secretary of the Treasury to use the same "`methodology and procedures'" to collect the penalty that he uses to collect taxes. [2584] Brief for United States 32-33 (quoting Seven-Sky, 661 F.3d, at 11).

We think the Government has the better reading. As it observes, "Assessment" and "Collection" are chapters of the Internal Revenue Code providing the Secretary authority to assess and collect taxes, and generally specifying the means by which he shall do so. See § 6201 (assessment authority); § 6301 (collection authority). Section 5000A(g)(1)'s command that the penalty be "assessed and collected in the same manner" as taxes is best read as referring to those chapters and giving the Secretary the same authority and guidance with respect to the penalty. That interpretation is consistent with the remainder of § 5000A(g), which instructs the Secretary on the tools he may use to collect the penalty. See § 5000A(g)(2)(A) (barring criminal prosecutions); § 5000A(g)(2)(B) (prohibiting the Secretary from using notices of lien and levies). The Anti-Injunction Act, by contrast, says nothing about the procedures to be used in assessing and collecting taxes.

Amicus argues in the alternative that a different section of the Internal Revenue Code requires courts to treat the penalty as a tax under the Anti-Injunction Act. Section 6201(a) authorizes the Secretary to make "assessments of all taxes (including interest, additional amounts, additions to the tax, and assessable penalties)." (Emphasis added.) Amicus contends that the penalty must be a tax, because it is an assessable penalty and § 6201(a) says that taxes include assessable penalties.

That argument has force only if § 6201(a) is read in isolation. The Code contains many provisions treating taxes and assessable penalties as distinct terms. See, e.g., §§ 860(h)(1), 6324A(a), 6601(e)(1)(2), 6602, 7122(b). There would, for example, be no need for § 6671(a) to deem "tax" to refer to certain assessable penalties if the Code already included all such penalties in the term "tax." Indeed, amicus's earlier observation that the Code requires assessable penalties to be assessed and collected "in the same manner as taxes" makes little sense if assessable penalties are themselves taxes. In light of the Code's consistent distinction between the terms "tax" and "assessable penalty," we must accept the Government's interpretation: § 6201(a) instructs the Secretary that his authority to assess taxes includes the authority to assess penalties, but it does not equate assessable penalties to taxes for other purposes.

The Affordable Care Act does not require that the penalty for failing to comply with the individual mandate be treated as a tax for purposes of the Anti-Injunction Act. The Anti-Injunction Act therefore does not apply to this suit, and we may proceed to the merits.

III

The Government advances two theories for the proposition that Congress had constitutional authority to enact the individual mandate. First, the Government argues that Congress had the power to enact the mandate under the Commerce Clause. Under that theory, Congress may order individuals to buy health insurance because the failure to do so affects interstate commerce, and could undercut the Affordable Care Act's other reforms. Second, the Government argues that if the commerce power does not support the mandate, we should nonetheless uphold it as an exercise of Congress's power to tax. According to the Government, even if Congress lacks the power to direct individuals to buy insurance, the only effect of the individual mandate is to raise taxes on those who do not do so, and thus the law may be upheld as a tax.

[2585] A

The Government's first argument is that the individual mandate is a valid exercise of Congress's power under the Commerce Clause and the Necessary and Proper Clause. According to the Government, the health care market is characterized by a significant cost-shifting problem. Everyone will eventually need health care at a time and to an extent they cannot predict, but if they do not have insurance, they often will not be able to pay for it. Because state and federal laws nonetheless require hospitals to provide a certain degree of care to individuals without regard to their ability to pay, see, e.g., 42 U.S.C. § 1395dd; Fla. Stat. Ann. § 395.1041, hospitals end up receiving compensation for only a portion of the services they provide. To recoup the losses, hospitals pass on the cost to insurers through higher rates, and insurers, in turn, pass on the cost to policy holders in the form of higher premiums. Congress estimated that the cost of uncompensated care raises family health insurance premiums, on average, by over $1,000 per year. 42 U.S.C. § 18091(2)(F).

In the Affordable Care Act, Congress addressed the problem of those who cannot obtain insurance coverage because of preexisting conditions or other health issues. It did so through the Act's "guaranteed-issue" and "community-rating" provisions. These provisions together prohibit insurance companies from denying coverage to those with such conditions or charging unhealthy individuals higher premiums than healthy individuals. See §§ 300gg, 300gg-1, 300gg-3, 300gg-4.

The guaranteed-issue and community-rating reforms do not, however, address the issue of healthy individuals who choose not to purchase insurance to cover potential health care needs. In fact, the reforms sharply exacerbate that problem, by providing an incentive for individuals to delay purchasing health insurance until they become sick, relying on the promise of guaranteed and affordable coverage. The reforms also threaten to impose massive new costs on insurers, who are required to accept unhealthy individuals but prohibited from charging them rates necessary to pay for their coverage. This will lead insurers to significantly increase premiums on everyone. See Brief for America's Health Insurance Plans et al. as Amici Curiae in No. 11-393 etc. 8-9.

The individual mandate was Congress's solution to these problems. By requiring that individuals purchase health insurance, the mandate prevents cost-shifting by those who would otherwise go without it. In addition, the mandate forces into the insurance risk pool more healthy individuals, whose premiums on average will be higher than their health care expenses. This allows insurers to subsidize the costs of covering the unhealthy individuals the reforms require them to accept. The Government claims that Congress has power under the Commerce and Necessary and Proper Clauses to enact this solution.

1

The Government contends that the individual mandate is within Congress's power because the failure to purchase insurance "has a substantial and deleterious effect on interstate commerce" by creating the cost-shifting problem. Brief for United States 34. The path of our Commerce Clause decisions has not always run smooth, see United States v. Lopez, 514 U.S. 549, 552-559, 115 S.Ct. 1624, 131 L.Ed.2d 626 (1995), but it is now well established that Congress has broad authority under the Clause. We have recognized, for example, that "[t]he power of Congress over interstate commerce is not confined to the regulation of commerce among the states," but extends to activities that "have a substantial effect on interstate commerce." [2586] United States v. Darby, 312 U.S. 100, 118-119, 61 S.Ct. 451, 85 L.Ed. 609 (1941). Congress's power, moreover, is not limited to regulation of an activity that by itself substantially affects interstate commerce, but also extends to activities that do so only when aggregated with similar activities of others. See Wickard, 317 U.S., at 127-128, 63 S.Ct. 82.

Given its expansive scope, it is no surprise that Congress has employed the commerce power in a wide variety of ways to address the pressing needs of the time. But Congress has never attempted to rely on that power to compel individuals not engaged in commerce to purchase an unwanted product.^[3] Legislative novelty is not necessarily fatal; there is a first time for everything. But sometimes "the most telling indication of [a] severe constitutional problem ... is the lack of historical precedent" for Congress's action. Free Enterprise Fund v. Public Company Accounting Oversight Bd., 561 U.S. ___, ___, 130 S.Ct. 3138, 3159, 177 L.Ed.2d 706 (2010) (internal quotation marks omitted). At the very least, we should "pause to consider the implications of the Government's arguments" when confronted with such new conceptions of federal power. Lopez, supra, at 564, 115 S.Ct. 1624.

The Constitution grants Congress the power to "regulate Commerce." Art. I, § 8, cl. 3 (emphasis added). The power to regulate commerce presupposes the existence of commercial activity to be regulated. If the power to "regulate" something included the power to create it, many of the provisions in the Constitution would be superfluous. For example, the Constitution gives Congress the power to "coin Money," in addition to the power to "regulate the Value thereof." Id., cl. 5. And it gives Congress the power to "raise and support Armies" and to "provide and maintain a Navy," in addition to the power to "make Rules for the Government and Regulation of the land and naval Forces." Id., cls. 12-14. If the power to regulate the armed forces or the value of money included the power to bring the subject of the regulation into existence, the specific grant of such powers would have been unnecessary. The language of the Constitution reflects the natural understanding that the power to regulate assumes there is already something to be regulated. See Gibbons, 9 Wheat., at 188 ("[T]he enlightened patriots who framed our constitution, and the people who adopted it, must be understood to have employed words in their natural sense, and to have intended what they have said").^[4]

[2587] Our precedent also reflects this understanding. As expansive as our cases construing the scope of the commerce power have been, they all have one thing in common: They uniformly describe the power as reaching "activity." It is nearly impossible to avoid the word when quoting them. See, e.g., Lopez, supra, at 560, 115 S.Ct. 1624 ("Where economic activity substantially affects interstate commerce, legislation regulating that activity will be sustained"); Perez, 402 U.S., at 154, 91 S.Ct. 1357 ("Where the class of activities is regulated and that class is within the reach of federal power, the courts have no power to excise, as trivial, individual instances of the class" (emphasis in original; internal quotation marks omitted)); Wickard, supra, at 125, 63 S.Ct. 82 ("[E]ven if appellee's activity be local and though it may not be regarded as commerce, it may still, whatever its nature, be reached by Congress if it exerts a substantial economic effect on interstate commerce"); NLRB v. Jones & Laughlin Steel Corp., 301 U.S. 1, 37, 57 S.Ct. 615, 81 L.Ed. 893 (1937) ("Although activities may be intrastate in character when separately considered, if they have such a close and substantial relation to interstate commerce that their control is essential or appropriate to protect that commerce from burdens and obstructions, Congress cannot be denied the power to exercise that control"); see also post, at 2616, 2621-2623, 2623, 2625 (GINSBURG, J., concurring in part, concurring in judgment in part, and dissenting in part).^[5]

The individual mandate, however, does not regulate existing commercial activity. It instead compels individuals to become active in commerce by purchasing a product, on the ground that their failure to do so affects interstate commerce. Construing the Commerce Clause to permit Congress to regulate individuals precisely because they are doing nothing would open a new and potentially vast domain to congressional authority. Every day individuals do not do an infinite number of things. In some cases they decide not to do something; in others they simply fail to do it. Allowing Congress to justify federal regulation by pointing to the effect of inaction on commerce would bring countless decisions an individual could potentially make within the scope of federal regulation, and — under the Government's theory — empower Congress to make those decisions for him.

Applying the Government's logic to the familiar case of Wickard v. Filburn shows how far that logic would carry us from the notion of a government of limited powers. In Wickard, the Court famously upheld a federal penalty imposed on a farmer for growing wheat for consumption on his own farm. 317 U.S., at 114-115, 128-129, 63 S.Ct. 82. That amount of wheat caused the farmer to exceed his quota under a [2588] program designed to support the price of wheat by limiting supply. The Court rejected the farmer's argument that growing wheat for home consumption was beyond the reach of the commerce power. It did so on the ground that the farmer's decision to grow wheat for his own use allowed him to avoid purchasing wheat in the market. That decision, when considered in the aggregate along with similar decisions of others, would have had a substantial effect on the interstate market for wheat. Id., at 127-129, 63 S.Ct. 82.

Wickard has long been regarded as "perhaps the most far reaching example of Commerce Clause authority over intrastate activity," Lopez, 514 U.S., at 560, 115 S.Ct. 1624, but the Government's theory in this case would go much further. Under Wickard it is within Congress's power to regulate the market for wheat by supporting its price. But price can be supported by increasing demand as well as by decreasing supply. The aggregated decisions of some consumers not to purchase wheat have a substantial effect on the price of wheat, just as decisions not to purchase health insurance have on the price of insurance. Congress can therefore command that those not buying wheat do so, just as it argues here that it may command that those not buying health insurance do so. The farmer in Wickard was at least actively engaged in the production of wheat, and the Government could regulate that activity because of its effect on commerce. The Government's theory here would effectively override that limitation, by establishing that individuals may be regulated under the Commerce Clause whenever enough of them are not doing something the Government would have them do.

Indeed, the Government's logic would justify a mandatory purchase to solve almost any problem. See Seven-Sky, 661 F.3d, at 14-15 (noting the Government's inability to "identify any mandate to purchase a product or service in interstate commerce that would be unconstitutional" under its theory of the commerce power). To consider a different example in the health care market, many Americans do not eat a balanced diet. That group makes up a larger percentage of the total population than those without health insurance. See, e.g., Dept. of Agriculture and Dept. of Health and Human Services, Dietary Guidelines for Americans 1 (2010). The failure of that group to have a healthy diet increases health care costs, to a greater extent than the failure of the uninsured to purchase insurance. See, e.g., Finkelstein, Trogdon, Cohen, & Dietz, Annual Medical Spending Attributable to Obesity: Payer- and Service-Specific Estimates, 28 Health Affairs w822 (2009) (detailing the "undeniable link between rising rates of obesity and rising medical spending," and estimating that "the annual medical burden of obesity has risen to almost 10 percent of all medical spending and could amount to $147 billion per year in 2008"). Those increased costs are borne in part by other Americans who must pay more, just as the uninsured shift costs to the insured. See Center for Applied Ethics, Voluntary Health Risks: Who Should Pay?, 6 Issues in Ethics 6 (1993) (noting "overwhelming evidence that individuals with unhealthy habits pay only a fraction of the costs associated with their behaviors; most of the expense is borne by the rest of society in the form of higher insurance premiums, government expenditures for health care, and disability benefits"). Congress addressed the insurance problem by ordering everyone to buy insurance. Under the Government's theory, Congress could address the diet problem by ordering everyone to buy vegetables. See Dietary Guidelines, supra, at 19 ("Improved nutrition, appropriate eating behaviors, and increased [2589] physical activity have tremendous potential to ... reduce health care costs").

People, for reasons of their own, often fail to do things that would be good for them or good for society. Those failures — joined with the similar failures of others — can readily have a substantial effect on interstate commerce. Under the Government's logic, that authorizes Congress to use its commerce power to compel citizens to act as the Government would have them act.

That is not the country the Framers of our Constitution envisioned. James Madison explained that the Commerce Clause was "an addition which few oppose and from which no apprehensions are entertained." The Federalist No. 45, at 293. While Congress's authority under the Commerce Clause has of course expanded with the growth of the national economy, our cases have "always recognized that the power to regulate commerce, though broad indeed, has limits." Maryland v. Wirtz, 392 U.S. 183, 196, 88 S.Ct. 2017, 20 L.Ed.2d 1020 (1968). The Government's theory would erode those limits, permitting Congress to reach beyond the natural extent of its authority, "everywhere extending the sphere of its activity and drawing all power into its impetuous vortex." The Federalist No. 48, at 309 (J. Madison). Congress already enjoys vast power to regulate much of what we do. Accepting the Government's theory would give Congress the same license to regulate what we do not do, fundamentally changing the relation between the citizen and the Federal Government.^[6]

To an economist, perhaps, there is no difference between activity and inactivity; both have measurable economic effects on commerce. But the distinction between doing something and doing nothing would not have been lost on the Framers, who were "practical statesmen," not metaphysical philosophers. Industrial Union Dept., AFL-CIO v. American Petroleum Institute, 448 U.S. 607, 673, 100 S.Ct. 2844, 65 L.Ed.2d 1010 (1980) (Rehnquist, J., concurring in judgment). As we have explained, "the framers of the Constitution were not mere visionaries, toying with speculations or theories, but practical men, dealing with the facts of political life as they understood them, putting into form the government they were creating, and prescribing in language clear and intelligible the powers that government was to take." South Carolina v. United States, 199 U.S. 437, 449, 26 S.Ct. 110, 50 L.Ed. 261 (1905). The Framers gave Congress the power to regulate commerce, not to compel it, and for over 200 years both our decisions and Congress's actions have reflected this understanding. There is no reason to depart from that understanding now.

The Government sees things differently. It argues that because sickness and injury are unpredictable but unavoidable, "the uninsured as a class are active in the market for health care, which they regularly seek and obtain." Brief for United States 50. The individual mandate "merely regulates how individuals finance and pay for that active participation — requiring that they do so through insurance, rather than through attempted self-insurance with the [2590] back-stop of shifting costs to others." Ibid.

The Government repeats the phrase "active in the market for health care" throughout its brief, see id., at 7, 18, 34, 50, but that concept has no constitutional significance. An individual who bought a car two years ago and may buy another in the future is not "active in the car market" in any pertinent sense. The phrase "active in the market" cannot obscure the fact that most of those regulated by the individual mandate are not currently engaged in any commercial activity involving health care, and that fact is fatal to the Government's effort to "regulate the uninsured as a class." Id., at 42. Our precedents recognize Congress's power to regulate "class[es] of activities," Gonzales v. Raich, 545 U.S. 1, 17, 125 S.Ct. 2195, 162 L.Ed.2d 1 (2005) (emphasis added), not classes of individuals, apart from any activity in which they are engaged, see, e.g., Perez, 402 U.S., at 153, 91 S.Ct. 1357 ("Petitioner is clearly a member of the class which engages in `extortionate credit transactions'..." (emphasis deleted)).

The individual mandate's regulation of the uninsured as a class is, in fact, particularly divorced from any link to existing commercial activity. The mandate primarily affects healthy, often young adults who are less likely to need significant health care and have other priorities for spending their money. It is precisely because these individuals, as an actuarial class, incur relatively low health care costs that the mandate helps counter the effect of forcing insurance companies to cover others who impose greater costs than their premiums are allowed to reflect. See 42 U.S.C. § 18091(2)(I) (recognizing that the mandate would "broaden the health insurance risk pool to include healthy individuals, which will lower health insurance premiums"). If the individual mandate is targeted at a class, it is a class whose commercial inactivity rather than activity is its defining feature.

The Government, however, claims that this does not matter. The Government regards it as sufficient to trigger Congress's authority that almost all those who are uninsured will, at some unknown point in the future, engage in a health care transaction. Asserting that "[t]here is no temporal limitation in the Commerce Clause," the Government argues that because "[e]veryone subject to this regulation is in or will be in the health care market," they can be "regulated in advance." Tr. of Oral Arg. 109 (Mar. 27, 2012).

The proposition that Congress may dictate the conduct of an individual today because of prophesied future activity finds no support in our precedent. We have said that Congress can anticipate the effects on commerce of an economic activity. See, e.g., Consolidated Edison Co. v. NLRB, 305 U.S. 197, 59 S.Ct. 206, 83 L.Ed. 126 (1938) (regulating the labor practices of utility companies); Heart of Atlanta Motel, Inc. v. United States, 379 U.S. 241, 85 S.Ct. 348, 13 L.Ed.2d 258 (1964) (prohibiting discrimination by hotel operators); Katzenbach v. McClung, 379 U.S. 294, 85 S.Ct. 377, 13 L.Ed.2d 290 (1964) (prohibiting discrimination by restaurant owners). But we have never permitted Congress to anticipate that activity itself in order to regulate individuals not currently engaged in commerce. Each one of our cases, including those cited by Justice GINSBURG, post, at 2619-2620, involved preexisting economic activity. See, e.g., Wickard, 317 U.S., at 127-129, 63 S.Ct. 82 (producing wheat); Raich, supra, at 25, 125 S.Ct. 2195 (growing marijuana).

Everyone will likely participate in the markets for food, clothing, transportation, shelter, or energy; that does not authorize [2591] Congress to direct them to purchase particular products in those or other markets today. The Commerce Clause is not a general license to regulate an individual from cradle to grave, simply because he will predictably engage in particular transactions. Any police power to regulate individuals as such, as opposed to their activities, remains vested in the States.

The Government argues that the individual mandate can be sustained as a sort of exception to this rule, because health insurance is a unique product. According to the Government, upholding the individual mandate would not justify mandatory purchases of items such as cars or broccoli because, as the Government puts it, "[h]ealth insurance is not purchased for its own sake like a car or broccoli; it is a means of financing health-care consumption and covering universal risks." Reply Brief for United States 19. But cars and broccoli are no more purchased for their "own sake" than health insurance. They are purchased to cover the need for transportation and food.

The Government says that health insurance and health care financing are "inherently integrated." Brief for United States 41. But that does not mean the compelled purchase of the first is properly regarded as a regulation of the second. No matter how "inherently integrated" health insurance and health care consumption may be, they are not the same thing: They involve different transactions, entered into at different times, with different providers. And for most of those targeted by the mandate, significant health care needs will be years, or even decades, away. The proximity and degree of connection between the mandate and the subsequent commercial activity is too lacking to justify an exception of the sort urged by the Government. The individual mandate forces individuals into commerce precisely because they elected to refrain from commercial activity. Such a law cannot be sustained under a clause authorizing Congress to "regulate Commerce."

2

The Government next contends that Congress has the power under the Necessary and Proper Clause to enact the individual mandate because the mandate is an "integral part of a comprehensive scheme of economic regulation" — the guaranteed-issue and community-rating insurance reforms. Brief for United States 24. Under this argument, it is not necessary to consider the effect that an individual's inactivity may have on interstate commerce; it is enough that Congress regulate commercial activity in a way that requires regulation of inactivity to be effective.

The power to "make all Laws which shall be necessary and proper for carrying into Execution" the powers enumerated in the Constitution, Art. I, § 8, cl. 18, vests Congress with authority to enact provisions "incidental to the [enumerated] power, and conducive to its beneficial exercise," McCulloch, 4 Wheat., at 418. Although the Clause gives Congress authority to "legislate on that vast mass of incidental powers which must be involved in the constitution," it does not license the exercise of any "great substantive and independent power[s]" beyond those specifically enumerated. Id., at 411, 421. Instead, the Clause is "`merely a declaration, for the removal of all uncertainty, that the means of carrying into execution those [powers] otherwise granted are included in the grant.'" Kinsella v. United States ex rel. Singleton, 361 U.S. 234, 247, 80 S.Ct. 297, 4 L.Ed.2d 268 (1960) (quoting VI Writings of James Madison 383 (G. Hunt ed. 1906)).

As our jurisprudence under the Necessary and Proper Clause has developed, we [2592] have been very deferential to Congress's determination that a regulation is "necessary." We have thus upheld laws that are "`convenient, or useful' or `conducive' to the authority's `beneficial exercise.'" Cornstock, 560 U.S., at ___, 130 S.Ct., at 1965 (quoting McCulloch, supra, at 413, 418). But we have also carried out our responsibility to declare unconstitutional those laws that undermine the structure of government established by the Constitution. Such laws, which are not "consist[ent] with the letter and spirit of the constitution," McCulloch, supra, at 421, are not "proper [means] for carrying into Execution" Congress's enumerated powers. Rather, they are, "in the words of The Federalist, `merely acts of usurpation' which `deserve to be treated as such.'" Printz v. United States, 521 U.S. 898, 924, 117 S.Ct. 2365, 138 L.Ed.2d 914 (1997) (alterations omitted) (quoting The Federalist No. 33, at 204 (A. Hamilton)); see also New York, 505 U.S., at 177, 112 S.Ct. 2408; Comstock, supra, at ___, 130 S.Ct., at 1967-1968 (KENNEDY, J., concurring in judgment) ("It is of fundamental importance to consider whether essential attributes of state sovereignty are compromised by the assertion of federal power under the Necessary and Proper Clause ...").

Applying these principles, the individual mandate cannot be sustained under the Necessary and Proper Clause as an essential component of the insurance reforms. Each of our prior cases upholding laws under that Clause involved exercises of authority derivative of, and in service to, a granted power. For example, we have upheld provisions permitting continued confinement of those already in federal custody when they could not be safely released, Comstock, supra, at ___, 130 S.Ct., at 1954-1955; criminalizing bribes involving organizations receiving federal funds, Sabri v. United States, 541 U.S. 600, 602, 605, 124 S.Ct. 1941, 158 L.Ed.2d 891 (2004); and tolling state statutes of limitations while cases are pending in federal court, Jinks v. Richland County, 538 U.S. 456, 459, 462, 123 S.Ct. 1667, 155 L.Ed.2d 631 (2003). The individual mandate, by contrast, vests Congress with the extraordinary ability to create the necessary predicate to the exercise of an enumerated power.

This is in no way an authority that is "narrow in scope," Comstock, supra, at ___, 130 S.Ct., at 1964, or "incidental" to the exercise of the commerce power, McCulloch, supra, at 418. Rather, such a conception of the Necessary and Proper Clause would work a substantial expansion of federal authority. No longer would Congress be limited to regulating under the Commerce Clause those who by some preexisting activity bring themselves within the sphere of federal regulation. Instead, Congress could reach beyond the natural limit of its authority and draw within its regulatory scope those who otherwise would be outside of it. Even if the individual mandate is "necessary" to the Act's insurance reforms, such an expansion of federal power is not a "proper" means for making those reforms effective.

The Government relies primarily on our decision in Gonzales v. Raich. In Raich, we considered "comprehensive legislation to regulate the interstate market" in marijuana. 545 U.S., at 22, 125 S.Ct. 2195. Certain individuals sought an exemption from that regulation on the ground that they engaged in only intrastate possession and consumption. We denied any exemption, on the ground that marijuana is a fungible commodity, so that any marijuana could be readily diverted into the interstate market. Congress's attempt to regulate the interstate market for marijuana would therefore have been substantially undercut if it could not also regulate intrastate possession and consumption. Id., at [2593] 19, 125 S.Ct. 2195. Accordingly, we recognized that "Congress was acting well within its authority" under the Necessary and Proper Clause even though its "regulation ensnare[d] some purely intrastate activity." Id., at 22, 125 S.Ct. 2195; see also Perez, 402 U.S., at 154, 91 S.Ct. 1357. Raich thus did not involve the exercise of any "great substantive and independent power," McCulloch, supra, at 411, of the sort at issue here. Instead, it concerned only the constitutionality of "individual applications of a concededly valid statutory scheme." Raich, supra, at 23, 125 S.Ct. 2195 (emphasis added).

Just as the individual mandate cannot be sustained as a law regulating the substantial effects of the failure to purchase health insurance, neither can it be upheld as a "necessary and proper" component of the insurance reforms. The commerce power thus does not authorize the mandate. Accord, post, at 2644-2650 (joint opinion of SCALIA, KENNEDY, THOMAS, and ALITO, JJ., dissenting).

B

That is not the end of the matter. Because the Commerce Clause does not support the individual mandate, it is necessary to turn to the Government's second argument: that the mandate may be upheld as within Congress's enumerated power to "lay and collect Taxes." Art. I, § 8, cl. 1.

The Government's tax power argument asks us to view the statute differently than we did in considering its commerce power theory. In making its Commerce Clause argument, the Government defended the mandate as a regulation requiring individuals to purchase health insurance. The Government does not claim that the taxing power allows Congress to issue such a command. Instead, the Government asks us to read the mandate not as ordering individuals to buy insurance, but rather as imposing a tax on those who do not buy that product.

The text of a statute can sometimes have more than one possible meaning. To take a familiar example, a law that reads "no vehicles in the park" might, or might not, ban bicycles in the park. And it is well established that if a statute has two possible meanings, one of which violates the Constitution, courts should adopt the meaning that does not do so. Justice Story said that 180 years ago: "No court ought, unless the terms of an act rendered it unavoidable, to give a construction to it which should involve a violation, however unintentional, of the constitution." Parsons v. Bedford, 3 Pet. 433, 448-449, 7 L.Ed. 732 (1830). Justice Holmes made the same point a century later: "[T]he rule is settled that as between two possible interpretations of a statute, by one of which it would be unconstitutional and by the other valid, our plain duty is to adopt that which will save the Act." Blodgett v. Holden, 275 U.S. 142, 148, 48 S.Ct. 105, 72 L.Ed. 206 (1927) (concurring opinion).

The most straightforward reading of the mandate is that it commands individuals to purchase insurance. After all, it states that individuals "shall" maintain health insurance. 26 U.S.C. § 5000A(a). Congress thought it could enact such a command under the Commerce Clause, and the Government primarily defended the law on that basis. But, for the reasons explained above, the Commerce Clause does not give Congress that power. Under our precedent, it is therefore necessary to ask whether the Government's alternative reading of the statute — that it only imposes a tax on those without insurance — is a reasonable one.

Under the mandate, if an individual does not maintain health insurance, the only consequence is that he must make an additional payment to the IRS when he [2594] pays his taxes. See § 5000A(b). That, according to the Government, means the mandate can be regarded as establishing a condition — not owning health insurance — that triggers a tax — the required payment to the IRS. Under that theory, the mandate is not a legal command to buy insurance. Rather, it makes going without insurance just another thing the Government taxes, like buying gasoline or earning income. And if the mandate is in effect just a tax hike on certain taxpayers who do not have health insurance, it may be within Congress's constitutional power to tax.

The question is not whether that is the most natural interpretation of the mandate, but only whether it is a "fairly possible" one. Crowell v. Benson, 285 U.S. 22, 62, 52 S.Ct. 285, 76 L.Ed. 598 (1932). As we have explained, "every reasonable construction must be resorted to, in order to save a statute from unconstitutionality." Hooper v. California, 155 U.S. 648, 657, 15 S.Ct. 207, 39 L.Ed. 297 (1895). The Government asks us to interpret the mandate as imposing a tax, if it would otherwise violate the Constitution. Granting the Act the full measure of deference owed to federal statutes, it can be so read, for the reasons set forth below.

C

The exaction the Affordable Care Act imposes on those without health insurance looks like a tax in many respects. The "[s]hared responsibility payment," as the statute entitles it, is paid into the Treasury by "taxpayer[s]" when they file their tax returns. 26 U.S.C. § 5000A(b). It does not apply to individuals who do not pay federal income taxes because their household income is less than the filing threshold in the Internal Revenue Code. § 5000A(e)(2). For taxpayers who do owe the payment, its amount is determined by such familiar factors as taxable income, number of dependents, and joint filing status. §§ 5000A(b)(3), (c)(2), (c)(4). The requirement to pay is found in the Internal Revenue Code and enforced by the IRS, which — as we previously explained — must assess and collect it "in the same manner as taxes." Supra, at 2583-2584. This process yields the essential feature of any tax: it produces at least some revenue for the Government. United States v. Kahriger, 345 U.S. 22, 28, n. 4, 73 S.Ct. 510, 97 L.Ed. 754 (1953). Indeed, the payment is expected to raise about $4 billion per year by 2017. Congressional Budget Office, Payments of Penalties for Being Uninsured Under the Patient Protection and Affordable Care Act (Apr. 30, 2010), in Selected CBO Publications Related to Health Care Legislation, 2009-2010, p. 71 (rev. 2010).

It is of course true that the Act describes the payment as a "penalty," not a "tax." But while that label is fatal to the application of the Anti-Injunction Act, supra, at 2582-2583, it does not determine whether the payment may be viewed as an exercise of Congress's taxing power. It is up to Congress whether to apply the Anti-Injunction Act to any particular statute, so it makes sense to be guided by Congress's choice of label on that question. That choice does not, however, control whether an exaction is within Congress's constitutional power to tax.

Our precedent reflects this: In 1922, we decided two challenges to the "Child Labor Tax" on the same day. In the first, we held that a suit to enjoin collection of the so-called tax was barred by the Anti-Injunction Act. George, 259 U.S., at 20, 42 S.Ct. 419. Congress knew that suits to obstruct taxes had to await payment under the Anti-Injunction Act; Congress called the child labor tax a tax; Congress therefore [2595] intended the Anti-Injunction Act to apply. In the second case, however, we held that the same exaction, although labeled a tax, was not in fact authorized by Congress's taxing power. Drexel Furniture, 259 U.S., at 38, 42 S.Ct. 449. That constitutional question was not controlled by Congress's choice of label.

We have similarly held that exactions not labeled taxes nonetheless were authorized by Congress's power to tax. In the License Tax Cases, for example, we held that federal licenses to sell liquor and lottery tickets — for which the licensee had to pay a fee — could be sustained as exercises of the taxing power. 5 Wall., at 471. And in New York v. United States we upheld as a tax a "surcharge" on out-of-state nuclear waste shipments, a portion of which was paid to the Federal Treasury. 505 U.S., at 171, 112 S.Ct. 2408. We thus ask whether the shared responsibility payment falls within Congress's taxing power, "[d]isregarding the designation of the exaction, and viewing its substance and application." United States v. Constantine, 296 U.S. 287, 294, 56 S.Ct. 223, 80 L.Ed. 233 (1935); cf. Quill Corp. v. North Dakota, 504 U.S. 298, 310, 112 S.Ct. 1904, 119 L.Ed.2d 91 (1992) ("[M]agic words or labels" should not "disable an otherwise constitutional levy" (internal quotation marks omitted)); Nelson v. Sears, Roebuck & Co., 312 U.S. 359, 363, 61 S.Ct. 586, 85 L.Ed. 888 (1941) ("In passing on the constitutionality of a tax law, we are concerned only with its practical operation, not its definition or the precise form of descriptive words which may be applied to it" (internal quotation marks omitted)); United States v. Sotelo, 436 U.S. 268, 275, 98 S.Ct. 1795, 56 L.Ed.2d 275 (1978) ("That the funds due are referred to as a `penalty'... does not alter their essential character as taxes").^[7]

Our cases confirm this functional approach. For example, in Drexel Furniture, we focused on three practical characteristics of the so-called tax on employing child laborers that convinced us the "tax" was actually a penalty. First, the tax imposed an exceedingly heavy burden — 10 percent of a company's net income — on those who employed children, no matter how small their infraction. Second, it imposed that exaction only on those who knowingly employed underage laborers. Such scienter requirements are typical of punitive statutes, because Congress often wishes to punish only those who intentionally break the law. Third, this "tax" was enforced in part by the Department of Labor, an agency responsible for punishing violations of labor laws, not collecting revenue. 259 U.S., at 36-37, 42 S.Ct. 449; see also, e.g., Kurth Ranch, 511 U.S., at 780-782, 114 S.Ct. 1937 (considering, inter alia, the amount of the exaction, and the fact that it was imposed for violation of a separate criminal law); Constantine, supra, at 295, 56 S.Ct. 223 (same).

The same analysis here suggests that the shared responsibility payment may for constitutional purposes be considered a tax, not a penalty: First, for most Americans the amount due will be far less than the price of insurance, and, by statute, it [2596] can never be more.^[8] It may often be a reasonable financial decision to make the payment rather than purchase insurance, unlike the "prohibitory" financial punishment in Drexel Furniture. 259 U.S., at 37, 42 S.Ct. 449. Second, the individual mandate contains no scienter requirement. Third, the payment is collected solely by the IRS through the normal means of taxation — except that the Service is not allowed to use those means most suggestive of a punitive sanction, such as criminal prosecution. See § 5000A(g)(2). The reasons the Court in Drexel Furniture held that what was called a "tax" there was a penalty support the conclusion that what is called a "penalty" here may be viewed as a tax.^[9]

None of this is to say that the payment is not intended to affect individual conduct. Although the payment will raise considerable revenue, it is plainly designed to expand health insurance coverage. But taxes that seek to influence conduct are nothing new. Some of our earliest federal taxes sought to deter the purchase of imported manufactured goods in order to foster the growth of domestic industry. See W. Brownlee, Federal Taxation in America 22 (2d ed. 2004); cf. 2 J. Story, Commentaries on the Constitution of the United States § 962, p. 434 (1833) ("the taxing power is often, very often, applied for other purposes, than revenue"). Today, federal and state taxes can compose more than half the retail price of cigarettes, not just to raise more money, but to encourage people to quit smoking. And we have upheld such obviously regulatory measures as taxes on selling marijuana and sawed-off shotguns. See United States v. Sanchez, 340 U.S. 42, 44-45, 71 S.Ct. 108, 95 L.Ed. 47 (1950); Sonzinsky v. United States, 300 U.S. 506, 513, 57 S.Ct. 554, 81 L.Ed. 772 (1937). Indeed, "[e]very tax is in some measure regulatory. To some extent it interposes an economic impediment to the activity taxed as compared with others not taxed." Sonzinsky, supra, at 513, 57 S.Ct. 554. That § 5000A seeks to shape decisions about whether to buy health insurance does not mean that it cannot be a valid exercise of the taxing power.

In distinguishing penalties from taxes, this Court has explained that "if the concept of penalty means anything, it means punishment for an unlawful act or omission." United States v. Reorganized CF & I Fabricators of Utah, Inc., 518 U.S. 213, 224, 116 S.Ct. 2106, 135 L.Ed.2d 506 (1996); see also United States v. La Franca, 282 U.S. 568, 572, 51 S.Ct. 278, 75 L.Ed. 551 (1931) ("[A] penalty, as the word is here used, is an exaction imposed by statute as punishment for an unlawful act"). While the individual mandate clearly aims to induce the purchase of health [2597] insurance, it need not be read to declare that failing to do so is unlawful. Neither the Act nor any other law attaches negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS. The Government agrees with that reading, confirming that if someone chooses to pay rather than obtain health insurance, they have fully complied with the law. Brief for United States 60-61; Tr. of Oral Arg. 49-50 (Mar. 26, 2012).

Indeed, it is estimated that four million people each year will choose to pay the IRS rather than buy insurance. See Congressional Budget Office, supra, at 71. We would expect Congress to be troubled by that prospect if such conduct were unlawful. That Congress apparently regards such extensive failure to comply with the mandate as tolerable suggests that Congress did not think it was creating four million outlaws. It suggests instead that the shared responsibility payment merely imposes a tax citizens may lawfully choose to pay in lieu of buying health insurance.

The plaintiffs contend that Congress's choice of language — stating that individuals "shall" obtain insurance or pay a "penalty" — requires reading § 5000A as punishing unlawful conduct, even if that interpretation would render the law unconstitutional. We have rejected a similar argument before. In New York v. United States we examined a statute providing that "`[e]ach State shall be responsible for providing ... for the disposal of... low-level radioactive waste.'" 505 U.S., at 169, 112 S.Ct. 2408 (quoting 42 U.S.C. § 2021c(a)(1)(A)). A State that shipped its waste to another State was exposed to surcharges by the receiving State, a portion of which would be paid over to the Federal Government. And a State that did not adhere to the statutory scheme faced "[p]enalties for failure to comply," including increases in the surcharge. § 2021e(e)(2); New York, 505 U.S., at 152-153, 112 S.Ct. 2408. New York urged us to read the statute as a federal command that the state legislature enact legislation to dispose of its waste, which would have violated the Constitution. To avoid that outcome, we interpreted the statute to impose only "a series of incentives" for the State to take responsibility for its waste. We then sustained the charge paid to the Federal Government as an exercise of the taxing power. Id., at 169-174, 112 S.Ct. 2408. We see no insurmountable obstacle to a similar approach here.^[10]

The joint dissenters argue that we cannot uphold § 5000A as a tax because Congress did not "frame" it as such. Post, at 2650-2651. In effect, they contend that even if the Constitution permits Congress to do exactly what we interpret this statute to do, the law must be struck down because Congress used the wrong labels. An example may help illustrate why labels should not control here. Suppose Congress enacted a statute providing that every taxpayer who owns a house without [2598] energy efficient windows must pay $50 to the IRS. The amount due is adjusted based on factors such as taxable income and joint filing status, and is paid along with the taxpayer's income tax return. Those whose income is below the filing threshold need not pay. The required payment is not called a "tax," a "penalty," or anything else. No one would doubt that this law imposed a tax, and was within Congress's power to tax. That conclusion should not change simply because Congress used the word "penalty" to describe the payment. Interpreting such a law to be a tax would hardly "[i]mpos[e] a tax through judicial legislation." Post, at 2655. Rather, it would give practical effect to the Legislature's enactment.

Our precedent demonstrates that Congress had the power to impose the exaction in § 5000A under the taxing power, and that § 5000A need not be read to do more than impose a tax. That is sufficient to sustain it. The "question of the constitutionality of action taken by Congress does not depend on recitals of the power which it undertakes to exercise." Woods v. Cloyd W. Miller Co., 333 U.S. 138, 144, 68 S.Ct. 421, 92 L.Ed. 596 (1948).

Even if the taxing power enables Congress to impose a tax on not obtaining health insurance, any tax must still comply with other requirements in the Constitution. Plaintiffs argue that the shared responsibility payment does not do so, citing Article I, § 9, clause 4. That clause provides: "No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken." This requirement means that any "direct Tax" must be apportioned so that each State pays in proportion to its population. According to the plaintiffs, if the individual mandate imposes a tax, it is a direct tax, and it is unconstitutional because Congress made no effort to apportion it among the States.

Even when the Direct Tax Clause was written it was unclear what else, other than a capitation (also known as a "head tax" or a "poll tax"), might be a direct tax. See Springer v. United States, 102 U.S. 586, 596-598, 26 L.Ed. 253 (1881). Soon after the framing, Congress passed a tax on ownership of carriages, over James Madison's objection that it was an unapportioned direct tax. Id., at 597. This Court upheld the tax, in part reasoning that apportioning such a tax would make little sense, because it would have required taxing carriage owners at dramatically different rates depending on how many carriages were in their home State. See Hylton v. United States, 3 Dall. 171, 174, 1 L.Ed. 556 (1796) (opinion of Chase, J.). The Court was unanimous, and those Justices who wrote opinions either directly asserted or strongly suggested that only two forms of taxation were direct: capitations and land taxes. See id., at 175; id., at 177 (opinion of Paterson, J.); id., at 183 (opinion of Iredell, J.).

That narrow view of what a direct tax might be persisted for a century. In 1880, for example, we explained that "direct taxes, within the meaning of the Constitution, are only capitation taxes, as expressed in that instrument, and taxes on real estate." Springer, supra, at 602. In 1895, we expanded our interpretation to include taxes on personal property and income from personal property, in the course of striking down aspects of the federal income tax. Pollock v. Farmers' Loan & Trust Co., 158 U.S. 601, 618, 15 S.Ct. 912, 39 L.Ed. 1108 (1895). That result was overturned by the Sixteenth Amendment, although we continued to consider taxes on personal property to be direct taxes. See Eisner v. Macomber, 252 U.S. 189, 218-219, 40 S.Ct. 189, 64 L.Ed. 521 (1920).

[2599] A tax on going without health insurance does not fall within any recognized category of direct tax. It is not a capitation. Capitations are taxes paid by every person, "without regard to property, profession, or any other circumstance." Hylton, supra, at 175 (opinion of Chase, J.) (emphasis altered). The whole point of the shared responsibility payment is that it is triggered by specific circumstances — earning a certain amount of income but not obtaining health insurance. The payment is also plainly not a tax on the ownership of land or personal property. The shared responsibility payment is thus not a direct tax that must be apportioned among the several States.

There may, however, be a more fundamental objection to a tax on those who lack health insurance. Even if only a tax, the payment under § 5000A(b) remains a burden that the Federal Government imposes for an omission, not an act. If it is troubling to interpret the Commerce Clause as authorizing Congress to regulate those who abstain from commerce, perhaps it should be similarly troubling to permit Congress to impose a tax for not doing something.

Three considerations allay this concern. First, and most importantly, it is abundantly clear the Constitution does not guarantee that individuals may avoid taxation through inactivity. A capitation, after all, is a tax that everyone must pay simply for existing, and capitations are expressly contemplated by the Constitution. The Court today holds that our Constitution protects us from federal regulation under the Commerce Clause so long as we abstain from the regulated activity. But from its creation, the Constitution has made no such promise with respect to taxes. See Letter from Benjamin Franklin to M. Le Roy (Nov. 13, 1789) ("Our new Constitution is now established ... but in this world nothing can be said to be certain, except death and taxes").

Whether the mandate can be upheld under the Commerce Clause is a question about the scope of federal authority. Its answer depends on whether Congress can exercise what all acknowledge to be the novel course of directing individuals to purchase insurance. Congress's use of the Taxing Clause to encourage buying something is, by contrast, not new. Tax incentives already promote, for example, purchasing homes and professional educations. See 26 U.S.C. §§ 163(h), 25A. Sustaining the mandate as a tax depends only on whether Congress has properly exercised its taxing power to encourage purchasing health insurance, not whether it can. Upholding the individual mandate under the Taxing Clause thus does not recognize any new federal power. It determines that Congress has used an existing one.

Second, Congress's ability to use its taxing power to influence conduct is not without limits. A few of our cases policed these limits aggressively, invalidating punitive exactions obviously designed to regulate behavior otherwise regarded at the time as beyond federal authority. See, e.g., United States v. Butler, 297 U.S. 1, 56 S.Ct. 312, 80 L.Ed. 477 (1936); Drexel Furniture, 259 U.S. 20, 42 S.Ct. 449, 66 L.Ed. 817. More often and more recently we have declined to closely examine the regulatory motive or effect of revenue-raising measures. See Kahriger, 345 U.S., at 27-31, 73 S.Ct. 510 (collecting cases). We have nonetheless maintained that "`there comes a time in the extension of the penalizing features of the so-called tax when it loses its character as such and becomes a mere penalty with the characteristics of regulation and punishment.'" Kurth Ranch, 511 U.S., at 779, 114 S.Ct. [2600] 1937 (quoting Drexel Furniture, supra, at 38, 42 S.Ct. 449).

We have already explained that the shared responsibility payment's practical characteristics pass muster as a tax under our narrowest interpretations of the taxing power. Supra, at 2595-2596. Because the tax at hand is within even those strict limits, we need not here decide the precise point at which an exaction becomes so punitive that the taxing power does not authorize it. It remains true, however, that the "`power to tax is not the power to destroy while this Court sits.'" Oklahoma Tax Comm'n v. Texas Co., 336 U.S. 342, 364, 69 S.Ct. 561, 93 L.Ed. 721 (1949) (quoting Panhandle Oil Co. v. Mississippi ex rel. Knox, 277 U.S. 218, 223, 48 S.Ct. 451, 72 L.Ed. 857 (1928) (Holmes, J., dissenting)).

Third, although the breadth of Congress's power to tax is greater than its power to regulate commerce, the taxing power does not give Congress the same degree of control over individual behavior. Once we recognize that Congress may regulate a particular decision under the Commerce Clause, the Federal Government can bring its full weight to bear. Congress may simply command individuals to do as it directs. An individual who disobeys may be subjected to criminal sanctions. Those sanctions can include not only fines and imprisonment, but all the attendant consequences of being branded a criminal: deprivation of otherwise protected civil rights, such as the right to bear arms or vote in elections; loss of employment opportunities; social stigma; and severe disabilities in other controversies, such as custody or immigration disputes.

By contrast, Congress's authority under the taxing power is limited to requiring an individual to pay money into the Federal Treasury, no more. If a tax is properly paid, the Government has no power to compel or punish individuals subject to it. We do not make light of the severe burden that taxation — especially taxation motivated by a regulatory purpose — can impose. But imposition of a tax nonetheless leaves an individual with a lawful choice to do or not do a certain act, so long as he is willing to pay a tax levied on that choice.^[11]

The Affordable Care Act's requirement that certain individuals pay a financial penalty for not obtaining health insurance may reasonably be characterized as a tax. Because the Constitution permits such a tax. it is not our role to forbid it, or to pass upon its wisdom or fairness.

D

Justice GINSBURG questions the necessity of rejecting the Government's commerce power argument, given that § 5000A can be upheld under the taxing power. Post, at 2627. But the statute reads more naturally as a command to buy insurance than as a tax, and I would uphold it as a command if the Constitution allowed it. It is only because the Commerce Clause does not authorize such a command that it is necessary to reach the taxing power question. And it is only because we have a duty to construe a statute to save it, if fairly possible, that [2601] § 5000A can be interpreted as a tax. Without deciding the Commerce Clause question, I would find no basis to adopt such a saving construction.

The Federal Government does not have the power to order people to buy health insurance. Section 5000A would therefore be unconstitutional if read as a command. The Federal Government does have the power to impose a tax on those without health insurance. Section 5000A is therefore constitutional, because it can reasonably be read as a tax.

IV

A

The States also contend that the Medicaid expansion exceeds Congress's authority under the Spending Clause. They claim that Congress is coercing the States to adopt the changes it wants by threatening to withhold all of a State's Medicaid grants, unless the State accepts the new expanded funding and complies with the conditions that come with it. This, they argue, violates the basic principle that the "Federal Government may not compel the States to enact or administer a federal regulatory program." New York, 505 U.S., at 188, 112 S.Ct. 2408.

There is no doubt that the Act dramatically increases state obligations under Medicaid. The current Medicaid program requires States to cover only certain discrete categories of needy individuals — pregnant women, children, needy families, the blind, the elderly, and the disabled. 42 U.S.C. § 1396a(a)(10). There is no mandatory coverage for most childless adults, and the States typically do not offer any such coverage. The States also enjoy considerable flexibility with respect to the coverage levels for parents of needy families. § 1396a(a)(10)(A)(ii). On average States cover only those unemployed parents who make less than 37 percent of the federal poverty level, and only those employed parents who make less than 63 percent of the poverty line. Kaiser Comm'n on Medicaid and the Uninsured, Performing Under Pressure 11, and fig. 11 (2012).

The Medicaid provisions of the Affordable Care Act, in contrast, require States to expand their Medicaid programs by 2014 to cover all individuals under the age of 65 with incomes below 133 percent of the federal poverty line. § 1396a(a)(10)(A)(i)(VIII). The Act also establishes a new "[e]ssential health benefits" package, which States must provide to all new Medicaid recipients — a level sufficient to satisfy a recipient's obligations under the individual mandate. §§ 1396a(k)(1), 1396u-7(b)(5), 18022(b). The Affordable Care Act provides that the Federal Government will pay 100 percent of the costs of covering these newly eligible individuals through 2016. § 1396d(y)(1). In the following years, the federal payment level gradually decreases, to a minimum of 90 percent. Ibid. In light of the expansion in coverage mandated by the Act, the Federal Government estimates that its Medicaid spending will increase by approximately $100 billion per year, nearly 40 percent above current levels. Statement of Douglas W. Elmendorf, CBO's Analysis of the Major Health Care Legislation Enacted in March 2010, p. 14, Table 2 (Mar. 30, 2011).

The Spending Clause grants Congress the power "to pay the Debts and provide for the ... general Welfare of the United States." U.S. Const., Art. I, § 8, cl. 1. We have long recognized that Congress may use this power to grant federal funds to the States, and may condition such a grant upon the States'"taking certain actions that Congress could not require them to take." College Savings Bank, 527 U.S., at 686, 119 S.Ct. 2219. Such measures "encourage [2602] a State to regulate in a particular way, [and] influenc[e] a State's policy choices." New York, supra, at 166, 112 S.Ct. 2408. The conditions imposed by Congress ensure that the funds are used by the States to "provide for the ... general Welfare" in the manner Congress intended.

At the same time, our cases have recognized limits on Congress's power under the Spending Clause to secure state compliance with federal objectives. "We have repeatedly characterized ... Spending Clause legislation as `much in the nature of a contract.'" Barnes v. Gorman, 536 U.S. 181, 186, 122 S.Ct. 2097, 153 L.Ed.2d 230 (2002) (quoting Pennhurst State School and Hospital v. Halderman, 451 U.S. 1, 17, 101 S.Ct. 1531, 67 L.Ed.2d 694 (1981)). The legitimacy of Congress's exercise of the spending power "thus rests on whether the State voluntarily and knowingly accepts the terms of the `contract.'" Pennhurst, supra, at 17, 101 S.Ct. 1531. Respecting this limitation is critical to ensuring that Spending Clause legislation does not undermine the status of the States as independent sovereigns in our federal system. That system "rests on what might at first seem a counter-intuitive insight, that `freedom is enhanced by the creation of two governments, not one.'" Bond, 564 U.S., at ___, 131 S.Ct., at 2364 (quoting Alden v. Maine, 527 U.S. 706, 758, 119 S.Ct. 2240, 144 L.Ed.2d 636 (1999)). For this reason, "the Constitution has never been understood to confer upon Congress the ability to require the States to govern according to Congress' instructions." New York, supra, at 162, 112 S.Ct. 2408. Otherwise the two-government system established by the Framers would give way to a system that vests power in one central government, and individual liberty would suffer.

That insight has led this Court to strike down federal legislation that commandeers a State's legislative or administrative apparatus for federal purposes. See, e.g., Printz, 521 U.S., at 933, 117 S.Ct. 2365 (striking down federal legislation compelling state law enforcement officers to perform federally mandated background checks on handgun purchasers); New York, supra, at 174-175, 112 S.Ct. 2408 (invalidating provisions of an Act that would compel a State to either take title to nuclear waste or enact particular state waste regulations). It has also led us to scrutinize Spending Clause legislation to ensure that Congress is not using financial inducements to exert a "power akin to undue influence." Steward Machine Co. v. Davis, 301 U.S. 548, 590, 57 S.Ct. 883, 81 L.Ed. 1279 (1937). Congress may use its spending power to create incentives for States to act in accordance with federal policies. But when "pressure turns into compulsion," ibid., the legislation runs contrary to our system of federalism. "[T]he Constitution simply does not give Congress the authority to require the States to regulate." New York, 505 U.S., at 178, 112 S.Ct. 2408. That is true whether Congress directly commands a State to regulate or indirectly coerces a State to adopt a federal regulatory system as its own.

Permitting the Federal Government to force the States to implement a federal program would threaten the political accountability key to our federal system. "[W]here the Federal Government directs the States to regulate, it may be state officials who will bear the brunt of public disapproval, while the federal officials who devised the regulatory program may remain insulated from the electoral ramifications of their decision." Id., at 169, 112 S.Ct. 2408. Spending Clause programs do not pose this danger when a State has a legitimate choice whether to accept the federal conditions in exchange for federal [2603] funds. In such a situation, state officials can fairly be held politically accountable for choosing to accept or refuse the federal offer. But when the State has no choice, the Federal Government can achieve its objectives without accountability, just as in New York and Printz. Indeed, this danger is heightened when Congress acts under the Spending Clause, because Congress can use that power to implement federal policy it could not impose directly under its enumerated powers.

We addressed such concerns in Steward Machine. That case involved a federal tax on employers that was abated if the businesses paid into a state unemployment plan that met certain federally specified conditions. An employer sued, alleging that the tax was impermissibly "driv[ing] the state legislatures under the whip of economic pressure into the enactment of unemployment compensation laws at the bidding of the central government." 301 U.S., at 587, 57 S.Ct. 883. We acknowledged the danger that the Federal Government might employ its taxing power to exert a "power akin to undue influence" upon the States. Id., at 590, 57 S.Ct. 883. But we observed that Congress adopted the challenged tax and abatement program to channel money to the States that would otherwise have gone into the Federal Treasury for use in providing national unemployment services. Congress was willing to direct businesses to instead pay the money into state programs only on the condition that the money be used for the same purposes. Predicating tax abatement on a State's adoption of a particular type of unemployment legislation was therefore a means to "safeguard [the Federal Government's] own treasury." Id., at 591, 57 S.Ct. 883. We held that "[i]n such circumstances, if in no others, inducement or persuasion does not go beyond the bounds of power." Ibid.

In rejecting the argument that the federal law was a "weapon[] of coercion, destroying or impairing the autonomy of the states," the Court noted that there was no reason to suppose that the State in that case acted other than through "her unfettered will." Id., at 586, 590, 57 S.Ct. 883. Indeed, the State itself did "not offer a suggestion that in passing the unemployment law she was affected by duress." Id., at 589, 57 S.Ct. 883.

As our decision in Steward Machine confirms, Congress may attach appropriate conditions to federal taxing and spending programs to preserve its control over the use of federal funds. In the typical case we look to the States to defend their prerogatives by adopting "the simple expedient of not yielding" to federal blandishments when they do not want to embrace the federal policies as their own. Massachusetts v. Mellon, 262 U.S. 447, 482, 43 S.Ct. 597, 67 L.Ed. 1078 (1923). The States are separate and independent sovereigns. Sometimes they have to act like it.

The States, however, argue that the Medicaid expansion is far from the typical case. They object that Congress has "crossed the line distinguishing encouragement from coercion," New York, supra, at 175, 112 S.Ct. 2408, in the way it has structured the funding: Instead of simply refusing to grant the new funds to States that will not accept the new conditions, Congress has also threatened to withhold those States' existing Medicaid funds. The States claim that this threat serves no purpose other than to force unwilling States to sign up for the dramatic expansion in health care coverage effected by the Act.

Given the nature of the threat and the programs at issue here, we must agree. We have upheld Congress's authority to condition the receipt of funds on the [2604] States' complying with restrictions on the use of those funds, because that is the means by which Congress ensures that the funds are spent according to its view of the "general Welfare." Conditions that do not here govern the use of the funds, however, cannot be justified on that basis. When, for example, such conditions take the form of threats to terminate other significant independent grants, the conditions are properly viewed as a means of pressuring the States to accept policy changes.

In South Dakota v. Dole, we considered a challenge to a federal law that threatened to withhold five percent of a State's federal highway funds if the State did not raise its drinking age to 21. The Court found that the condition was "directly related to one of the main purposes for which highway funds are expended — safe interstate travel." 483 U.S., at 208, 107 S.Ct. 2793. At the same time, the condition was not a restriction on how the highway funds — set aside for specific highway improvement and maintenance efforts — were to be used.

We accordingly asked whether "the financial inducement offered by Congress" was "so coercive as to pass the point at which `pressure turns into compulsion.'" Id., at 211, 107 S.Ct. 2793 (quoting Steward Machine, supra, at 590, 57 S.Ct. 883). By "financial inducement" the Court meant the threat of losing five percent of highway funds; no new money was offered to the States to raise their drinking ages. We found that the inducement was not impermissibly coercive, because Congress was offering only "relatively mild encouragement to the States." Dole, 483 U.S., at 211, 107 S.Ct. 2793. We observed that "all South Dakota would lose if she adheres to her chosen course as to a suitable minimum drinking age is 5%" of her highway funds. Ibid. In fact, the federal funds at stake constituted less than half of one percent of South Dakota's budget at the time. See Nat. Assn. of State Budget Officers, The State Expenditure Report 59 (1987); South Dakota v. Dole, 791 F.2d 628, 630 (C.A.8 1986). In consequence, "we conclude[d] that [the] encouragement to state action [was] a valid use of the spending power." Dole, 483 U.S., at 212, 107 S.Ct. 2793. Whether to accept the drinking age change "remain[ed] the prerogative of the States not merely in theory but in fact." Id., at 211-212, 107 S.Ct. 2793.

In this case, the financial "inducement" Congress has chosen is much more than "relatively mild encouragement" — it is a gun to the head. Section 1396c of the Medicaid Act provides that if a State's Medicaid plan does not comply with the Act's requirements, the Secretary of Health and Human Services may declare that "further payments will not be made to the State." 42 U.S.C. § 1396c. A State that opts out of the Affordable Care Act's expansion in health care coverage thus stands to lose not merely "a relatively small percentage" of its existing Medicaid funding, but all of it. Dole, supra, at 211, 107 S.Ct. 2793. Medicaid spending accounts for over 20 percent of the average State's total budget, with federal funds covering 50 to 83 percent of those costs. See Nat. Assn. of State Budget Officers, Fiscal Year 2010 State Expenditure Report, p. 11, Table 5 (2011); 42 U.S.C. § 1396d(b). The Federal Government estimates that it will pay out approximately $3.3 trillion between 2010 and 2019 in order to cover the costs of pre-expansion Medicaid. Brief for United States 10, n. 6. In addition, the States have developed intricate statutory and administrative regimes over the course of many decades to implement their objectives under existing Medicaid. It is easy to see how the Dole Court could conclude that the threatened loss of less than half of one percent of South Dakota's budget left that State with [2605] a "prerogative" to reject Congress's desired policy, "not merely in theory but in fact." 483 U.S., at 211-212, 107 S.Ct. 2793. The threatened loss of over 10 percent of a State's overall budget, in contrast, is economic dragooning that leaves the States with no real option but to acquiesce in the Medicaid expansion.^[12]

Justice GINSBURG claims that Dole is distinguishable because here "Congress has not threatened to withhold funds earmarked for any other program." Post, at 2634. But that begs the question: The States contend that the expansion is in reality a new program and that Congress is forcing them to accept it by threatening the funds for the existing Medicaid program. We cannot agree that existing Medicaid and the expansion dictated by the Affordable Care Act are all one program simply because "Congress styled" them as such. Post, at 2635. If the expansion is not properly viewed as a modification of the existing Medicaid program, Congress's decision to so title it is irrelevant.^[13]

Here, the Government claims that the Medicaid expansion is properly viewed merely as a modification of the existing program because the States agreed that Congress could change the terms of Medicaid when they signed on in the first place. The Government observes that the Social Security Act, which includes the original Medicaid provisions, contains a clause expressly reserving "[t]he right to alter, amend, or repeal any provision" of that statute. 42 U.S.C. § 1304. So it does. But "if Congress intends to impose a condition on the grant of federal moneys, it must do so unambiguously." Pennhurst, 451 U.S., at 17, 101 S.Ct. 1531. A State confronted with statutory language reserving the right to "alter" or "amend" the pertinent provisions of the Social Security Act might reasonably assume that Congress was entitled to make adjustments to the Medicaid program as it developed. Congress has in fact done so, sometimes conditioning only the new funding, other times both old and new. See, e.g., Social Security Amendments of 1972, 86 Stat. 1381-1382, 1465 (extending Medicaid eligibility, but partly conditioning only the new funding); Omnibus Budget Reconciliation Act of 1990, § 4601, 104 Stat. 1388-166 (extending eligibility, and conditioning old and new funds).

The Medicaid expansion, however, accomplishes a shift in kind, not merely degree. The original program was designed to cover medical services for four particular categories of the needy: the disabled, [2606] the blind, the elderly, and needy families with dependent children. See 42 U.S.C. § 1396a(a)(10). Previous amendments to Medicaid eligibility merely altered and expanded the boundaries of these categories. Under the Affordable Care Act, Medicaid is transformed into a program to meet the health care needs of the entire nonelderly population with income below 133 percent of the poverty level. It is no longer a program to care for the neediest among us, but rather an element of a comprehensive national plan to provide universal health insurance coverage.^[14]

Indeed, the manner in which the expansion is structured indicates that while Congress may have styled the expansion a mere alteration of existing Medicaid, it recognized it was enlisting the States in a new health care program. Congress created a separate funding provision to cover the costs of providing services to any person made newly eligible by the expansion. While Congress pays 50 to 83 percent of the costs of covering individuals currently enrolled in Medicaid, § 1396d(b), once the expansion is fully implemented Congress will pay 90 percent of the costs for newly eligible persons, § 1396d(y)(1). The conditions on use of the different funds are also distinct. Congress mandated that newly eligible persons receive a level of coverage that is less comprehensive than the traditional Medicaid benefit package. § 1396a(k)(1); see Brief for United States 9.

As we have explained, "[t]hough Congress' power to legislate under the spending power is broad, it does not include surprising participating States with post-acceptance or `retroactive' conditions." Pennhurst, supra, at 25, 101 S.Ct. 1531. A State could hardly anticipate that Congress's reservation of the right to "alter" or "amend" the Medicaid program included the power to transform it so dramatically.

Justice GINSBURG claims that in fact this expansion is no different from the previous changes to Medicaid, such that "a State would be hard put to complain that it lacked fair notice." Post, at 2639. But the prior change she discusses — presumably the most dramatic alteration she could find — does not come close to working the transformation the expansion accomplishes. She highlights an amendment requiring States to cover pregnant women and increasing the number of eligible children. Ibid. But this modification can hardly be described as a major change in a program that — from its inception — provided health care for "families with dependent children." Previous Medicaid amendments simply do not fall into the same category as the one at stake here.

The Court in Steward Machine did not attempt to "fix the outermost line" where persuasion gives way to coercion. 301 U.S., at 591, 57 S.Ct. 883. The Court found it "[e]nough for present purposes that wherever the line may be, this statute is within it." Ibid. We have no need to fix a line either. It is enough for today that wherever that line may be, this statute is surely beyond it. Congress may not simply [2607] "conscript state [agencies] into the national bureaucratic army," FERC v. Mississippi, 456 U.S. 742, 775, 102 S.Ct. 2126, 72 L.Ed.2d 532 (1982) (O'Connor, J., concurring in judgment in part and dissenting in part), and that is what it is attempting to do with the Medicaid expansion.

B

Nothing in our opinion precludes Congress from offering funds under the Affordable Care Act to expand the availability of health care, and requiring that States accepting such funds comply with the conditions on their use. What Congress is not free to do is to penalize States that choose not to participate in that new program by taking away their existing Medicaid funding. Section 1396c gives the Secretary of Health and Human Services the authority to do just that. It allows her to withhold all "further [Medicaid] payments ... to the State" if she determines that the State is out of compliance with any Medicaid requirement, including those contained in the expansion. 42 U.S.C. § 1396c. In light of the Court's holding, the Secretary cannot apply § 1396c to withdraw existing Medicaid funds for failure to comply with the requirements set out in the expansion.

That fully remedies the constitutional violation we have identified. The chapter of the United States Code that contains § 1396c includes a severability clause confirming that we need go no further. That clause specifies that "[i]f any provision of this chapter, or the application thereof to any person or circumstance, is held invalid, the remainder of the chapter, and the application of such provision to other persons or circumstances shall not be affected thereby." § 1303. Today's holding does not affect the continued application of § 1396c to the existing Medicaid program. Nor does it affect the Secretary's ability to withdraw funds provided under the Affordable Care Act if a State that has chosen to participate in the expansion fails to comply with the requirements of that Act.

This is not to say, as the joint dissent suggests, that we are "rewriting the Medicaid Expansion." Post, at 2667. Instead, we determine, first, that § 1396c is unconstitutional when applied to withdraw existing Medicaid funds from States that decline to comply with the expansion. We then follow Congress's explicit textual instruction to leave unaffected "the remainder of the chapter, and the application of [the challenged] provision to other persons or circumstances." § 1303. When we invalidate an application of a statute because that application is unconstitutional, we are not "rewriting" the statute; we are merely enforcing the Constitution.

The question remains whether today's holding affects other provisions of the Affordable Care Act. In considering that question, "[w]e seek to determine what Congress would have intended in light of the Court's constitutional holding." United States v. Booker, 543 U.S. 220, 246, 125 S.Ct. 738, 160 L.Ed.2d 621 (2005) (internal quotation marks omitted). Our "touchstone for any decision about remedy is legislative intent, for a court cannot use its remedial powers to circumvent the intent of the legislature." Ayotte v. Planned Parenthood of Northern New Eng., 546 U.S. 320, 330, 126 S.Ct. 961, 163 L.Ed.2d 812 (2006) (internal quotation marks omitted). The question here is whether Congress would have wanted the rest of the Act to stand, had it known that States would have a genuine choice whether to participate in the new Medicaid expansion. Unless it is "evident" that the answer is no, we must leave the rest of the Act intact. Champlin Refining Co. v. Corporation Comm'n of Okla., 286 U.S. 210, 234, 52 S.Ct. 559, 76 L.Ed. 1062 (1932).

[2608] We are confident that Congress would have wanted to preserve the rest of the Act. It is fair to say that Congress assumed that every State would participate in the Medicaid expansion, given that States had no real choice but to do so. The States contend that Congress enacted the rest of the Act with such full participation in mind; they point out that Congress made Medicaid a means for satisfying the mandate, 26 U.S.C. § 5000A(f)(1)(A)(ii), and enacted no other plan for providing coverage to many low-income individuals. According to the States, this means that the entire Act must fall.

We disagree. The Court today limits the financial pressure the Secretary may apply to induce States to accept the terms of the Medicaid expansion. As a practical matter, that means States may now choose to reject the expansion; that is the whole point. But that does not mean all or even any will. Some States may indeed decline to participate, either because they are unsure they will be able to afford their share of the new funding obligations, or because they are unwilling to commit the administrative resources necessary to support the expansion. Other States, however, may voluntarily sign up, finding the idea of expanding Medicaid coverage attractive, particularly given the level of federal funding the Act offers at the outset.

We have no way of knowing how many States will accept the terms of the expansion, but we do not believe Congress would have wanted the whole Act to fall, simply because some may choose not to participate. The other reforms Congress enacted, after all, will remain "fully operative as a law," Champlin, supra, at 234, 52 S.Ct. 559, and will still function in a way "consistent with Congress' basic objectives in enacting the statute," Booker, supra, at 259, 125 S.Ct. 738. Confident that Congress would not have intended anything different, we conclude that the rest of the Act need not fall in light of our constitutional holding.

* * *

The Affordable Care Act is constitutional in part and unconstitutional in part. The individual mandate cannot be upheld as an exercise of Congress's power under the Commerce Clause. That Clause authorizes Congress to regulate interstate commerce, not to order individuals to engage in it. In this case, however, it is reasonable to construe what Congress has done as increasing taxes on those who have a certain amount of income, but choose to go without health insurance. Such legislation is within Congress's power to tax.

As for the Medicaid expansion, that portion of the Affordable Care Act violates the Constitution by threatening existing Medicaid funding. Congress has no authority to order the States to regulate according to its instructions. Congress may offer the States grants and require the States to comply with accompanying conditions, but the States must have a genuine choice whether to accept the offer. The States are given no such choice in this case: They must either accept a basic change in the nature of Medicaid, or risk losing all Medicaid funding. The remedy for that constitutional violation is to preclude the Federal Government from imposing such a sanction. That remedy does not require striking down other portions of the Affordable Care Act.

The Framers created a Federal Government of limited powers, and assigned to this Court the duty of enforcing those limits. The Court does so today. But the Court does not express any opinion on the wisdom of the Affordable Care Act. Under the Constitution, that judgment is reserved to the people.

[2609] The judgment of the Court of Appeals for the Eleventh Circuit is affirmed in part and reversed in part.

It is so ordered.

Justice GINSBURG, with whom Justice SOTOMAYOR joins, and with whom Justice BREYER and Justice KAGAN join as to Parts I, II, III, and IV, concurring in part, concurring in the judgment in part, and dissenting in part.

I agree with THE CHIEF JUSTICE that the Anti-Injunction Act does not bar the Court's consideration of this case, and that the minimum coverage provision is a proper exercise of Congress' taxing power. I therefore join Parts I, II, and III-C of THE CHIEF JUSTICE's opinion. Unlike THE CHIEF JUSTICE, however, I would hold, alternatively, that the Commerce Clause authorizes Congress to enact the minimum coverage provision. I would also hold that the Spending Clause permits the Medicaid expansion exactly as Congress enacted it.

I

The provision of health care is today a concern of national dimension, just as the provision of old-age and survivors' benefits was in the 1930's. In the Social Security Act, Congress installed a federal system to provide monthly benefits to retired wage earners and, eventually, to their survivors. Beyond question, Congress could have adopted a similar scheme for health care. Congress chose, instead, to preserve a central role for private insurers and state governments. According to THE CHIEF JUSTICE, the Commerce Clause does not permit that preservation. This rigid reading of the Clause makes scant sense and is stunningly retrogressive.

Since 1937, our precedent has recognized Congress' large authority to set the Nation's course in the economic and social welfare realm. See United States v. Darby, 312 U.S. 100, 115, 61 S.Ct. 451, 85 L.Ed. 609 (1941) (overruling Hammer v. Dagenhart, 247 U.S. 251, 38 S.Ct. 529, 62 L.Ed. 1101 (1918), and recognizing that "regulations of commerce which do not infringe some constitutional prohibition are within the plenary power conferred on Congress by the Commerce Clause"); NLRB v. Jones & Laughlin Steel Corp., 301 U.S. 1, 37, 57 S.Ct. 615, 81 L.Ed. 893 (1937) ("[The commerce] power is plenary and may be exerted to protect interstate commerce no matter what the source of the dangers which threaten it." (internal quotation marks omitted)). THE CHIEF JUSTICE's crabbed reading of the Commerce Clause harks back to the era in which the Court routinely thwarted Congress' efforts to regulate the national economy in the interest of those who labor to sustain it. See, e.g., Railroad Retirement Bd. v. Alton R. Co., 295 U.S. 330, 362, 368, 55 S.Ct. 758, 79 L.Ed. 1468 (1935) (invalidating compulsory retirement and pension plan for employees of carriers subject to the Interstate Commerce Act; Court found law related essentially "to the social welfare of the worker, and therefore remote from any regulation of commerce as such"). It is a reading that should not have staying power.

A

In enacting the Patient Protection and Affordable Care Act (ACA), Congress comprehensively reformed the national market for health-care products and services. By any measure, that market is immense. Collectively, Americans spent $2.5 trillion on health care in 2009, accounting for 17.6% of our Nation's economy. 42 U.S.C. § 18091(2)(B) (2006 ed., Supp. IV). Within the next decade, it is anticipated, spending on health care will nearly double. Ibid.

[2610] The health-care market's size is not its only distinctive feature. Unlike the market for almost any other product or service, the market for medical care is one in which all individuals inevitably participate. Virtually every person residing in the United States, sooner or later, will visit a doctor or other health-care professional. See Dept. of Health and Human Services, National Center for Health Statistics, Summary Health Statistics for U.S. Adults: National Health Interview Survey 2009, Ser. 10, No. 249, p. 124, Table 37 (Dec. 2010) (Over 99.5% of adults above 65 have visited a health-care professional.). Most people will do so repeatedly. See id., at 115, Table 34 (In 2009 alone, 64% of adults made two or more visits to a doctor's office.).

When individuals make those visits, they face another reality of the current market for medical care: its high cost. In 2010, on average, an individual in the United States incurred over $7,000 in health-care expenses. Dept. of Health and Human Services, Centers for Medicare and Medicaid Services, Historic National Health Expenditure Data, National Health Expenditures: Selected Calendar Years 1960-2010 (Table 1). Over a lifetime, costs mount to hundreds of thousands of dollars. See Alemayahu & Warner, The Lifetime Distribution of Health Care Costs, in 39 Health Service Research 627, 635 (June 2004). When a person requires nonroutine care, the cost will generally exceed what he or she can afford to pay. A single hospital stay, for instance, typically costs upwards of $10,000. See Dept. of Health and Human Services, Office of Health Policy, ASPE Research Brief: The Value of Health Insurance 5 (May 2011). Treatments for many serious, though not uncommon, conditions similarly cost a substantial sum. Brief for Economic Scholars as Amici Curiae in No. 11-398, p. 10 (citing a study indicating that, in 1998, the cost of treating a heart attack for the first 90 days exceeded $20,000, while the annual cost of treating certain cancers was more than $50,000).

Although every U.S. domiciliary will incur significant medical expenses during his or her lifetime, the time when care will be needed is often unpredictable. An accident, a heart attack, or a cancer diagnosis commonly occurs without warning. Inescapably, we are all at peril of needing medical care without a moment's notice. See, e.g., Campbell, Down the Insurance Rabbit Hole, N.Y. Times, Apr. 5, 2012, p. A23 (telling of an uninsured 32-year-old woman who, healthy one day, became a quadriplegic the next due to an auto accident).

To manage the risks associated with medical care — its high cost, its unpredictability, and its inevitability — most people in the United States obtain health insurance. Many (approximately 170 million in 2009) are insured by private insurance companies. Others, including those over 65 and certain poor and disabled persons, rely on government-funded insurance programs, notably Medicare and Medicaid. Combined, private health insurers and State and Federal Governments finance almost 85% of the medical care administered to U.S. residents. See Congressional Budget Office, CBO's 2011 Long-Term Budget Outlook 37 (June 2011).

Not all U.S. residents, however, have health insurance. In 2009, approximately 50 million people were uninsured, either by choice or, more likely, because they could not afford private insurance and did not qualify for government aid. See Dept. of Commerce, Census Bureau, C. DeNavas-Walt, B. Proctor, & J. Smith, Income, Poverty, and Health Insurance Coverage in the United States: 2009, p. 23, Table 8 (Sept. 2010). As a group, uninsured individuals [2611] annually consume more than $100 billion in healthcare services, nearly 5% of the Nation's total. Hidden Health Tax: Americans Pay a Premium 2 (2009), available at http://www.familiesusa.org (all Internet material as visited June 25, 2012, and included in Clerk of Court's case file). Over 60% of those without insurance visit a doctor's office or emergency room in a given year. See Dept. of Health and Human Services, National Center for Health Statistics, Health — United States — 2010, p. 282, Table 79 (Feb. 2011).

B

The large number of individuals without health insurance, Congress found, heavily burdens the national health-care market. See 42 U.S.C. § 18091(2). As just noted, the cost of emergency care or treatment for a serious illness generally exceeds what an individual can afford to pay on her own. Unlike markets for most products, however, the inability to pay for care does not mean that an uninsured individual will receive no care. Federal and state law, as well as professional obligations and embedded social norms, require hospitals and physicians to provide care when it is most needed, regardless of the patient's ability to pay. See, e.g., 42 U.S.C. § 1395dd; Fla. Stat. § 395.1041(3)(f) (2010); Tex. Health & Safety Code Ann. §§ 311.022(a) and (b) (West 2010); American Medical Association, Council on Ethical and Judicial Affairs, Code of Medical Ethics, Current Opinions: Opinion 8.11 — Neglect of Patient, p. 70 (1998-1999 ed.).

As a consequence, medical-care providers deliver significant amounts of care to the uninsured for which the providers receive no payment. In 2008, for example, hospitals, physicians, and other health-care professionals received no compensation for $43 billion worth of the $116 billion in care they administered to those without insurance. 42 U.S.C. § 18091(2)(F) (2006 ed., Supp. IV).

Health-care providers do not absorb these bad debts. Instead, they raise their prices, passing along the cost of uncompensated care to those who do pay reliably: the government and private insurance companies. In response, private insurers increase their premiums, shifting the cost of the elevated bills from providers onto those who carry insurance. The net result: Those with health insurance subsidize the medical care of those without it. As economists would describe what happens, the uninsured "free ride" on those who pay for health insurance.

The size of this subsidy is considerable. Congress found that the cost-shifting just described "increases family [insurance] premiums by on average over $1,000 a year." Ibid. Higher premiums, in turn, render health insurance less affordable, forcing more people to go without insurance and leading to further cost-shifting.

And it is hardly just the currently sick or injured among the uninsured who prompt elevation of the price of health care and health insurance. Insurance companies and health-care providers know that some percentage of healthy, uninsured people will suffer sickness or injury each year and will receive medical care despite their inability to pay. In anticipation of this uncompensated care, health-care companies raise their prices, and insurers their premiums. In other words, because any uninsured person may need medical care at any moment and because health-care companies must account for that risk, every uninsured person impacts the market price of medical care and medical insurance.

The failure of individuals to acquire insurance has other deleterious effects on the health-care market. Because those without insurance generally lack access to [2612] preventative care, they do not receive treatment for conditions — like hypertension and diabetes — that can be successfully and affordably treated if diagnosed early on. See Institute of Medicine, National Academies, Insuring America's Health: Principles and Recommendations 43 (2004). When sickness finally drives the uninsured to seek care, once treatable conditions have escalated into grave health problems, requiring more costly and extensive intervention. Id., at 43-44. The extra time and resources providers spend serving the uninsured lessens the providers' ability to care for those who do have insurance. See Kliff, High Uninsured Rates Can Kill You — Even if You Have Coverage, Washington Post (May 7, 2012) (describing a study of California's health-care market which found that, when hospitals divert time and resources to provide uncompensated care, the quality of care the hospitals deliver to those with insurance drops significantly), available at http://www.washingtonpost.com/blogs/ezra-klein/post/high-uninsured-rates-can-kill-you-even-if-you-have-coverage/2012/05/07/g IQALNHN8T_print.html.

C

States cannot resolve the problem of the uninsured on their own. Like Social Security benefits, a universal health-care system, if adopted by an individual State, would be "bait to the needy and dependent elsewhere, encouraging them to migrate and seek a haven of repose." Helvering v. Davis, 301 U.S. 619, 644, 57 S.Ct. 904, 81 L.Ed. 1307 (1937). See also Brief for Commonwealth of Massachusetts as Amicus Curiae in No. 11-398, p. 15 (noting that, in 2009, Massachusetts' emergency rooms served thousands of uninsured, out-of-state residents). An influx of unhealthy individuals into a State with universal health care would result in increased spending on medical services. To cover the increased costs, a State would have to raise taxes, and private health-insurance companies would have to increase premiums. Higher taxes and increased insurance costs would, in turn, encourage businesses and healthy individuals to leave the State.

States that undertake health-care reforms on their own thus risk "placing themselves in a position of economic disadvantage as compared with neighbors or competitors." Davis, 301 U.S., at 644, 57 S.Ct. 904. See also Brief for Health Care for All, Inc., et al. as Amici Curiae in No. 11-398, p. 4 ("[O]ut-of-state residents continue to seek and receive millions of dollars in uncompensated care in Massachusetts hospitals, limiting the State's efforts to improve its health care system through the elimination of uncompensated care."). Facing that risk, individual States are unlikely to take the initiative in addressing the problem of the uninsured, even though solving that problem is in all States' best interests. Congress' intervention was needed to overcome this collective-action impasse.

D

Aware that a national solution was required, Congress could have taken over the health-insurance market by establishing a tax-and-spend federal program like Social Security. Such a program, commonly referred to as a single-payer system (where the sole payer is the Federal Government), would have left little, if any, room for private enterprise or the States. Instead of going this route, Congress enacted the ACA, a solution that retains a robust role for private insurers and state governments. To make its chosen approach work, however, Congress had to use some new tools, including a requirement that most individuals obtain private health insurance coverage. See 26 U.S.C. [2613] § 5000A (2006 ed., Supp. IV) (the minimum coverage provision). As explained below, by employing these tools, Congress was able to achieve a practical, altogether reasonable, solution.

A central aim of the ACA is to reduce the number of uninsured U.S. residents. See 42 U.S.C. § 18091(2)(C) and (I) (2006 ed., Supp. IV). The minimum coverage provision advances this objective by giving potential recipients of health care a financial incentive to acquire insurance. Per the minimum coverage provision, an individual must either obtain insurance or pay a toll constructed as a tax penalty. See 26 U.S.C. § 5000A.

The minimum coverage provision serves a further purpose vital to Congress' plan to reduce the number of uninsured. Congress knew that encouraging individuals to purchase insurance would not suffice to solve the problem, because most of the uninsured are not uninsured by choice.^[15] Of particular concern to Congress were people who, though desperately in need of insurance, often cannot acquire it: persons who suffer from preexisting medical conditions.

Before the ACA's enactment, private insurance companies took an applicant's medical history into account when setting insurance rates or deciding whether to insure an individual. Because individuals with preexisting medical conditions cost insurance companies significantly more than those without such conditions, insurers routinely refused to insure these individuals, charged them substantially higher premiums, or offered only limited coverage that did not include the preexisting illness. See Dept. of Health and Human Services, Coverage Denied: How the Current Health Insurance System Leaves Millions Behind 1 (2009) (Over the past three years, 12.6 million nonelderly adults were denied insurance coverage or charged higher premiums due to a preexisting condition.).

To ensure that individuals with medical histories have access to affordable insurance, Congress devised a three-part solution. First, Congress imposed a "guaranteed issue" requirement, which bars insurers from denying coverage to any person on account of that person's medical condition or history. See 42 U.S.C. §§ 300gg-1, 300gg-3, 300gg-4(a) (2006 ed., Supp. IV). Second, Congress required insurers to use "community rating" to price their insurance policies. See § 300gg. Community rating, in effect, bars insurance companies from charging higher premiums to those with preexisting conditions.

But these two provisions, Congress comprehended, could not work effectively unless individuals were given a powerful incentive to obtain insurance. See Hearings before the House Ways and Means Committee, 111th Cong., 1st Sess., 10, 13 (2009) (statement of Uwe Reinhardt) ("[I]mposition of community-rated premiums and guaranteed issue on a market of competing private health insurers will inexorably drive that market into extinction, unless these two features are coupled with ... a [2614] mandate on individual[s] to be insured." (emphasis in original)).

In the 1990's, several States — including New York, New Jersey, Washington, Kentucky, Maine, New Hampshire, and Vermont — enacted guaranteed-issue and community-rating laws without requiring universal acquisition of insurance coverage. The results were disastrous. "All seven states suffered from skyrocketing insurance premium costs, reductions in individuals with coverage, and reductions in insurance products and providers." Brief for American Association of People with Disabilities et al. as Amici Curiae in No. 11-398, p. 9 (hereinafter AAPD Brief). See also Brief for Governor of Washington Christine Gregoire as Amicus Curiae in No. 11-398, pp. 11-14 (describing the "death spiral" in the insurance market Washington experienced when the State passed a law requiring coverage for preexisting conditions).

Congress comprehended that guaranteed-issue and community-rating laws alone will not work. When insurance companies are required to insure the sick at affordable prices, individuals can wait until they become ill to buy insurance. Pretty soon, those in need of immediate medical care — i.e., those who cost insurers the most — become the insurance companies' main customers. This "adverse selection" problem leaves insurers with two choices: They can either raise premiums dramatically to cover their ever-increasing costs or they can exit the market. In the seven States that tried guaranteed-issue and community-rating requirements without a minimum coverage provision, that is precisely what insurance companies did. See, e.g., AAPD Brief 10 ("[In Maine,] [m]any insurance providers doubled their premiums in just three years or less."); id., at 12 ("Like New York, Vermont saw substantial increases in premiums after its ... insurance reform measures took effect in 1993."); Hall, An Evaluation of New York's Reform Law, 25 J. Health Pol. Pol'y & L. 71, 91-92 (2000) (Guaranteed-issue and community-rating laws resulted in a "dramatic exodus of indemnity insurers from New York's individual [insurance] market."); Brief for Barry Friedman et al. as Amici Curiae in No. 11-398, p. 17 ("In Kentucky, all but two insurers (one State-run) abandoned the State.").

Massachusetts, Congress was told, cracked the adverse selection problem. By requiring most residents to obtain insurance, see Mass. Gen. Laws, ch. 111M, § 2 (West 2011), the Commonwealth ensured that insurers would not be left with only the sick as customers. As a result, federal lawmakers observed, Massachusetts succeeded where other States had failed. See Brief for Commonwealth of Massachusetts as Amicus Curiae in No. 11-398, p. 3 (noting that the Commonwealth's reforms reduced the number of uninsured residents to less than 2%, the lowest rate in the Nation, and cut the amount of uncompensated care by a third); 42 U.S.C. § 18091(2)(D) (2006 ed., Supp. IV) (noting the success of Massachusetts' reforms).^[16] In coupling the minimum coverage provision with guaranteed-issue and community-rating prescriptions, Congress followed Massachusetts' lead.

* * *

In sum, Congress passed the minimum coverage provision as a key component of the ACA to address an economic and social problem that has plagued the Nation for decades: the large number of U.S. residents [2615] who are unable or unwilling to obtain health insurance. Whatever one thinks of the policy decision Congress made, it was Congress' prerogative to make it. Reviewed with appropriate deference, the minimum coverage provision, allied to the guaranteed-issue and community-rating prescriptions, should survive measurement under the Commerce and Necessary and Proper Clauses.

II

A

The Commerce Clause, it is widely acknowledged, "was the Framers' response to the central problem that gave rise to the Constitution itself." EEOC v. Wyoming, 460 U.S. 226, 244, 245, n. 1, 103 S.Ct. 1054, 75 L.Ed.2d 18 (1983) (Stevens, J., concurring) (citing sources). Under the Articles of Confederation, the Constitution's precursor, the regulation of commerce was left to the States. This scheme proved unworkable, because the individual States, understandably focused on their own economic interests, often failed to take actions critical to the success of the Nation as a whole. See Vices of the Political System of the United States, in James Madison: Writings 69, 71, ¶ 5 (J. Rakove ed. 1999) (As a result of the "want of concert in matters where common interest requires it," the "national dignity, interest, and revenue [have] suffered.").^[17]

What was needed was a "national Government... armed with a positive & compleat authority in all cases where uniform measures are necessary." See Letter from James Madison to Edmund Randolph (Apr. 8, 1787), in 9 Papers of James Madison 368, 370 (R. Rutland ed. 1975). See also Letter from George Washington to James Madison (Nov. 30, 1785), in 8 id., at 428, 429 ("We are either a United people, or we are not. If the former, let us, in all matters of general concern act as a nation, which ha[s] national objects to promote, and a national character to support."). The Framers' solution was the Commerce Clause, which, as they perceived it, granted Congress the authority to enact economic legislation "in all Cases for the general Interests of the Union, and also in those Cases to which the States are separately incompetent." 2 Records of the Federal Convention of 1787, pp. 131-132, ¶ 8 (M. Farrand rev. 1966). See also North American Co. v. SEC, 327 U.S. 686, 705, 66 S.Ct. 785, 90 L.Ed. 945 (1946) ("[The commerce power] is an affirmative power commensurate with the national needs.").

The Framers understood that the "general Interests of the Union" would change over time, in ways they could not anticipate. Accordingly, they recognized that the Constitution was of necessity a "great outlin[e]," not a detailed blueprint, see McCulloch v. Maryland, 4 Wheat. 316, 407, 4 L.Ed. 579 (1819), and that its provisions included broad concepts, to be "explained by the context or by the facts of the case," Letter from James Madison to N.P. Trist (Dec. 1831), in 9 Writings of James Madison 471, 475 (G. Hunt ed. 1910). "Nothing ... can be more fallacious," Alexander Hamilton emphasized, "than to infer the extent of any power, proper to be lodged in the national government, from ... its immediate necessities. [2616] There ought to be a CAPACITY to provide for future contingencies[,] as they may happen; and as these are illimitable in their nature, it is impossible safely to limit that capacity." The Federalist No. 34, pp. 205, 206 (John Harvard Library ed. 2009). See also McCulloch, 4 Wheat., at 415 (The Necessary and Proper Clause is lodged "in a constitution[,] intended to endure for ages to come, and consequently, to be adapted to the various crises of human affairs.").

B

Consistent with the Framers' intent, we have repeatedly emphasized that Congress' authority under the Commerce Clause is dependent upon "practical" considerations, including "actual experience." Jones & Laughlin Steel Corp., 301 U.S., at 41-42, 57 S.Ct. 615; see Wickard v. Filburn, 317 U.S. 111, 122, 63 S.Ct. 82, 87 L.Ed. 122 (1942); United States v. Lopez, 514 U.S. 549, 573, 115 S.Ct. 1624, 131 L.Ed.2d 626 (1995) (KENNEDY, J., concurring) (emphasizing "the Court's definitive commitment to the practical conception of the commerce power"). See also North American Co., 327 U.S., at 705, 66 S.Ct. 785 ("Commerce itself is an intensely practical matter. To deal with it effectively, Congress must be able to act in terms of economic and financial realities." (citation omitted)). We afford Congress the leeway "to undertake to solve national problems directly and realistically." American Power & Light Co. v. SEC, 329 U.S. 90, 103, 67 S.Ct. 133, 91 L.Ed. 103 (1946).

Until today, this Court's pragmatic approach to judging whether Congress validly exercised its commerce power was guided by two familiar principles. First, Congress has the power to regulate economic activities "that substantially affect interstate commerce." Gonzales v. Raich, 545 U.S. 1, 17, 125 S.Ct. 2195, 162 L.Ed.2d 1 (2005). This capacious power extends even to local activities that, viewed in the aggregate, have a substantial impact on interstate commerce. See ibid. See also Wickard, 317 U.S., at 125, 63 S.Ct. 82 ("[E]ven if appellee's activity be local and though it may not be regarded as commerce, it may still, whatever its nature, be reached by Congress if it exerts a substantial economic effect on interstate commerce." (emphasis added)); Jones & Laughlin Steel Corp., 301 U.S., at 37, 57 S.Ct. 615.

Second, we owe a large measure of respect to Congress when it frames and enacts economic and social legislation. See Raich, 545 U.S., at 17, 125 S.Ct. 2195. See also Pension Benefit Guaranty Corporation v. R.A. Gray & Co., 467 U.S. 717, 729, 104 S.Ct. 2709, 81 L.Ed.2d 601 (1984) ("[S]trong deference [is] accorded legislation in the field of national economic policy."); Hodel v. Indiana, 452 U.S. 314, 326, 101 S.Ct. 2376, 69 L.Ed.2d 40 (1981) ("This [C]ourt will certainly not substitute its judgment for that of Congress unless the relation of the subject to interstate commerce and its effect upon it are clearly non-existent." (internal quotation marks omitted)). When appraising such legislation, we ask only (1) whether Congress had a "rational basis" for concluding that the regulated activity substantially affects interstate commerce, and (2) whether there is a "reasonable connection between the regulatory means selected and the asserted ends." Id., at 323-324, 101 S.Ct. 2376. See also Raich, 545 U.S., at 22, 125 S.Ct. 2195; Lopez, 514 U.S., at 557, 115 S.Ct. 1624; Hodel v. Virginia Surface Mining & Reclamation Assn., Inc., 452 U.S. 264, 277, 101 S.Ct. 2352, 69 L.Ed.2d 1 (1981); Katzenbach v. McClung, 379 U.S. 294, 303, 85 S.Ct. 377, 13 L.Ed.2d 290 (1964); Heart of Atlanta Motel, Inc. v. United States, 379 U.S. 241, 258, 85 S.Ct. 348, 13 L.Ed.2d 258 [2617] (1964); United States v. Carolene Products Co., 304 U.S. 144, 152-153, 58 S.Ct. 778, 82 L.Ed. 1234 (1938). In answering these questions, we presume the statute under review is constitutional and may strike it down only on a "plain showing" that Congress acted irrationally. United States v. Morrison, 529 U.S. 598, 607, 120 S.Ct. 1740, 146 L.Ed.2d 658 (2000).

C

Straightforward application of these principles would require the Court to hold that the minimum coverage provision is proper Commerce Clause legislation. Beyond dispute, Congress had a rational basis for concluding that the uninsured, as a class, substantially affect interstate commerce. Those without insurance consume billions of dollars of health-care products and services each year. See supra, at 2610. Those goods are produced, sold, and delivered largely by national and regional companies who routinely transact business across state lines. The uninsured also cross state lines to receive care. Some have medical emergencies while away from home. Others, when sick, go to a neighboring State that provides better care for those who have not prepaid for care. See supra, at 2611-2612.

Not only do those without insurance consume a large amount of health care each year; critically, as earlier explained, their inability to pay for a significant portion of that consumption drives up market prices, foists costs on other consumers, and reduces market efficiency and stability. See supra, at 2610-2612. Given these far-reaching effects on interstate commerce, the decision to forgo insurance is hardly inconsequential or equivalent to "doing nothing," ante, at 2587; it is, instead, an economic decision Congress has the authority to address under the Commerce Clause. See supra, at 2615-2617. See also Wickard, 317 U.S., at 128, 63 S.Ct. 82 ("It is well established by decisions of this Court that the power to regulate commerce includes the power to regulate the prices at which commodities in that commerce are dealt in and practices affecting such prices." (emphasis added)).

The minimum coverage provision, furthermore, bears a "reasonable connection" to Congress' goal of protecting the health-care market from the disruption caused by individuals who fail to obtain insurance. By requiring those who do not carry insurance to pay a toll, the minimum coverage provision gives individuals a strong incentive to insure. This incentive, Congress had good reason to believe, would reduce the number of uninsured and, correspondingly, mitigate the adverse impact the uninsured have on the national health-care market.

Congress also acted reasonably in requiring uninsured individuals, whether sick or healthy, either to obtain insurance or to pay the specified penalty. As earlier observed, because every person is at risk of needing care at any moment, all those who lack insurance, regardless of their current health status, adversely affect the price of health care and health insurance. See supra, at 2611-2612. Moreover, an insurance-purchase requirement limited to those in need of immediate care simply could not work. Insurance companies would either charge these individuals prohibitively expensive premiums, or, if community-rating regulations were in place, close up shop. See supra, at 2612-2614. See also Brief for State of Maryland and 10 Other States et al. as Amici Curiae in No. 11-398, p. 28 (hereinafter Maryland Brief) ("No insurance regime can survive if people can opt out when the risk insured against is only a risk, but opt in when the risk materializes.").

[2618] "[W]here we find that the legislators ... have a rational basis for finding a chosen regulatory scheme necessary to the protection of commerce, our investigation is at an end." Katzenbach, 379 U.S., at 303-304, 85 S.Ct. 377. Congress' enactment of the minimum coverage provision, which addresses a specific interstate problem in a practical, experience-informed manner, easily meets this criterion.

D

Rather than evaluating the constitutionality of the minimum coverage provision in the manner established by our precedents, THE CHIEF JUSTICE relies on a newly minted constitutional doctrine. The commerce power does not, THE CHIEF JUSTICE announces, permit Congress to "compe[l] individuals to become active in commerce by purchasing a product." Ante, at 2587 (emphasis deleted).

1

a

THE CHIEF JUSTICE's novel constraint on Congress' commerce power gains no force from our precedent and for that reason alone warrants disapprobation. See infra, at 2620-2623. But even assuming, for the moment, that Congress lacks authority under the Commerce Clause to "compel individuals not engaged in commerce to purchase an unwanted product," ante, at 2586, such a limitation would be inapplicable here. Everyone will, at some point, consume health-care products and services. See supra, at 2609. Thus, if THE CHIEF JUSTICE is correct that an insurance-purchase requirement can be applied only to those who "actively" consume health care, the minimum coverage provision fits the bill.

THE CHIEF JUSTICE does not dispute that all U.S. residents participate in the market for health services over the course of their lives. See ante, at 2585 ("Everyone will eventually need health care at a time and to an extent they cannot predict."). But, THE CHIEF JUSTICE insists, the uninsured cannot be considered active in the market for health care, because "[t]he proximity and degree of connection between the [uninsured today] and [their] subsequent commercial activity is too lacking." Ante, at 2591.

This argument has multiple flaws. First, more than 60% of those without insurance visit a hospital or doctor's office each year. See supra, at 2610. Nearly 90% will within five years.^[18] An uninsured's consumption of health care is thus quite proximate: It is virtually certain to occur in the next five years and more likely than not to occur this year.

Equally evident, Congress has no way of separating those uninsured individuals who will need emergency medical care today (surely their consumption of medical care is sufficiently imminent) from those who will not need medical services for years to come. No one knows when an emergency will occur, yet emergencies involving the uninsured arise daily. To capture individuals who unexpectedly will obtain medical care in the very near future, then, Congress needed to include individuals who will not go to a doctor anytime soon. Congress, our decisions instruct, has authority to cast its net that wide. See Perez v. United States, 402 U.S. 146, 154, 91 S.Ct. 1357, 28 L.Ed.2d 686 (1971) ("[W]hen it is necessary in order to prevent an evil to make the law embrace more than the precise [2619] thing to be prevented it may do so." (internal quotation marks omitted)).^[19]

Second, it is Congress' role, not the Court's, to delineate the boundaries of the market the Legislature seeks to regulate. THE CHIEF JUSTICE defines the health-care market as including only those transactions that will occur either in the next instant or within some (unspecified) proximity to the next instant. But Congress could reasonably have viewed the market from a long-term perspective, encompassing all transactions virtually certain to occur over the next decade, see supra, at 2618, not just those occurring here and now.

Third, contrary to THE CHIEF JUSTICE's contention, our precedent does indeed support "[t]he proposition that Congress may dictate the conduct of an individual today because of prophesied future activity." Ante, at 2590. In Wickard, the Court upheld a penalty the Federal Government imposed on a farmer who grew more wheat than he was permitted to grow under the Agricultural Adjustment Act of 1938(AAA). 317 U.S., at 114-115, 63 S.Ct. 82. He could not be penalized, the farmer argued, as he was growing the wheat for home consumption, not for sale on the open market. Id., at 119, 63 S.Ct. 82. The Court rejected this argument. Id., at 127-129, 63 S.Ct. 82. Wheat intended for home consumption, the Court noted, "overhangs the market, and if induced by rising prices, tends to flow into the market and check price increases [intended by the AAA]." Id., at 128, 63 S.Ct. 82.

Similar reasoning supported the Court's judgment in Raich, which upheld Congress' authority to regulate marijuana grown for personal use. 545 U.S., at 19, 125 S.Ct. 2195. Homegrown marijuana substantially affects the interstate market for marijuana, we observed, for "the high demand in the interstate market will [likely] draw such marijuana into that market." Ibid.

Our decisions thus acknowledge Congress' authority, under the Commerce Clause, to direct the conduct of an individual today (the farmer in Wickard, stopped from growing excess wheat; the plaintiff in Raich, ordered to cease cultivating marijuana) because of a prophesied future transaction (the eventual sale of that wheat or marijuana in the interstate market). Congress' actions are even more rational in this case, where the future activity (the consumption of medical care) is certain to occur, the sole uncertainty being the time the activity will take place.

Maintaining that the uninsured are not active in the health-care market, THE CHIEF JUSTICE draws an analogy to the car market. An individual "is not `active in the car market,'" THE CHIEF JUSTICE observes, simply because he or she may someday buy a car. Ante, at 2589-2590. The analogy is inapt. The inevitable yet unpredictable need for medical care and the guarantee that emergency care will be provided when required are conditions nonexistent in other markets. That is so of the market for cars, and of the market for broccoli as well. Although an individual might buy a car or a crown of broccoli one day, there is no certainty she [2620] will ever do so. And if she eventually wants a car or has a craving for broccoli, she will be obliged to pay at the counter before receiving the vehicle or nourishment. She will get no free ride or food, at the expense of another consumer forced to pay an inflated price. See Thomas More Law Center v. Obama, 651 F.3d 529, 565 (C.A.6 2011) (Sutton, J., concurring in part) ("Regulating how citizens pay for what they already receive (health care), never quite know when they will need, and in the case of severe illnesses or emergencies generally will not be able to afford, has few (if any) parallels in modern life."). Upholding the minimum coverage provision on the ground that all are participants or will be participants in the health-care market would therefore carry no implication that Congress may justify under the Commerce Clause a mandate to buy other products and services.

Nor is it accurate to say that the minimum coverage provision "compel[s] individuals... to purchase an unwanted product," ante, at 2586, or "suite of products," post, at 2648, n. 2 (joint opinion of SCALIA, KENNEDY, THOMAS, and ALITO, JJ.). If unwanted today, medical service secured by insurance may be desperately needed tomorrow. Virtually everyone, I reiterate, consumes health care at some point in his or her life. See supra, at 2612. Health insurance is a means of paying for this care, nothing more. In requiring individuals to obtain insurance, Congress is therefore not mandating the purchase of a discrete, unwanted product. Rather, Congress is merely defining the terms on which individuals pay for an interstate good they consume: Persons subject to the mandate must now pay for medical care in advance (instead of at the point of service) and through insurance (instead of out of pocket). Establishing payment terms for goods in or affecting interstate commerce is quintessential economic regulation well within Congress' domain. See, e.g., United States v. Wrightwood Dairy Co., 315 U.S. 110, 118, 62 S.Ct. 523, 86 L.Ed. 726 (1942). Cf. post, at 2648 (joint opinion of SCALIA, KENNEDY, THOMAS, and ALITO, JJ.) (recognizing that "the Federal Government can prescribe [a commodity's] quality ... and even [its price]").

THE CHIEF JUSTICE also calls the minimum coverage provision an illegitimate effort to make young, healthy individuals subsidize insurance premiums paid by the less hale and hardy. See ante, at 2585, 2589-2591. This complaint, too, is spurious. Under the current health-care system, healthy persons who lack insurance receive a benefit for which they do not pay: They are assured that, if they need it, emergency medical care will be available, although they cannot afford it. See supra, at 2610-2611. Those who have insurance bear the cost of this guarantee. See ibid. By requiring the healthy uninsured to obtain insurance or pay a penalty structured as a tax, the minimum coverage provision ends the free ride these individuals currently enjoy.

In the fullness of time, moreover, today's young and healthy will become society's old and infirm. Viewed over a lifespan, the costs and benefits even out: The young who pay more than their fair share currently will pay less than their fair share when they become senior citizens. And even if, as undoubtedly will be the case, some individuals, over their lifespans, will pay more for health insurance than they receive in health services, they have little to complain about, for that is how insurance works. Every insured person receives protection against a catastrophic loss, even though only a subset of the covered class will ultimately need that protection.

[2621] b

In any event, THE CHIEF JUSTICE's limitation of the commerce power to the regulation of those actively engaged in commerce finds no home in the text of the Constitution or our decisions. Article I, § 8, of the Constitution grants Congress the power "[t]o regulate Commerce ... among the several States." Nothing in this language implies that Congress' commerce power is limited to regulating those actively engaged in commercial transactions. Indeed, as the D.C. Circuit observed, "[a]t the time the Constitution was [framed], to `regulate' meant," among other things, "to require action." See Seven-Sky v. Holder, 661 F.3d 1, 16 (2011).

Arguing to the contrary, THE CHIEF JUSTICE notes that "the Constitution gives Congress the power to `coin Money,' in addition to the power to `regulate the Value thereof,'" and similarly "gives Congress the power to `raise and support Armies' and to `provide and maintain a Navy,' in addition to the power to `make Rules for the Government and Regulation of the land and naval Forces.'" Ante, at 2586 (citing Art. I, § 8, cls. 5, 12-14). In separating the power to regulate from the power to bring the subject of the regulation into existence, THE CHIEF JUSTICE asserts, "[t]he language of the Constitution reflects the natural understanding that the power to regulate assumes there is already something to be regulated." Ante, at 2586.

This argument is difficult to fathom. Requiring individuals to obtain insurance unquestionably regulates the interstate health-insurance and health-care markets, both of them in existence well before the enactment of the ACA. See Wickard, 317 U.S., at 128, 63 S.Ct. 82 ("The stimulation of commerce is a use of the regulatory function quite as definitely as prohibitions or restrictions thereon."). Thus, the "something to be regulated" was surely there when Congress created the minimum coverage provision.^[20]

Nor does our case law toe the activity versus inactivity line. In Wickard, for example, we upheld the penalty imposed on a farmer who grew too much wheat, even though the regulation had the effect of compelling farmers to purchase wheat in the open market. Id., at 127-129, 63 S.Ct. 82. "[F]orcing some farmers into the market to buy what they could provide for themselves" was, the Court held, a valid means of regulating commerce. Id., at 128-129, 63 S.Ct. 82. In another context, this Court similarly upheld Congress' authority under the commerce power to compel an "inactive" landholder to submit to an unwanted sale. See Monongahela Nav. Co. v. United States, 148 U.S. 312, 335-337, 13 S.Ct. 622, 37 L.Ed. 463 (1893) ("[U]pon the [great] power to regulate commerce [,]" Congress has the authority to mandate the sale of real property to the Government, where the sale is essential to the improvement of a navigable waterway (emphasis added)); Cherokee Nation v. Southern Kansas R. Co., 135 U.S. 641, 657-659, 10 S.Ct. 965, 34 L.Ed. 295 (1890) (similar reliance on the commerce power regarding mandated sale of private property for railroad construction).

[2622] In concluding that the Commerce Clause does not permit Congress to regulate commercial "inactivity," and therefore does not allow Congress to adopt the practical solution it devised for the health-care problem, THE CHIEF JUSTICE views the Clause as a "technical legal conception," precisely what our case law tells us not to do. Wickard, 317 U.S., at 122, 63 S.Ct. 82 (internal quotation marks omitted). See also supra, at 2615-2617. This Court's former endeavors to impose categorical limits on the commerce power have not fared well. In several pre-New Deal cases, the Court attempted to cabin Congress' Commerce Clause authority by distinguishing "commerce" from activity once conceived to be noncommercial, notably, "production," "mining," and "manufacturing." See, e.g., United States v. E.C. Knight Co., 156 U.S. 1, 12, 15 S.Ct. 249, 39 L.Ed. 325 (1895) ("Commerce succeeds to manufacture, and is not a part of it."); Carter v. Carter Coal Co., 298 U.S. 238, 304, 56 S.Ct. 855, 80 L.Ed. 1160 (1936) ("Mining brings the subject matter of commerce into existence. Commerce disposes of it."). The Court also sought to distinguish activities having a "direct" effect on interstate commerce, and for that reason, subject to federal regulation, from those having only an "indirect" effect, and therefore not amenable to federal control. See, e.g., A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495, 548, 55 S.Ct. 837, 79 L.Ed. 1570 (1935) ("[T]he distinction between direct and indirect effects of intrastate transactions upon interstate commerce must be recognized as a fundamental one.").

These line-drawing exercises were untenable, and the Court long ago abandoned them. "[Q]uestions of the power of Congress [under the Commerce Clause]," we held in Wickard, "are not to be decided by reference to any formula which would give controlling force to nomenclature such as `production' and `indirect' and foreclose consideration of the actual effects of the activity in question upon interstate commerce." 317 U.S., at 120, 63 S.Ct. 82. See also Morrison, 529 U.S., at 641-644, 120 S.Ct. 1740 (Souter, J., dissenting) (recounting the Court's "nearly disastrous experiment" with formalistic limits on Congress' commerce power). Failing to learn from this history, THE CHIEF JUSTICE plows ahead with his formalistic distinction between those who are "active in commerce," ante, at 2587, and those who are not.

It is not hard to show the difficulty courts (and Congress) would encounter in distinguishing statutes that regulate "activity" from those that regulate "inactivity." As Judge Easterbrook noted, "it is possible to restate most actions as corresponding inactions with the same effect." Archie v. Racine, 847 F.2d 1211, 1213 (C.A.7 1988) (en banc). Take this case as an example. An individual who opts not to purchase insurance from a private insurer can be seen as actively selecting another form of insurance: self-insurance. See Thomas More Law Center, 651 F.3d, at 561 (Sutton, J., concurring in part) ("No one is inactive when deciding how to pay for health care, as self-insurance and private insurance are two forms of action for addressing the same risk."). The minimum coverage provision could therefore be described as regulating activists in the self-insurance market.^[21]Wickard is another example. Did the statute there at issue [2623] target activity (the growing of too much wheat) or inactivity (the farmer's failure to purchase wheat in the marketplace)? If anything, the Court's analysis suggested the latter. See 317 U.S., at 127-129, 63 S.Ct. 82.

At bottom, THE CHIEF JUSTICE's and the joint dissenters' "view that an individual cannot be subject to Commerce Clause regulation absent voluntary, affirmative acts that enter him or her into, or affect, the interstate market expresses a concern for individual liberty that [is] more redolent of Due Process Clause arguments." Seven-Sky, 661 F.3d, at 19. See also Troxel v. Granville, 530 U.S. 57, 65, 120 S.Ct. 2054, 147 L.Ed.2d 49 (2000) (plurality opinion) ("The [Due Process] Clause also includes a substantive component that provides heightened protection against government interference with certain fundamental rights and liberty interests." (internal quotation marks omitted)). Plaintiffs have abandoned any argument pinned to substantive due process, however, see 648 F.3d 1235, 1291, n. 93 (C.A.11 2011), and now concede that the provisions here at issue do not offend the Due Process Clause.^[22]

2

Underlying THE CHIEF JUSTICE's view that the Commerce Clause must be confined to the regulation of active participants in a commercial market is a fear that the commerce power would otherwise know no limits. See, e.g., ante, at 2589 (Allowing Congress to compel an individual not engaged in commerce to purchase a product would "permi[t] Congress to reach beyond the natural extent of its authority, everywhere extending the sphere of its activity, and drawing all power into its impetuous vortex." (internal quotation marks omitted)). The joint dissenters express a similar apprehension. See post, at 2646 (If the minimum coverage provision is upheld under the commerce power then "the Commerce Clause becomes a font of unlimited power, ... the hideous monster whose devouring jaws ... spare neither sex nor age, nor high nor low, nor sacred nor profane." (internal quotation marks omitted)). This concern is unfounded.

First, THE CHIEF JUSTICE could certainly uphold the individual mandate without giving Congress carte blanche to enact any and all purchase mandates. As several times noted, the unique attributes of the health-care market render everyone active in that market and give rise to a significant free-riding problem that does not occur in other markets. See supra, at 2609-2612, 2616-2618, 2619.

Nor would the commerce power be unbridled, absent THE CHIEF JUSTICE's "activity" limitation. Congress would remain unable to regulate noneconomic conduct that has only an attenuated effect on interstate commerce and is traditionally left to state law. See Lopez, 514 U.S., at 567, 115 S.Ct. 1624; Morrison, 529 U.S., at 617-619, 120 S.Ct. 1740. In Lopez, for example, the Court held that the Federal Government lacked power, under the Commerce Clause, to criminalize the possession of a gun in a local school zone. Possessing [2624] a gun near a school, the Court reasoned, "is in no sense an economic activity that might, through repetition elsewhere, substantially affect any sort of interstate commerce." 514 U.S., at 567, 115 S.Ct. 1624; ibid. (noting that the Court would have "to pile inference upon inference" to conclude that gun possession has a substantial effect on commerce). Relying on similar logic, the Court concluded in Morrison that Congress could not regulate gender-motivated violence, which the Court deemed to have too "attenuated [an] effect upon interstate commerce." 529 U.S., at 615, 120 S.Ct. 1740.

An individual's decision to self-insure, I have explained, is an economic act with the requisite connection to interstate commerce. See supra, at 2616-2618. Other choices individuals make are unlikely to fit the same or similar description. As an example of the type of regulation he fears, THE CHIEF JUSTICE cites a Government mandate to purchase green vegetables. Ante, at 2588-2589. One could call this concern "the broccoli horrible." Congress, THE CHIEF JUSTICE posits, might adopt such a mandate, reasoning that an individual's failure to eat a healthy diet, like the failure to purchase health insurance, imposes costs on others. See ibid.

Consider the chain of inferences the Court would have to accept to conclude that a vegetable-purchase mandate was likely to have a substantial effect on the health-care costs borne by lithe Americans. The Court would have to believe that individuals forced to buy vegetables would then eat them (instead of throwing or giving them away), would prepare the vegetables in a healthy way (steamed or raw, not deep-fried), would cut back on unhealthy foods, and would not allow other factors (such as lack of exercise or little sleep) to trump the improved diet.^[23] Such "pil[ing of] inference upon inference" is just what the Court refused to do in Lopez and Morrison.

Other provisions of the Constitution also check congressional overreaching. A mandate to purchase a particular product would be unconstitutional if, for example, the edict impermissibly abridged the freedom of speech, interfered with the free exercise of religion, or infringed on a liberty interest protected by the Due Process Clause.

Supplementing these legal restraints is a formidable check on congressional power: the democratic process. See Raich, 545 U.S., at 33, 125 S.Ct. 2195; Wickard, 317 U.S., at 120, 63 S.Ct. 82 (repeating Chief Justice Marshall's "warning that effective restraints on [the commerce power's] exercise must proceed from political rather than judicial processes") (citing Gibbons v. Ogden, 9 Wheat. 1, 197, 6 L.Ed. 23 (1824)). As the controversy surrounding the passage of the Affordable Care Act attests, purchase mandates are likely to engender political resistance. This prospect is borne out by the behavior of state legislators. Despite their possession of unquestioned authority to impose mandates, state governments have rarely done so. See Hall, Commerce Clause Challenges to Health [2625] Care Reform, 159 U. Pa. L. Rev. 1825, 1838 (2011).

When contemplated in its extreme, almost any power looks dangerous. The commerce power, hypothetically, would enable Congress to prohibit the purchase and home production of all meat, fish, and dairy goods, effectively compelling Americans to eat only vegetables. Cf. Raich, 545 U.S., at 9, 125 S.Ct. 2195; Wickard, 317 U.S., at 127-129, 63 S.Ct. 82. Yet no one would offer the "hypothetical and unreal possibilit[y]," Pullman Co. v. Knott, 235 U.S. 23, 26, 35 S.Ct. 2, 59 L.Ed. 105 (1914), of a vegetarian state as a credible reason to deny Congress the authority ever to ban the possession and sale of goods. THE CHIEF JUSTICE accepts just such specious logic when he cites the broccoli horrible as a reason to deny Congress the power to pass the individual mandate. Cf. R. Bork, The Tempting of America 169 (1990) ("Judges and lawyers live on the slippery slope of analogies; they are not supposed to ski it to the bottom."). But see, e.g., post, at 2586 (joint opinion of SCALIA, KENNEDY, THOMAS, and ALITO, JJ.) (asserting, outlandishly, that if the minimum coverage provision is sustained, then Congress could make "breathing in and out the basis for federal prescription").

3

To bolster his argument that the minimum coverage provision is not valid Commerce Clause legislation, THE CHIEF JUSTICE emphasizes the provision's novelty. See ante, at 2586 (asserting that "sometimes the most telling indication of [a] severe constitutional problem ... is the lack of historical precedent for Congress's action" (internal quotation marks omitted)). While an insurance-purchase mandate may be novel, THE CHIEF JUSTICE's argument certainly is not. "[I]n almost every instance of the exercise of the [commerce] power differences are asserted from previous exercises of it and made a ground of attack." Hoke v. United States, 227 U.S. 308, 320, 33 S.Ct. 281, 57 L.Ed. 523 (1913). See, e.g., Brief for Petitioner in Perez v. United States, O.T. 1970, No. 600, p. 5 ("unprecedented exercise of power"); Supplemental Brief for Appellees in Katzenbach v. McClung, O.T. 1964, No. 543, p. 40 ("novel assertion of federal power"); Brief for Appellee in Wickard v. Filburn, O.T. 1941, No. 59, p. 6 ("complete departure"). For decades, the Court has declined to override legislation because of its novelty, and for good reason. As our national economy grows and changes, we have recognized, Congress must adapt to the changing "economic and financial realities." See supra, at 2616. Hindering Congress' ability to do so is shortsighted; if history is any guide, today's constriction of the Commerce Clause will not endure. See supra, at 2621-2623.

III

A

For the reasons explained above, the minimum coverage provision is valid Commerce Clause legislation. See supra, Part II. When viewed as a component of the entire ACA, the provision's constitutionality becomes even plainer.

The Necessary and Proper Clause "empowers Congress to enact laws in effectuation of its [commerce] powe[r] that are not within its authority to enact in isolation." Raich, 545 U.S., at 39, 125 S.Ct. 2195 (SCALIA, J., concurring in judgment). Hence, "[a] complex regulatory program... can survive a Commerce Clause challenge without a showing that every single facet of the program is independently and directly related to a valid congressional goal." Indiana, 452 U.S., at 329, n. 17, [2626] 101 S.Ct. 2376. "It is enough that the challenged provisions are an integral part of the regulatory program and that the regulatory scheme when considered as a whole satisfies this test." Ibid. (collecting cases). See also Raich, 545 U.S., at 24-25, 125 S.Ct. 2195 (A challenged statutory provision fits within Congress' commerce authority if it is an "essential par[t] of a larger regulation of economic activity," such that, in the absence of the provision, "the regulatory scheme could be undercut." (quoting Lopez, 514 U.S., at 561, 115 S.Ct. 1624)); Raich, 545 U.S., at 37, 125 S.Ct. 2195 (SCALIA, J., concurring in judgment) ("Congress may regulate even noneconomic local activity if that regulation is a necessary part of a more general regulation of interstate commerce. The relevant question is simply whether the means chosen are `reasonably adapted' to the attainment of a legitimate end under the commerce power." (citation omitted)).

Recall that one of Congress' goals in enacting the Affordable Care Act was to eliminate the insurance industry's practice of charging higher prices or denying coverage to individuals with preexisting medical conditions. See supra, at 2612-2614. The commerce power allows Congress to ban this practice, a point no one disputes. See United States v. South-Eastern Underwriters Assn., 322 U.S. 533, 545, 552-553, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944) (Congress may regulate "the methods by which interstate insurance companies do business.").

Congress knew, however, that simply barring insurance companies from relying on an applicant's medical history would not work in practice. Without the individual mandate, Congress learned, guaranteed-issue and community-rating requirements would trigger an adverse-selection death-spiral in the health-insurance market: Insurance premiums would skyrocket, the number of uninsured would increase, and insurance companies would exit the market. See supra, at 2613-2614. When complemented by an insurance mandate, on the other hand, guaranteed issue and community rating would work as intended, increasing access to insurance and reducing uncompensated care. See supra, at 2614-2615. The minimum coverage provision is thus an "essential par[t] of a larger regulation of economic activity"; without the provision, "the regulatory scheme [w]ould be undercut." Raich, 545 U.S., at 24-25, 125 S.Ct. 2195 (internal quotation marks omitted). Put differently, the minimum coverage provision, together with the guaranteed-issue and community-rating requirements, is "`reasonably adapted' to the attainment of a legitimate end under the commerce power": the elimination of pricing and sales practices that take an applicant's medical history into account. See id., at 37, 125 S.Ct. 2195 (SCALIA, J., concurring in judgment).

B

Asserting that the Necessary and Proper Clause does not authorize the minimum coverage provision, THE CHIEF JUSTICE focuses on the word "proper." A mandate to purchase health insurance is not "proper" legislation, THE CHIEF JUSTICE urges, because the command "undermine[s] the structure of government established by the Constitution." Ante, at 2592. If long on rhetoric, THE CHIEF JUSTICE's argument is short on substance.

THE CHIEF JUSTICE cites only two cases in which this Court concluded that a federal statute impermissibly transgressed the Constitution's boundary between state and federal authority: Printz v. United States, 521 U.S. 898, 117 S.Ct. 2365, 138 L.Ed.2d 914 (1997), and New York v. United States, 505 U.S. 144, 112 S.Ct. 2408, 120 [2627] L.Ed.2d 120 (1992). See ante, at 2592. The statutes at issue in both cases, however, compelled state officials to act on the Federal Government's behalf. 521 U.S., at 925-933, 117 S.Ct. 2365 (holding unconstitutional a statute obligating state law enforcement officers to implement a federal gun-control law); New York, 505 U.S., at 176-177, 112 S.Ct. 2408 (striking down a statute requiring state legislators to pass regulations pursuant to Congress' instructions). "[Federal] laws conscripting state officers," the Court reasoned, "violate state sovereignty and are thus not in accord with the Constitution." Printz, 521 U.S., at 925, 935, 117 S.Ct. 2365; New York, 505 U.S., at 176, 112 S.Ct. 2408.

The minimum coverage provision, in contrast, acts "directly upon individuals, without employing the States as intermediaries." New York, 505 U.S., at 164, 112 S.Ct. 2408. The provision is thus entirely consistent with the Constitution's design. See Printz, 521 U.S., at 920, 117 S.Ct. 2365 ("[T]he Framers explicitly chose a Constitution that confers upon Congress the power to regulate individuals, not States." (internal quotation marks omitted)).

Lacking case law support for his holding, THE CHIEF JUSTICE nevertheless declares the minimum coverage provision not "proper" because it is less "narrow in scope" than other laws this Court has upheld under the Necessary and Proper Clause. Ante, at 2592 (citing United States v. Comstock, 560 U.S. ___, 130 S.Ct. 1949, 176 L.Ed.2d 878 (2010); Sabri v. United States, 541 U.S. 600, 124 S.Ct. 1941, 158 L.Ed.2d 891 (2004); Jinks v. Richland County, 538 U.S. 456, 123 S.Ct. 1667, 155 L.Ed.2d 631 (2003)). THE CHIEF JUSTICE's reliance on cases in which this Court has affirmed Congress' "broad authority to enact federal legislation" under the Necessary and Proper Clause, Comstock, 560 U.S., at ___, 130 S.Ct., at 1956, is underwhelming.

Nor does THE CHIEF JUSTICE pause to explain why the power to direct either the purchase of health insurance or, alternatively, the payment of a penalty collectible as a tax is more far-reaching than other implied powers this Court has found meet under the Necessary and Proper Clause. These powers include the power to enact criminal laws, see, e.g., United States v. Fox, 95 U.S. 670, 672, 24 L.Ed. 538 (1878); the power to imprison, including civil imprisonment, see, e.g., Comstock, 560 U.S., at ___, 130 S.Ct., at 1954; and the power to create a national bank, see McCulloch, 4 Wheat., at 425. See also Jinks, 538 U.S., at 463, 123 S.Ct. 1667 (affirming Congress' power to alter the way a state law is applied in state court, where the alteration "promotes fair and efficient operation of the federal courts").^[24]

In failing to explain why the individual mandate threatens our constitutional order, THE CHIEF JUSTICE disserves future courts. How is a judge to decide, when ruling on the constitutionality of a federal statute, whether Congress employed an "independent power," ante, at 2591, or merely a "derivative" one, ante, at 2592. Whether the power used is "substantive," ante, at 2592, or just "incidental," [2628] ante, at 2592? The instruction THE CHIEF JUSTICE, in effect, provides lower courts: You will know it when you see it.

It is more than exaggeration to suggest that the minimum coverage provision improperly intrudes on "essential attributes of state sovereignty." Ibid. (internal quotation marks omitted). First, the Affordable Care Act does not operate "in [an] are[a] such as criminal law enforcement or education where States historically have been sovereign." Lopez, 514 U.S., at 564, 115 S.Ct. 1624. As evidenced by Medicare, Medicaid, the Employee Retirement Income Security Act of 1974 (ERISA), and the Health Insurance Portability and Accountability Act of 1996 (HIPAA), the Federal Government plays a lead role in the health-care sector, both as a direct payer and as a regulator.

Second, and perhaps most important, the minimum coverage provision, along with other provisions of the ACA, addresses the very sort of interstate problem that made the commerce power essential in our federal system. See supra, at 2614-2616. The crisis created by the large number of U.S. residents who lack health insurance is one of national dimension that States are "separately incompetent" to handle. See supra, at 2611-2612, 2615. See also Maryland Brief 15-26 (describing "the impediments to effective state policymaking that flow from the interconnectedness of each state's healthcare economy" and emphasizing that "state-level reforms cannot fully address the problems associated with uncompensated care"). Far from trampling on States' sovereignty, the ACA attempts a federal solution for the very reason that the States, acting separately, cannot meet the need. Notably, the ACA serves the general welfare of the people of the United States while retaining a prominent role for the States. See id., at 31-36 (explaining and illustrating how the ACA affords States wide latitude in implementing key elements of the Act's reforms).^[25]

IV

In the early 20th century, this Court regularly struck down economic regulation enacted by the peoples' representatives in both the States and the Federal Government. See, e.g., Carter Coal Co., 298 U.S., at 303-304, 309-310, 56 S.Ct. 855; Dagenhart, 247 U.S., at 276-277, 38 S.Ct. 529; [2629] Lochner v. New York, 198 U.S. 45, 64, 25 S.Ct. 539, 49 L.Ed. 937 (1905). THE CHIEF JUSTICE's Commerce Clause opinion, and even more so the joint dissenters' reasoning, see post, at 2644-2650, bear a disquieting resemblance to those long-overruled decisions.

Ultimately, the Court upholds the individual mandate as a proper exercise of Congress' power to tax and spend "for the... general Welfare of the United States." Art. I, § 8, cl. 1; ante, at 2600-2601. I concur in that determination, which makes THE CHIEF JUSTICE's Commerce Clause essay all the more puzzling. Why should THE CHIEF JUSTICE strive so mightily to hem in Congress' capacity to meet the new problems arising constantly in our ever-developing modern economy? I find no satisfying response to that question in his opinion.^[26]

V

Through Medicaid, Congress has offered the States an opportunity to furnish health care to the poor with the aid of federal financing. To receive federal Medicaid funds, States must provide health benefits to specified categories of needy persons, including pregnant women, children, parents, and adults with disabilities. Guaranteed eligibility varies by category: for some it is tied to the federal poverty level (incomes up to 100% or 133%); for others it depends on criteria such as eligibility for designated state or federal assistance programs. The ACA enlarges the population of needy people States must cover to include adults under age 65 with incomes up to 133% of the federal poverty level. The spending power conferred by the Constitution, the Court has never doubted, permits Congress to define the contours of programs financed with federal funds. See, e.g., Pennhurst State School and Hospital v. Halderman, 451 U.S. 1, 17, 101 S.Ct. 1531, 67 L.Ed.2d 694 (1981). And to expand coverage, Congress could have recalled the existing legislation, and replaced it with a new law making Medicaid as embracive of the poor as Congress chose.

The question posed by the 2010 Medicaid expansion, then, is essentially this: To cover a notably larger population, must Congress take the repeal/reenact route, or may it achieve the same result by amending existing law? The answer should be that Congress may expand by amendment the classes of needy persons entitled to Medicaid benefits. A ritualistic requirement that Congress repeal and reenact spending legislation in order to enlarge the population served by a federally funded program would advance no constitutional principle and would scarcely serve the interests of federalism. To the contrary, such a requirement would rigidify Congress' efforts to empower States by partnering with them in the implementation of federal programs.

Medicaid is a prototypical example of federal-state cooperation in serving the Nation's general welfare. Rather than authorizing a federal agency to administer a uniform national health-care system for the poor, Congress offered States the opportunity to tailor Medicaid grants to their particular needs, so long as they remain within bounds set by federal law. In shaping [2630] Medicaid, Congress did not endeavor to fix permanently the terms participating states must meet; instead, Congress reserved the "right to alter, amend, or repeal" any provision of the Medicaid Act. 42 U.S.C. § 1304. States, for their part, agreed to amend their own Medicaid plans consistent with changes from time to time made in the federal law. See 42 CFR § 430.12(c)(i) (2011). And from 1965 to the present, States have regularly conformed to Congress' alterations of the Medicaid Act.

THE CHIEF JUSTICE acknowledges that Congress may "condition the receipt of [federal] funds on the States' complying with restrictions on the use of those funds," ante, at 2603-2604, but nevertheless concludes that the 2010 expansion is unduly coercive. His conclusion rests on three premises, each of them essential to his theory. First, the Medicaid expansion is, in THE CHIEF JUSTICE's view, a new grant program, not an addition to the Medicaid program existing before the ACA's enactment. Congress, THE CHIEF JUSTICE maintains, has threatened States with the loss of funds from an old program in an effort to get them to adopt a new one. Second, the expansion was unforeseeable by the States when they first signed on to Medicaid. Third, the threatened loss of funding is so large that the States have no real choice but to participate in the Medicaid expansion. THE CHIEF JUSTICE therefore — for the first time ever — finds an exercise of Congress' spending power unconstitutionally coercive.

Medicaid, as amended by the ACA, however, is not two spending programs; it is a single program with a constant aim — to enable poor persons to receive basic health care when they need it. Given past expansions, plus express statutory warning that Congress may change the requirements participating States must meet, there can be no tenable claim that the ACA fails for lack of notice. Moreover, States have no entitlement to receive any Medicaid funds; they enjoy only the opportunity to accept funds on Congress' terms. Future Congresses are not bound by their predecessors' dispositions; they have authority to spend federal revenue as they see fit. The Federal Government, therefore, is not, as THE CHIEF JUSTICE charges, threatening States with the loss of "existing" funds from one spending program in order to induce them to opt into another program. Congress is simply requiring States to do what States have long been required to do to receive Medicaid funding: comply with the conditions Congress prescribes for participation.

A majority of the Court, however, buys the argument that prospective withholding of funds formerly available exceeds Congress' spending power. Given that holding, I entirely agree with THE CHIEF JUSTICE as to the appropriate remedy. It is to bar the withholding found impermissible — not, as the joint dissenters would have it, to scrap the expansion altogether, see post, at 2666-2668. The dissenters' view that the ACA must fall in its entirety is a radical departure from the Court's normal course. When a constitutional infirmity mars a statute, the Court ordinarily removes the infirmity. It undertakes a salvage operation; it does not demolish the legislation. See, e.g., Brockett v. Spokane Arcades, Inc., 472 U.S. 491, 504, 105 S.Ct. 2794, 86 L.Ed.2d 394 (1985) (Court's normal course is to declare a statute invalid "to the extent that it reaches too far, but otherwise [to leave the statute] intact"). That course is plainly in order where, as in this case, Congress has expressly instructed courts to leave untouched every provision not found invalid. See 42 U.S.C. § 1303. Because THE CHIEF JUSTICE finds the withholding — [2631] not the granting — of federal funds incompatible with the Spending Clause, Congress' extension of Medicaid remains available to any State that affirms its willingness to participate.

A

Expansion has been characteristic of the Medicaid program. Akin to the ACA in 2010, the Medicaid Act as passed in 1965 augmented existing federal grant programs jointly administered with the States.^[27] States were not required to participate in Medicaid. But if they did, the Federal Government paid at least half the costs. To qualify for these grants, States had to offer a minimum level of health coverage to beneficiaries of four federally funded, state-administered welfare programs: Aid to Families with Dependent Children; Old Age Assistance; Aid to the Blind; and Aid to the Permanently and Totally Disabled. See Social Security Amendments of 1965, § 121(a), 79 Stat. 343; Schweiker v. Gray Panthers, 453 U.S. 34, 37, 101 S.Ct. 2633, 69 L.Ed.2d 460 (1981). At their option, States could enroll additional "medically needy" individuals; these costs, too, were partially borne by the Federal Government at the same, at least 50%, rate. Ibid.

Since 1965, Congress has amended the Medicaid program on more than 50 occasions, sometimes quite sizably. Most relevant here, between 1988 and 1990, Congress required participating States to include among their beneficiaries pregnant women with family incomes up to 133% of the federal poverty level, children up to age 6 at the same income levels, and children ages 6 to 18 with family incomes up to 100% of the poverty level. See 42 U.S.C. §§ 1396a(a)(10)(A)(i), 1396a(l); Medicare Catastrophic Coverage Act of 1988, § 302, 102 Stat. 750; Omnibus Budget Reconciliation Act of 1989, § 6401, 103 Stat. 2258; Omnibus Budget Reconciliation Act of 1990, § 4601, 104 Stat. 1388-166. These amendments added millions to the Medicaid-eligible population. Dubay & Kenney, Lessons from the Medicaid Expansions for Children and Pregnant Women 5 (Apr. 1997).

Between 1966 and 1990, annual federal Medicaid spending grew from $631.6 million to $42.6 billion; state spending rose to $31 billion over the same period. See Dept. of Health and Human Services, National Health Expenditures by Type of Service and Source of Funds: Calendar Years 1960 to 2010 (table).^[28] And between 1990 and 2010, federal spending increased to $269.5 billion. Ibid. Enlargement of the population and services covered by Medicaid, in short, has been the trend.

Compared to past alterations, the ACA is notable for the extent to which the Federal Government will pick up the tab. Medicaid's 2010 expansion is financed [2632] largely by federal outlays. In 2014, federal funds will cover 100% of the costs for newly eligible beneficiaries; that rate will gradually decrease before settling at 90% in 2020. 42 U.S.C. § 1396d(y) (2006 ed., Supp. IV). By comparison, federal contributions toward the care of beneficiaries eligible pre-ACA range from 50% to 83%, and averaged 57% between 2005 and 2008. § 1396d(b) (2006 ed., Supp. IV); Dept. of Health and Human Services, Centers for Medicare and Medicaid Services, C. Truffer et al., 2010 Actuarial Report on the Financial Outlook for Medicaid, p. 20.

Nor will the expansion exorbitantly increase state Medicaid spending. The Congressional Budget Office (CBO) projects that States will spend 0.8% more than they would have, absent the ACA. See CBO, Spending & Enrollment Detail for CBO's March 2009 Baseline. But see ante, at 2601 ("[T]he Act dramatically increases state obligations under Medicaid."); post, at 2666 (joint opinion of SCALIA, KENNEDY, THOMAS, and ALITO, JJ.) ("[A]cceptance of the [ACA expansion] will impose very substantial costs on participating States."). Whatever the increase in state obligations after the ACA, it will pale in comparison to the increase in federal funding.^[29]

Finally, any fair appraisal of Medicaid would require acknowledgment of the considerable autonomy States enjoy under the Act. Far from "conscript[ing] state agencies into the national bureaucratic army," ante, at 2607 (citing FERC v. Mississippi, 456 U.S. 742, 775, 102 S.Ct. 2126, 72 L.Ed.2d 532 (1982) (O'Connor, J., concurring in judgment in part and dissenting in part) (brackets in original and internal quotation marks omitted)), Medicaid "is designed to advance cooperative federalism." Wisconsin Dept. of Health and Family Servs. v. Blumer, 534 U.S. 473, 495, 122 S.Ct. 962, 151 L.Ed.2d 935 (2002) (citing Harris v. McRae, 448 U.S. 297, 308, 100 S.Ct. 2671, 65 L.Ed.2d 784 (1980)). Subject to its basic requirements, the Medicaid Act empowers States to "select dramatically different levels of funding and coverage, alter and experiment with different financing and delivery modes, and opt to cover (or not to cover) a range of particular procedures and therapies. States have leveraged this policy discretion to generate a myriad of dramatically different Medicaid programs over the past several decades." Ruger, Of Icebergs and Glaciers, 75 Law & Contemp. Probs. 215, 233 (2012) (footnote omitted). The ACA does not jettison this approach. States, as first-line administrators, will continue to guide the distribution of substantial resources among their needy populations.

The alternative to conditional federal spending, it bears emphasis, is not state autonomy but state marginalization.^[30] In 1965, Congress elected to nationalize health coverage for seniors through Medicare. [2633] It could similarly have established Medicaid as an exclusively federal program. Instead, Congress gave the States the opportunity to partner in the program's administration and development. Absent from the nationalized model, of course, is the state-level policy discretion and experimentation that is Medicaid's hallmark; undoubtedly the interests of federalism are better served when States retain a meaningful role in the implementation of a program of such importance. See Caminker, State Sovereignty and Subordinacy, 95 Colum. L. Rev. 1001, 1002-1003 (1995) (cooperative federalism can preserve "a significant role for state discretion in achieving specified federal goals, where the alternative is complete federal preemption of any state regulatory role"); Rose-Ackerman, Cooperative Federalism and Co-optation, 92 Yale L.J. 1344, 1346 (1983) ("If the federal government begins to take full responsibility for social welfare spending and preempts the states, the result is likely to be weaker ... state governments.").^[31]

Although Congress "has no obligation to use its Spending Clause power to disburse funds to the States," College Savings Bank v. Florida Prepaid Postsecondary Ed. Expense Bd., 527 U.S. 666, 686, 119 S.Ct. 2219, 144 L.Ed.2d 605 (1999), it has provided Medicaid grants notable for their generosity and flexibility. "[S]uch funds," we once observed, "are gifts," id., at 686-687, 119 S.Ct. 2219, and so they have remained through decades of expansion in their size and scope.

B

The Spending Clause authorizes Congress "to pay the Debts and provide for the ... general Welfare of the United States." Art. I, § 8, cl. 1. To ensure that federal funds granted to the States are spent "to `provide for the ... general Welfare' in the manner Congress intended," ante, at 2602, Congress must of course have authority to impose limitations on the States' use of the federal dollars. This Court, time and again, has respected Congress' prescription of spending conditions, and has required States to abide by them. See, e.g., Pennhurst, 451 U.S., at 17, 101 S.Ct. 1531 ("[O]ur cases have long recognized that Congress may fix the terms on which it shall disburse federal money to the States."). In particular, we have recognized Congress' prerogative to condition a State's receipt of Medicaid funding on compliance with the terms Congress set for participation in the program. See, e.g., Harris, 448 U.S., at 301, 100 S.Ct. 2671 ("[O]nce a State elects to participate [in Medicaid], it must comply with the requirements of [the Medicaid Act]."); Arkansas Dept. of Health and Human Servs. v. Ahlborn, 547 U.S. 268, 275, 126 S.Ct. 1752, 164 L.Ed.2d 459 (2006); Frew v. Hawkins, 540 U.S. 431, 433, 124 S.Ct. 899, 157 L.Ed.2d 855 (2004); Atkins v. Rivera, 477 U.S. 154, 156-157, 106 S.Ct. 2456, 91 L.Ed.2d 131 (1986).

Congress' authority to condition the use of federal funds is not confined to spending programs as first launched. The legislature may, and often does, amend the law, imposing new conditions grant recipients henceforth must meet in order to continue receiving funds. See infra, at 2638 (describing Bennett v. Kentucky Dept. of Ed., [2634] 470 U.S. 656, 659-660, 105 S.Ct. 1544, 84 L.Ed.2d 590 (1985) (enforcing restriction added five years after adoption of educational program)).

Yes, there are federalism-based limits on the use of Congress' conditional spending power. In the leading decision in this area, South Dakota v. Dole, 483 U.S. 203, 107 S.Ct. 2793, 97 L.Ed.2d 171 (1987), the Court identified four criteria. The conditions placed on federal grants to States must (a) promote the "general welfare," (b) "unambiguously" inform States what is demanded of them, (c) be germane "to the federal interest in particular national projects or programs," and (d) not "induce the States to engage in activities that would themselves be unconstitutional." Id., at 207-208, 210, 107 S.Ct. 2793 (internal quotation marks omitted).^[32]

The Court in Dole mentioned, but did not adopt, a further limitation, one hypothetically raised a half-century earlier: In "some circumstances," Congress might be prohibited from offering a "financial inducement... so coercive as to pass the point at which `pressure turns into compulsion.'" Id., at 211, 107 S.Ct. 2793 (quoting Steward Machine Co. v. Davis, 301 U.S. 548, 590, 57 S.Ct. 883, 81 L.Ed. 1279 (1937)). Prior to today's decision, however, the Court has never ruled that the terms of any grant crossed the indistinct line between temptation and coercion.

Dole involved the National Minimum Drinking Age Act, 23 U.S.C. § 158, enacted in 1984. That Act directed the Secretary of Transportation to withhold 5% of the federal highway funds otherwise payable to a State if the State permitted purchase of alcoholic beverages by persons less than 21 years old. Drinking age was not within the authority of Congress to regulate, South Dakota argued, because the Twenty-First Amendment gave the States exclusive power to control the manufacture, transportation, and consumption of alcoholic beverages. The small percentage of highway-construction funds South Dakota stood to lose by adhering to 19 as the age of eligibility to purchase 3.2% beer, however, was not enough to qualify as coercion, the Court concluded.

This case does not present the concerns that led the Court in Dole even to consider the prospect of coercion. In Dole, the condition — set 21 as the minimum drinking age — did not tell the States how to use funds Congress provided for highway construction. Further, in view of the Twenty-First Amendment, it was an open question whether Congress could directly impose a national minimum drinking age.

The ACA, in contrast, relates solely to the federally funded Medicaid program; if States choose not to comply, Congress has not threatened to withhold funds earmarked for any other program. Nor does the ACA use Medicaid funding to induce States to take action Congress itself could not undertake. The Federal Government undoubtedly could operate its own health-care program for poor persons, just as it operates Medicare for seniors' health care. See supra, at 2632.

That is what makes this such a simple case, and the Court's decision so unsettling. Congress, aiming to assist the needy, has appropriated federal money to subsidize state health-insurance programs that meet federal standards. The principal standard the ACA sets is that the state program cover adults earning no more [2635] than 133% of the federal poverty line. Enforcing that prescription ensures that federal funds will be spent on health care for the poor in furtherance of Congress' present perception of the general welfare.

C

THE CHIEF JUSTICE asserts that the Medicaid expansion creates a "new health care program." Ante, at 2606. Moreover, States could "hardly anticipate" that Congress would "transform [the program] so dramatically." Ante, at 2606. Therefore, THE CHIEF JUSTICE maintains, Congress' threat to withhold "old" Medicaid funds based on a State's refusal to participate in the "new" program is a "threa[t] to terminate [an]other ... independent gran[t]." Ante, at 2604, 2605-2606. And because the threat to withhold a large amount of funds from one program "leaves the States with no real option but to acquiesce [in a newly created program]," THE CHIEF JUSTICE concludes, the Medicaid expansion is unconstitutionally coercive. Ante, at 2605.

1

The starting premise on which THE CHIEF JUSTICE's coercion analysis rests is that the ACA did not really "extend" Medicaid; instead, Congress created an entirely new program to co-exist with the old. THE CHIEF JUSTICE calls the ACA new, but in truth, it simply reaches more of America's poor than Congress originally covered.

Medicaid was created to enable States to provide medical assistance to "needy persons." See S.Rep. No. 404, 89th Cong., 1st Sess., pt. 1, p. 9 (1965). See also § 121(a), 79 Stat. 343 (The purpose of Medicaid is to enable States "to furnish ... medical assistance on behalf of [certain persons] whose income and resources are insufficient to meet the costs of necessary medical services."). By bringing health care within the reach of a larger population of Americans unable to afford it, the Medicaid expansion is an extension of that basic aim.

The Medicaid Act contains hundreds of provisions governing operation of the program, setting conditions ranging from "Limitation on payments to States for expenditures attributable to taxes," 42 U.S.C. § 1396a(t) (2006 ed.), to "Medical assistance to aliens not lawfully admitted for permanent residence," § 1396b(v) (2006 ed. and Supp. IV). The Medicaid expansion leaves unchanged the vast majority of these provisions; it adds beneficiaries to the existing program and specifies the rate at which States will be reimbursed for services provided to the added beneficiaries. See ACA §§ 2001(a)(1), (3), 124 Stat. 271-272. The ACA does not describe operational aspects of the program for these newly eligible persons; for that information, one must read the existing Medicaid Act. See 42 U.S.C. §§ 1396-1396v(b) (2006 ed. and Supp. IV).

Congress styled and clearly viewed the Medicaid expansion as an amendment to the Medicaid Act, not as a "new" health-care program. To the four categories of beneficiaries for whom coverage became mandatory in 1965, and the three mandatory classes added in the late 1980's, see supra, at 2631-2632, the ACA adds an eighth: individuals under 65 with incomes not exceeding 133% of the federal poverty level. The expansion is effectuated by § 2001 of the ACA, aptly titled: "Medicaid Coverage for the Lowest Income Populations." 124 Stat. 271. That section amends Title 42, Chapter 7, Subchapter XIX: Grants to States for Medical Assistance Programs. Commonly known as the Medicaid Act, Subchapter XIX filled some 278 pages in 2006. Section 2001 of the [2636] ACA would add approximately three pages.^[33]

Congress has broad authority to construct or adjust spending programs to meet its contemporary understanding of "the general Welfare." Helvering v. Davis, 301 U.S. 619, 640-641, 57 S.Ct. 904, 81 L.Ed. 1307 (1937). Courts owe a large measure of respect to Congress' characterization of the grant programs it establishes. See Steward Machine, 301 U.S., at 594, 57 S.Ct. 883. Even if courts were inclined to second-guess Congress' conception of the character of its legislation, how would reviewing judges divine whether an Act of Congress, purporting to amend a law, is in reality not an amendment, but a new creation? At what point does an extension become so large that it "transforms" the basic law?

Endeavoring to show that Congress created a new program, THE CHIEF JUSTICE cites three aspects of the expansion. First, he asserts that, in covering those earning no more than 133% of the federal poverty line, the Medicaid expansion, unlike pre-ACA Medicaid, does not "care for the neediest among us." Ante, at 2606. What makes that so? Single adults earning no more than $14,856 per year — 133% of the current federal poverty level — surely rank among the Nation's poor.

Second, according to THE CHIEF JUSTICE, "Congress mandated that newly eligible persons receive a level of coverage that is less comprehensive than the traditional Medicaid benefit package." Ibid. That less comprehensive benefit package, however, is not an innovation introduced by the ACA; since 2006, States have been free to use it for many of their Medicaid beneficiaries.^[34] The level of benefits offered therefore does not set apart post-ACA Medicaid recipients from all those entitled to benefits pre-ACA.

Third, THE CHIEF JUSTICE correctly notes that the reimbursement rate for participating States is different regarding individuals who became Medicaid-eligible through the ACA. Ibid. But the rate differs only in its generosity to participating States. Under pre-ACA Medicaid, the Federal Government pays up to 83% of the costs of coverage for current enrollees, § 1396d(b) (2006 ed. and Supp. IV); under the ACA, the federal contribution starts at 100% and will eventually settle at 90%, § 1396d(y). Even if one agreed that a change of as little as 7 percentage points carries constitutional significance, is it not passing strange to suggest that the purported incursion on state sovereignty might have been averted, or at least mitigated, had Congress offered States less money to carry out the same obligations?

Consider also that Congress could have repealed Medicaid. See supra, at 2629-2630 (citing 42 U.S.C. § 1304); Brief for Petitioners in No. 11-400, p. 41. Thereafter, Congress could have enacted Medicaid II, a new program combining the pre-2010 coverage with the expanded coverage required by the ACA. By what right does a court stop Congress from building up without first tearing down?

2

THE CHIEF JUSTICE finds the Medicaid expansion vulnerable because it took [2637] participating States by surprise. Ante, at 2606. "A State could hardly anticipate that Congres[s]" would endeavor to "transform [the Medicaid program] so dramatically," he states. Ante, at 2606. For the notion that States must be able to foresee, when they sign up, alterations Congress might make later on, THE CHIEF JUSTICE cites only one case: Pennhurst State School and Hospital v. Halderman, 451 U.S. 1, 101 S.Ct. 1531, 67 L.Ed.2d 694.

In Pennhurst, residents of a state-run, federally funded institution for the mentally disabled complained of abusive treatment and inhumane conditions in alleged violation of the Developmentally Disabled Assistance and Bill of Rights Act. 451 U.S., at 5-6, 101 S.Ct. 1531. We held that the State was not answerable in damages for violating conditions it did not "voluntarily and knowingly accep[t]." Id., at 17, 27, 101 S.Ct. 1531. Inspecting the statutory language and legislative history, we found that the Act did not "unambiguously" impose the requirement on which the plaintiffs relied: that they receive appropriate treatment in the least restrictive environment. Id., at 17-18, 101 S.Ct. 1531. Satisfied that Congress had not clearly conditioned the States' receipt of federal funds on the States' provision of such treatment, we declined to read such a requirement into the Act. Congress' spending power, we concluded, "does not include surprising participating States with post-acceptance or `retroactive' conditions." Id., at 24-25, 101 S.Ct. 1531.

Pennhurst thus instructs that "if Congress intends to impose a condition on the grant of federal moneys, it must do so unambiguously." Ante, at 2605 (quoting Pennhurst, 451 U.S., at 17, 101 S.Ct. 1531). That requirement is met in this case. Section 2001 does not take effect until 2014. The ACA makes perfectly clear what will be required of States that accept Medicaid funding after that date: They must extend eligibility to adults with incomes no more than 133% of the federal poverty line. See 42 U.S.C. § 1396a(a)(10)(A)(i)(VIII) (2006 ed. and Supp. IV).

THE CHIEF JUSTICE appears to find in Pennhurst a requirement that, when spending legislation is first passed, or when States first enlist in the federal program, Congress must provide clear notice of conditions it might later impose. If I understand his point correctly, it was incumbent on Congress, in 1965, to warn the States clearly of the size and shape potential changes to Medicaid might take. And absent such notice, sizable changes could not be made mandatory. Our decisions do not support such a requirement.^[35]

In Bennett v. New Jersey, 470 U.S. 632, 105 S.Ct. 1555, 84 L.Ed.2d 572 (1985), the Secretary of Education sought to recoup Title I funds^[36] based on the State's noncompliance, from 1970 to 1972, with a 1978 amendment to Title I. Relying on Pennhurst, [2638] we rejected the Secretary's attempt to recover funds based on the States' alleged violation of a rule that did not exist when the State accepted and spent the funds. See 470 U.S., at 640, 105 S.Ct. 1555 ("New Jersey[,] when it applied for and received Title I funds for the years 1970-1972[,] had no basis to believe that the propriety of the expenditures would be judged by any standards other than the ones in effect at the time." (citing Pennhurst, 451 U.S., at 17, 24-25, 101 S.Ct. 1531; emphasis added)).

When amendment of an existing grant program has no such retroactive effect, however, we have upheld Congress' instruction. In Bennett v. Kentucky Dept. of Ed., 470 U.S. 656, 105 S.Ct. 1544, 84 L.Ed.2d 590 (1985), the Secretary sued to recapture Title I funds based on the Commonwealth's 1974 violation of a spending condition Congress added to Title I in 1970. Rejecting Kentucky's argument pinned to Pennhurst, we held that the Commonwealth suffered no surprise after accepting the federal funds. Kentucky was therefore obliged to return the money. 470 U.S., at 665-666, 673-674, 105 S.Ct. 1544. The conditions imposed were to be assessed as of 1974, in light of "the legal requirements in place when the grants were made," id., at 670, 105 S.Ct. 1544, not as of 1965, when Title I was originally enacted.

As these decisions show, Pennhurst's rule demands that conditions on federal funds be unambiguously clear at the time a State receives and uses the money — not at the time, perhaps years earlier, when Congress passed the law establishing the program. See also Dole, 483 U.S., at 208, 107 S.Ct. 2793 (finding Pennhurst satisfied based on the clarity of the Federal Aid Highway Act as amended in 1984, without looking back to 1956, the year of the Act's adoption).

In any event, from the start, the Medicaid Act put States on notice that the program could be changed: "The right to alter, amend, or repeal any provision of [Medicaid]," the statute has read since 1965, "is hereby reserved to the Congress." 42 U.S.C. § 1304. The "effect of these few simple words" has long been settled. See National Railroad Passenger Corporation v. Atchison, T. & S.F.R. Co., 470 U.S. 451, 467-468, n. 22, 105 S.Ct. 1441, 84 L.Ed.2d 432 (1985) (citing Sinking Fund Cases, 99 U.S. 700, 720, 25 L.Ed. 496 (1879)). By reserving the right to "alter, amend, [or] repeal" a spending program, Congress "has given special notice of its intention to retain ... full and complete power to make such alterations and amendments ... as come within the just scope of legislative power." Id., at 720.

Our decision in Bowen v. Public Agencies Opposed to Social Security Entrapment, 477 U.S. 41, 51-52, 106 S.Ct. 2390, 91 L.Ed.2d 35 (1986), is guiding here. As enacted in 1935, the Social Security Act did not cover state employees. Id., at 44, 106 S.Ct. 2390. In response to pressure from States that wanted coverage for their employees, Congress, in 1950, amended the Act to allow States to opt into the program. Id., at 45, 106 S.Ct. 2390. The statutory provision giving States this option expressly permitted them to withdraw from the program. Ibid.

Beginning in the late 1970's, States increasingly exercised the option to withdraw. Id., at 46, 106 S.Ct. 2390. Concerned that withdrawals were threatening the integrity of Social Security, Congress repealed the termination provision. Congress thereby changed Social Security from a program voluntary for the States to one from which they could not escape. Id., at 48, 106 S.Ct. 2390. California objected, arguing that the change impermissibly deprived it of a right to withdraw [2639] from Social Security. Id., at 49-50, 106 S.Ct. 2390. We unanimously rejected California's argument. Id., at 51-53, 106 S.Ct. 2390. By including in the Act "a clause expressly reserving to it `[t]he right to alter, amend, or repeal any provision' of the Act," we held, Congress put States on notice that the Act "created no contractual rights." Id., at 51-52, 106 S.Ct. 2390. The States therefore had no law-based ground on which to complain about the amendment, despite the significant character of the change.

THE CHIEF JUSTICE nevertheless would rewrite § 1304 to countenance only the "right to alter somewhat," or "amend, but not too much." Congress, however, did not so qualify § 1304. Indeed, Congress retained discretion to "repeal" Medicaid, wiping it out entirely. Cf. Delta Air Lines, Inc. v. August, 450 U.S. 346, 368, 101 S.Ct. 1146, 67 L.Ed.2d 287 (1981) (Rehnquist, J., dissenting) (invoking "the common-sense maxim that the greater includes the lesser"). As Bowen indicates, no State could reasonably have read § 1304 as reserving to Congress authority to make adjustments only if modestly sized.

In fact, no State proceeded on that understanding. In compliance with Medicaid regulations, each State expressly undertook to abide by future Medicaid changes. See 42 CFR § 430.12(c)(1) (2011) ("The [state Medicaid] plan must provide that it will be amended whenever necessary to reflect ... [c]hanges in Federal law, regulations, policy interpretations, or court decisions."). Whenever a State notifies the Federal Government of a change in its own Medicaid program, the State certifies both that it knows the federally set terms of participation may change, and that it will abide by those changes as a condition of continued participation. See, e.g., Florida Agency for Health Care Admin., State Plan Under Title XIX of the Social Security Act Medical Assistance Program § 7.1, p. 86 (Oct. 6, 1992).

THE CHIEF JUSTICE insists that the most recent expansion, in contrast to its predecessors, "accomplishes a shift in kind, not merely degree." Ante, at 2605. But why was Medicaid altered only in degree, not in kind, when Congress required States to cover millions of children and pregnant women? See supra, at 2631-2632. Congress did not "merely alte[r] and expan[d] the boundaries of" the Aid to Families with Dependent Children program. But see ante, at 2605-2607. Rather, Congress required participating States to provide coverage tied to the federal poverty level (as it later did in the ACA), rather than to the AFDC program. See Brief for National Health Law Program et al. as Amici Curiae 16-18. In short, given § 1304, this Court's construction of § 1304's language in Bowen, and the enlargement of Medicaid in the years since 1965,^[37] a State would be hard put to complain that it lacked fair notice when, in 2010, Congress altered Medicaid to embrace a larger portion of the Nation's poor.

3

THE CHIEF JUSTICE ultimately asks whether "the financial inducement offered by Congress ... pass[ed] the point at which pressure turns into compulsion." Ante, at 2604 (internal quotation marks omitted). The financial inducement Congress employed here, he concludes, crosses [2640] that threshold: The threatened withholding of "existing Medicaid funds" is "a gun to the head" that forces States to acquiesce. Ante, at 2604 (citing 42 U.S.C. § 1396c).^[38]

THE CHIEF JUSTICE sees no need to "fix the outermost line," Steward Machine, 301 U.S., at 591, 57 S.Ct. 883, "where persuasion gives way to coercion," ante, at 2606. Neither do the joint dissenters. See post, at 2661, 2662.^[39] Notably, the decision on which they rely, Steward Machine, found the statute at issue inside the line, "wherever the line may be." 301 U.S., at 591, 57 S.Ct. 883.

When future Spending Clause challenges arrive, as they likely will in the wake of today's decision, how will litigants and judges assess whether "a State has a legitimate choice whether to accept the federal conditions in exchange for federal funds"? Ante, at 2602. Are courts to measure the number of dollars the Federal Government might withhold for noncompliance? The portion of the State's budget at stake? And which State's — or States' — budget is determinative: the lead plaintiff, all challenging States (26 in this case, many with quite different fiscal situations), or some national median? Does it matter that Florida, unlike most States, imposes no state income tax, and therefore might be able to replace foregone federal funds with new state revenue?^[40] Or that the [2641] coercion state officials in fact fear is punishment at the ballot box for turning down a politically popular federal grant?

The coercion inquiry, therefore, appears to involve political judgments that defy judicial calculation. See Baker v. Carr, 369 U.S. 186, 217, 82 S.Ct. 691, 7 L.Ed.2d 663 (1962). Even commentators sympathetic to robust enforcement of Dole's limitations, see supra, at 2633, have concluded that conceptions of "impermissible coercion" premised on States' perceived inability to decline federal funds "are just too amorphous to be judicially administrable." Baker & Berman, Getting off the Dole, 78 Ind. L.J. 459, 521, 522, n. 307 (2003) (citing, e.g., Scalia, The Rule of Law as a Law of Rules, 56 U. Chi. L. Rev. 1175 (1989)).

At bottom, my colleagues' position is that the States' reliance on federal funds limits Congress' authority to alter its spending programs. This gets things backwards: Congress, not the States, is tasked with spending federal money in service of the general welfare. And each successive Congress is empowered to appropriate funds as it sees fit. When the 110th Congress reached a conclusion about Medicaid funds that differed from its predecessors' view, it abridged no State's right to "existing," or "pre-existing," funds. But see ante, at 2604-2605; post, at 2667-2668 (joint opinion of SCALIA, KENNEDY, THOMAS, and ALITO, JJ.). For, in fact, there are no such funds. There is only money States anticipate receiving from future Congresses.

D

Congress has delegated to the Secretary of Health and Human Services the authority to withhold, in whole or in part, federal Medicaid funds from States that fail to comply with the Medicaid Act as originally composed and as subsequently amended. 42 U.S.C. § 1396c.^[41] THE CHIEF JUSTICE, however, holds that the Constitution precludes the Secretary from withholding "existing" Medicaid funds based on [2642] States' refusal to comply with the expanded Medicaid program. Ante, at 2606. For the foregoing reasons, I disagree that any such withholding would violate the Spending Clause. Accordingly, I would affirm the decision of the Court of Appeals for the Eleventh Circuit in this regard.

But in view of THE CHIEF JUSTICE's disposition, I agree with him that the Medicaid Act's severability clause determines the appropriate remedy. That clause provides that "[i]f any provision of [the Medicaid Act], or the application thereof to any person or circumstance, is held invalid, the remainder of the chapter, and the application of such provision to other persons or circumstances shall not be affected thereby." 42 U.S.C. § 1303.

The Court does not strike down any provision of the ACA. It prohibits only the "application" of the Secretary's authority to withhold Medicaid funds from States that decline to conform their Medicaid plans to the ACA's requirements. Thus the ACA's authorization of funds to finance the expansion remains intact, and the Secretary's authority to withhold funds for reasons other than noncompliance with the expansion remains unaffected.

Even absent § 1303's command, we would have no warrant to invalidate the Medicaid expansion, contra post, at 2666-2668 (joint opinion of SCALIA, KENNEDY, THOMAS, and ALITO, JJ.), not to mention the entire ACA, post, at 2668-2676 (same). For when a court confronts an unconstitutional statute, its endeavor must be to conserve, not destroy, the legislature's dominant objective. See, e.g., Ayotte v. Planned Parenthood of Northern New Eng., 546 U.S. 320, 328-330, 126 S.Ct. 961, 163 L.Ed.2d 812 (2006). In this case, that objective was to increase access to health care for the poor by increasing the States' access to federal funds. THE CHIEF JUSTICE is undoubtedly right to conclude that Congress may offer States funds "to expand the availability of health care, and requir[e] that States accepting such funds comply with the conditions on their use." Ante, at 2607. I therefore concur in the judgment with respect to Part IV-B of THE CHIEF JUSTICE's opinion.

* * *

For the reasons stated, I agree with THE CHIEF JUSTICE that, as to the validity of the minimum coverage provision, the judgment of the Court of Appeals for the Eleventh Circuit should be reversed. In my view, the provision encounters no constitutional obstruction. Further, I would uphold the Eleventh Circuit's decision that the Medicaid expansion is within Congress' spending power.

Justice SCALIA, Justice KENNEDY, Justice THOMAS, and Justice ALITO, dissenting.

Congress has set out to remedy the problem that the best health care is beyond the reach of many Americans who cannot afford it. It can assuredly do that, by exercising the powers accorded to it under the Constitution. The question in this case, however, is whether the complex structures and provisions of the Patient Protection and Affordable Care Act (Affordable Care Act or ACA) go beyond those powers. We conclude that they do.

This case is in one respect difficult: it presents two questions of first impression. The first of those is whether failure to engage in economic activity (the purchase of health insurance) is subject to regulation under the Commerce Clause. Failure to act does result in an effect on commerce, and hence might be said to come under this Court's "affecting commerce" criterion of Commerce Clause jurisprudence. But in none of its decisions has this Court extended the Clause that far. [2643] The second question is whether the congressional power to tax and spend, U.S. Const., Art. I, § 8, cl. 1, permits the conditioning of a State's continued receipt of all funds under a massive state-administered federal welfare program upon its acceptance of an expansion to that program. Several of our opinions have suggested that the power to tax and spend cannot be used to coerce state administration of a federal program, but we have never found a law enacted under the spending power to be coercive. Those questions are difficult.

The case is easy and straightforward, however, in another respect. What is absolutely clear, affirmed by the text of the 1789 Constitution, by the Tenth Amendment ratified in 1791, and by innumerable cases of ours in the 220 years since, is that there are structural limits upon federal power — upon what it can prescribe with respect to private conduct, and upon what it can impose upon the sovereign States. Whatever may be the conceptual limits upon the Commerce Clause and upon the power to tax and spend, they cannot be such as will enable the Federal Government to regulate all private conduct and to compel the States to function as administrators of federal programs.

That clear principle carries the day here. The striking case of Wickard v. Filburn, 317 U.S. 111, 63 S.Ct. 82, 87 L.Ed. 122 (1942), which held that the economic activity of growing wheat, even for one's own consumption, affected commerce sufficiently that it could be regulated, always has been regarded as the ne plus ultra of expansive Commerce Clause jurisprudence. To go beyond that, and to say the failure to grow wheat (which is not an economic activity, or any activity at all) nonetheless affects commerce and therefore can be federally regulated, is to make mere breathing in and out the basis for federal prescription and to extend federal power to virtually all human activity.

As for the constitutional power to tax and spend for the general welfare: The Court has long since expanded that beyond (what Madison thought it meant) taxing and spending for those aspects of the general welfare that were within the Federal Government's enumerated powers, see United States v. Butler, 297 U.S. 1, 65-66, 56 S.Ct. 312, 80 L.Ed. 477 (1936). Thus, we now have sizable federal Departments devoted to subjects not mentioned among Congress' enumerated powers, and only marginally related to commerce: the Department of Education, the Department of Health and Human Services, the Department of Housing and Urban Development. The principal practical obstacle that prevents Congress from using the tax-and-spend power to assume all the general-welfare responsibilities traditionally exercised by the States is the sheer impossibility of managing a Federal Government large enough to administer such a system. That obstacle can be overcome by granting funds to the States, allowing them to administer the program. That is fair and constitutional enough when the States freely agree to have their powers employed and their employees enlisted in the federal scheme. But it is a blatant violation of the constitutional structure when the States have no choice.

The Act before us here exceeds federal power both in mandating the purchase of health insurance and in denying nonconsenting States all Medicaid funding. These parts of the Act are central to its design and operation, and all the Act's other provisions would not have been enacted without them. In our view it must follow that the entire statute is inoperative.

[2644] I

The Individual Mandate

Article I, § 8, of the Constitution gives Congress the power to "regulate Commerce... among the several States." The Individual Mandate in the Act commands that every "applicable individual shall for each month beginning after 2013 ensure that the individual, and any dependent of the individual who is an applicable individual, is covered under minimum essential coverage." 26 U.S.C. § 5000A(a) (2006 ed., Supp. IV). If this provision "regulates" anything, it is the failure to maintain minimum essential coverage. One might argue that it regulates that failure by requiring it to be accompanied by payment of a penalty. But that failure — that abstention from commerce — is not "Commerce." To be sure, purchasing insurance is "Commerce"; but one does not regulate commerce that does not exist by compelling its existence.

In Gibbons v. Ogden, 9 Wheat. 1, 196, 6 L.Ed. 23 (1824), Chief Justice Marshall wrote that the power to regulate commerce is the power "to prescribe the rule by which commerce is to be governed." That understanding is consistent with the original meaning of "regulate" at the time of the Constitution's ratification, when "to regulate" meant "[t]o adjust by rule, method or established mode," 2 N. Webster, An American Dictionary of the English Language (1828); "[t]o adjust by rule or method," 2 S. Johnson, A Dictionary of the English Language (7th ed. 1785); "[t]o adjust, to direct according to rule," 2 J. Ash, New and Complete Dictionary of the English Language (1775); "to put in order, set to rights, govern or keep in order," T. Dyche & W. Pardon, A New General English Dictionary (16th ed. 1777).^[42] It can mean to direct the manner of something but not to direct that something come into being. There is no instance in which this Court or Congress (or anyone else, to our knowledge) has used "regulate" in that peculiar fashion. If the word bore that meaning, Congress' authority "[t]o make Rules for the Government and Regulation of the land and naval Forces," U.S. Const., Art. I, § 8, cl. 14, would have made superfluous the later provision for authority "[t]o raise and support Armies," id., § 8, cl. 12, and "[t]o provide and maintain a Navy," id., § 8, cl. 13.

We do not doubt that the buying and selling of health insurance contracts is commerce generally subject to federal regulation. But when Congress provides that (nearly) all citizens must buy an insurance contract, it goes beyond "adjust[ing] by rule or method," Johnson, supra, or "direct[ing] according to rule," Ash, supra; it directs the creation of commerce.

In response, the Government offers two theories as to why the Individual Mandate is nevertheless constitutional. Neither theory suffices to sustain its validity.

A

First, the Government submits that § 5000A is "integral to the Affordable Care Act's insurance reforms" and "necessary to make effective the Act's core reforms." Brief for Petitioners in No. 11-398 (Minimum Coverage Provision) 24 (hereinafter Petitioners' Minimum Coverage Brief). Congress included a "finding" to similar effect in the Act itself. See 42 U.S.C. § 18091(2)(H).

[2645] As discussed in more detail in Part V, infra, the Act contains numerous health insurance reforms, but most notable for present purposes are the "guaranteed issue" and "community rating" provisions, §§ 300gg to 300gg-4. The former provides that, with a few exceptions, "each health insurance issuer that offers health insurance coverage in the individual or group market in a State must accept every employer and individual in the State that applies for such coverage." § 300gg-1(a). That is, an insurer may not deny coverage on the basis of, among other things, any pre-existing medical condition that the applicant may have, and the resulting insurance must cover that condition. See § 300gg-3.

Under ordinary circumstances, of course, insurers would respond by charging high premiums to individuals with pre-existing conditions. The Act seeks to prevent this through the community-rating provision. Simply put, the community-rating provision requires insurers to calculate an individual's insurance premium based on only four factors: (i) whether the individual's plan covers just the individual or his family also, (ii) the "rating area" in which the individual lives, (iii) the individual's age, and (iv) whether the individual uses tobacco. § 300gg(a)(1)(A). Aside from the rough proxies of age and tobacco use (and possibly rating area), the Act does not allow an insurer to factor the individual's health characteristics into the price of his insurance premium. This creates a new incentive for young and healthy individuals without pre-existing conditions. The insurance premiums for those in this group will not reflect their own low actuarial risks but will subsidize insurance for others in the pool. Many of them may decide that purchasing health insurance is not an economically sound decision — especially since the guaranteed-issue provision will enable them to purchase it at the same cost in later years and even if they have developed a pre-existing condition. But without the contribution of above-risk premiums from the young and healthy, the community-rating provision will not enable insurers to take on high-risk individuals without a massive increase in premiums.

The Government presents the Individual Mandate as a unique feature of a complicated regulatory scheme governing many parties with countervailing incentives that must be carefully balanced. Congress has imposed an extensive set of regulations on the health insurance industry, and compliance with those regulations will likely cost the industry a great deal. If the industry does not respond by increasing premiums, it is not likely to survive. And if the industry does increase premiums, then there is a serious risk that its products — insurance plans — will become economically undesirable for many and prohibitively expensive for the rest.

This is not a dilemma unique to regulation of the health-insurance industry. Government regulation typically imposes costs on the regulated industry — especially regulation that prohibits economic behavior in which most market participants are already engaging, such as "piecing out" the market by selling the product to different classes of people at different prices (in the present context, providing much lower insurance rates to young and healthy buyers). And many industries so regulated face the reality that, without an artificial increase in demand, they cannot continue on. When Congress is regulating these industries directly, it enjoys the broad power to enact "`all appropriate legislation'" to "`protec[t]'" and "`advanc[e]'" commerce, NLRB v. Jones & Laughlin Steel Corp., 301 U.S. 1, 36-37, 57 S.Ct. 615, 81 L.Ed. 893 (1937) (quoting The Daniel Ball, 10 Wall. 557, 564, 19 L.Ed. 999 (1871)). Thus, Congress might protect the [2646] imperiled industry by prohibiting low-cost competition, or by according it preferential tax treatment, or even by granting it a direct subsidy.

Here, however, Congress has impressed into service third parties, healthy individuals who could be but are not customers of the relevant industry, to offset the undesirable consequences of the regulation. Congress' desire to force these individuals to purchase insurance is motivated by the fact that they are further removed from the market than unhealthy individuals with pre-existing conditions, because they are less likely to need extensive care in the near future. If Congress can reach out and command even those furthest removed from an interstate market to participate in the market, then the Commerce Clause becomes a font of unlimited power, or in Hamilton's words, "the hideous monster whose devouring jaws ... spare neither sex nor age, nor high nor low, nor sacred nor profane." The Federalist No. 33, p. 202 (C. Rossiter ed. 1961).

At the outer edge of the commerce power, this Court has insisted on careful scrutiny of regulations that do not act directly on an interstate market or its participants. In New York v. United States, 505 U.S. 144, 112 S.Ct. 2408, 120 L.Ed.2d 120 (1992), we held that Congress could not, in an effort to regulate the disposal of radioactive waste produced in several different industries, order the States to take title to that waste. Id., at 174-177, 112 S.Ct. 2408. In Printz v. United States, 521 U.S. 898, 117 S.Ct. 2365, 138 L.Ed.2d 914 (1997), we held that Congress could not, in an effort to regulate the distribution of firearms in the interstate market, compel state law-enforcement officials to perform background checks. Id., at 933-935, 117 S.Ct. 2365. In United States v. Lopez, 514 U.S. 549, 115 S.Ct. 1624, 131 L.Ed.2d 626 (1995), we held that Congress could not, as a means of fostering an educated interstate labor market through the protection of schools, ban the possession of a firearm within a school zone. Id., at 559-563, 115 S.Ct. 1624. And in United States v. Morrison, 529 U.S. 598, 120 S.Ct. 1740, 146 L.Ed.2d 658 (2000), we held that Congress could not, in an effort to ensure the full participation of women in the interstate economy, subject private individuals and companies to suit for gender-motivated violent torts. Id., at 609-619, 120 S.Ct. 1740. The lesson of these cases is that the Commerce Clause, even when supplemented by the Necessary and Proper Clause, is not carte blanche for doing whatever will help achieve the ends Congress seeks by the regulation of commerce. And the last two of these cases show that the scope of the Necessary and Proper Clause is exceeded not only when the congressional action directly violates the sovereignty of the States but also when it violates the background principle of enumerated (and hence limited) federal power.

The case upon which the Government principally relies to sustain the Individual Mandate under the Necessary and Proper Clause is Gonzales v. Raich, 545 U.S. 1, 125 S.Ct. 2195, 162 L.Ed.2d 1 (2005). That case held that Congress could, in an effort to restrain the interstate market in marijuana, ban the local cultivation and possession of that drug. Id., at 15-22, 125 S.Ct. 2195. Raich is no precedent for what Congress has done here. That case's prohibition of growing (cf. Wickard, 317 U.S. 111, 63 S.Ct. 82, 87 L.Ed. 122), and of possession (cf. innumerable federal statutes) did not represent the expansion of the federal power to direct into a broad new field. The mandating of economic activity does, and since it is a field so limitless that it converts the Commerce Clause into a general authority to direct the economy, that mandating is not "consist[ent] with the letter and spirit of the [2647] constitution." McCulloch v. Maryland, 4 Wheat. 316, 421, 4 L.Ed. 579 (1819).

Moreover, Raich is far different from the Individual Mandate in another respect. The Court's opinion in Raich pointed out that the growing and possession prohibitions were the only practicable way of enabling the prohibition of interstate traffic in marijuana to be effectively enforced. 545 U.S., at 22, 125 S.Ct. 2195. See also Shreveport Rate Cases, 234 U.S. 342, 34 S.Ct. 833, 58 L.Ed. 1341 (1914) (Necessary and Proper Clause allows regulations of intrastate transactions if necessary to the regulation of an interstate market). Intrastate marijuana could no more be distinguished from interstate marijuana than, for example, endangered-species trophies obtained before the species was federally protected can be distinguished from trophies obtained afterwards — which made it necessary and proper to prohibit the sale of all such trophies, see Andrus v. Allard, 444 U.S. 51, 100 S.Ct. 318, 62 L.Ed.2d 210 (1979).

With the present statute, by contrast, there are many ways other than this unprecedented Individual Mandate by which the regulatory scheme's goals of reducing insurance premiums and ensuring the profitability of insurers could be achieved. For instance, those who did not purchase insurance could be subjected to a surcharge when they do enter the health insurance system. Or they could be denied a full income tax credit given to those who do purchase the insurance.

The Government was invited, at oral argument, to suggest what federal controls over private conduct (other than those explicitly prohibited by the Bill of Rights or other constitutional controls) could not be justified as necessary and proper for the carrying out of a general regulatory scheme. See Tr. of Oral Arg. 27-30, 43-45 (Mar. 27, 2012). It was unable to name any. As we said at the outset, whereas the precise scope of the Commerce Clause and the Necessary and Proper Clause is uncertain, the proposition that the Federal Government cannot do everything is a fundamental precept. See Lopez, 514 U.S., at 564, 115 S.Ct. 1624 ("[I]f we were to accept the Government's arguments, we are hard pressed to posit any activity by an individual that Congress is without power to regulate"). Section 5000A is defeated by that proposition.

B

The Government's second theory in support of the Individual Mandate is that § 5000A is valid because it is actually a "regulat[ion of] activities having a substantial relation to interstate commerce, ... i.e., ... activities that substantially affect interstate commerce." Id., at 558-559, 115 S.Ct. 1624. See also Shreveport Rate Cases, supra. This argument takes a few different forms, but the basic idea is that § 5000A regulates "the way in which individuals finance their participation in the health-care market." Petitioners' Minimum Coverage Brief 33 (emphasis added). That is, the provision directs the manner in which individuals purchase health care services and related goods (directing that they be purchased through insurance) and is therefore a straightforward exercise of the commerce power.

The primary problem with this argument is that § 5000A does not apply only to persons who purchase all, or most, or even any, of the health care services or goods that the mandated insurance covers. Indeed, the main objection many have to the Mandate is that they have no intention of purchasing most or even any of such goods or services and thus no need to buy insurance for those purchases. The Government responds that the health-care market involves "essentially universal participation," [2648] id., at 35. The principal difficulty with this response is that it is, in the only relevant sense, not true. It is true enough that everyone consumes "health care," if the term is taken to include the purchase of a bottle of aspirin. But the health care "market" that is the object of the Individual Mandate not only includes but principally consists of goods and services that the young people primarily affected by the Mandate do not purchase. They are quite simply not participants in that market, and cannot be made so (and thereby subjected to regulation) by the simple device of defining participants to include all those who will, later in their lifetime, probably purchase the goods or services covered by the mandated insurance.^[43] Such a definition of market participants is unprecedented, and were it to be a premise for the exercise of national power, it would have no principled limits.

In a variation on this attempted exercise of federal power, the Government points out that Congress in this Act has purported to regulate "economic and financial decision[s] to forego [sic] health insurance coverage and [to] attempt to self-insure," 42 U.S.C. § 18091(2)(A), since those decisions have "a substantial and deleterious effect on interstate commerce," Petitioners' Minimum Coverage Brief 34. But as the discussion above makes clear, the decision to forgo participation in an interstate market is not itself commercial activity (or indeed any activity at all) within Congress' power to regulate. It is true that, at the end of the day, it is inevitable that each American will affect commerce and become a part of it, even if not by choice. But if every person comes within the Commerce Clause power of Congress to regulate by the simple reason that he will one day engage in commerce, the idea of a limited Government power is at an end.

Wickard v. Filburn has been regarded as the most expansive assertion of the commerce power in our history. A close second is Perez v. United States, 402 U.S. 146, 91 S.Ct. 1357, 28 L.Ed.2d 686 (1971), which upheld a statute criminalizing the eminently local activity of loan-sharking. Both of those cases, however, involved commercial activity. To go beyond that, and to say that the failure to grow wheat or the refusal to make loans affects commerce, so that growing and lending can be federally compelled, is to extend federal power to virtually everything. All of us consume food, and when we do so the Federal Government can prescribe what its quality must be and even how much we must pay. But the mere fact that we all consume food and are thus, sooner or later, participants in the "market" for food, does not empower the Government to say when and what we will buy. That is essentially what this Act seeks to do with respect to the purchase of health care. It exceeds federal power.

C

A few respectful responses to Justice GINSBURG's dissent on the issue of the Mandate are in order. That dissent duly [2649] recites the test of Commerce Clause power that our opinions have applied, but disregards the premise the test contains. It is true enough that Congress needs only a "`rational basis' for concluding that the regulated activity substantially affects interstate commerce," ante, at 2616 (emphasis added). But it must be activity affecting commerce that is regulated, and not merely the failure to engage in commerce. And one is not now purchasing the health care covered by the insurance mandate simply because one is likely to be purchasing it in the future. Our test's premise of regulated activity is not invented out of whole cloth, but rests upon the Constitution's requirement that it be commerce which is regulated. If all inactivity affecting commerce is commerce, commerce is everything. Ultimately the dissent is driven to saying that there is really no difference between action and inaction, ante, at 2622, a proposition that has never recommended itself, neither to the law nor to common sense. To say, for example, that the inaction here consists of activity in "the self-insurance market," ibid., seems to us wordplay. By parity of reasoning the failure to buy a car can be called participation in the non-private-car-transportation market. Commerce becomes everything.

The dissent claims that we "fai[l] to explain why the individual mandate threatens our constitutional order." Ante, at 2627. But we have done so. It threatens that order because it gives such an expansive meaning to the Commerce Clause that all private conduct (including failure to act) becomes subject to federal control, effectively destroying the Constitution's division of governmental powers. Thus the dissent, on the theories proposed for the validity of the Mandate, would alter the accepted constitutional relation between the individual and the National Government. The dissent protests that the Necessary and Proper Clause has been held to include "the power to enact criminal laws,... the power to imprison, ... and the power to create a national bank," ante, at 2627. Is not the power to compel purchase of health insurance much lesser? No, not if (unlike those other dispositions) its application rests upon a theory that everything is within federal control simply because it exists.

The dissent's exposition of the wonderful things the Federal Government has achieved through exercise of its assigned powers, such as "the provision of old-age and survivors' benefits" in the Social Security Act, ante, at 2609, is quite beside the point. The issue here is whether the federal government can impose the Individual Mandate through the Commerce Clause. And the relevant history is not that Congress has achieved wide and wonderful results through the proper exercise of its assigned powers in the past, but that it has never before used the Commerce Clause to compel entry into commerce.^[44] The dissent [2650] treats the Constitution as though it is an enumeration of those problems that the Federal Government can address — among which, it finds, is "the Nation's course in the economic and social welfare realm," ibid., and more specifically "the problem of the uninsured," ante, at 2612. The Constitution is not that. It enumerates not federally soluble problems, but federally available powers. The Federal Government can address whatever problems it wants but can bring to their solution only those powers that the Constitution confers, among which is the power to regulate commerce. None of our cases say anything else. Article I contains no whatever-it-takes-to-solve-a-national-problem power.

The dissent dismisses the conclusion that the power to compel entry into the health-insurance market would include the power to compel entry into the new-car or broccoli markets. The latter purchasers, it says, "will be obliged to pay at the counter before receiving the vehicle or nourishment," whereas those refusing to purchase health-insurance will ultimately get treated anyway, at others' expense. Ante, at 2619. "[T]he unique attributes of the health-care market ... give rise to a significant free-riding problem that does not occur in other markets." Ante, at 2623. And "a vegetable-purchase mandate" (or a car-purchase mandate) is not "likely to have a substantial effect on the health-care costs" borne by other Americans. Ante, at 2624. Those differences make a very good argument by the dissent's own lights, since they show that the failure to purchase health insurance, unlike the failure to purchase cars or broccoli, creates a national, social-welfare problem that is (in the dissent's view) included among the unenumerated "problems" that the Constitution authorizes the Federal Government to solve. But those differences do not show that the failure to enter the health-insurance market, unlike the failure to buy cars and broccoli, is an activity that Congress can "regulate." (Of course one day the failure of some of the public to purchase American cars may endanger the existence of domestic automobile manufacturers; or the failure of some to eat broccoli may be found to deprive them of a newly discovered cancer-fighting chemical which only that food contains, producing health-care costs that are a burden on the rest of us — in which case, under the theory of Justice GINSBURG's dissent, moving against those inactivities will also come within the Federal Government's unenumerated problem-solving powers.)

II

The Taxing Power

As far as § 5000A is concerned, we would stop there. Congress has attempted to regulate beyond the scope of its Commerce Clause authority,^[45] and § 5000A is therefore invalid. The Government contends, however, as expressed in the caption to Part II of its brief, that "THE MINIMUM COVERAGE PROVISION IS INDEPENDENTLY AUTHORIZED BY CONGRESS'S TAXING POWER." Petitioners' Minimum Coverage Brief 52. The phrase "independently authorized" suggests the existence of a creature never hitherto seen in the United States Reports: [2651] A penalty for constitutional purposes that is also a tax for constitutional purposes. In all our cases the two are mutually exclusive. The provision challenged under the Constitution is either a penalty or else a tax. Of course in many cases what was a regulatory mandate enforced by a penalty could have been imposed as a tax upon permissible action; or what was imposed as a tax upon permissible action could have been a regulatory mandate enforced by a penalty. But we know of no case, and the Government cites none, in which the imposition was, for constitutional purposes, both.^[46] The two are mutually exclusive. Thus, what the Government's caption should have read was "ALTERNATIVELY, THE MINIMUM COVERAGE PROVISION IS NOT A MANDATE-WITH-PENALTY BUT A TAX." It is important to bear this in mind in evaluating the tax argument of the Government and of those who support it: The issue is not whether Congress had the power to frame the minimum-coverage provision as a tax, but whether it did so.

In answering that question we must, if "fairly possible," Crowell v. Benson, 285 U.S. 22, 62, 52 S.Ct. 285, 76 L.Ed. 598 (1932), construe the provision to be a tax rather than a mandate-with-penalty, since that would render it constitutional rather than unconstitutional (ut res magis valeat quam pereat). But we cannot rewrite the statute to be what it is not. "`"[A]lthough this Court will often strain to construe legislation so as to save it against constitutional attack, it must not and will not carry this to the point of perverting the purpose of a statute ..." or judicially rewriting it.'" Commodity Futures Trading Comm'n v. Schor, 478 U.S. 833, 841, 106 S.Ct. 3245, 92 L.Ed.2d 675 (1986) (quoting Aptheker v. Secretary of State, 378 U.S. 500, 515, 84 S.Ct. 1659, 12 L.Ed.2d 992 (1964), in turn quoting Scales v. United States, 367 U.S. 203, 211, 81 S.Ct. 1469, 6 L.Ed.2d 782 (1961)). In this case, there is simply no way, "without doing violence to the fair meaning of the words used," Grenada County Supervisors v. Brogden, 112 U.S. 261, 269, 5 S.Ct. 125, 28 L.Ed. 704 (1884), to escape what Congress enacted: a mandate that individuals maintain minimum essential coverage, enforced by a penalty.

Our cases establish a clear line between a tax and a penalty: "`[A] tax is an enforced contribution to provide for the support of government; a penalty ... is an exaction imposed by statute as punishment for an unlawful act.'" United States v. Reorganized CF & I Fabricators of Utah, Inc., 518 U.S. 213, 224, 116 S.Ct. 2106, 135 L.Ed.2d 506 (1996) (quoting United States v. La Franca, 282 U.S. 568, 572, 51 S.Ct. 278, 75 L.Ed. 551 (1931)). In a few cases, this Court has held that a "tax" imposed upon private conduct was so onerous as to be in effect a penalty. But we have never held — never — that a penalty imposed for violation of the law was so trivial as to be in effect a tax. We have never held that any exaction imposed for violation of the law is an exercise of Congress' taxing power — even when the statute calls it a tax, much less when (as here) the statute repeatedly calls it a penalty. When an act "adopt[s] the criteria of wrongdoing" and then imposes a monetary penalty as the "principal consequence on those who transgress [2652] its standard," it creates a regulatory penalty, not a tax. Child Labor Tax Case, 259 U.S. 20, 38, 42 S.Ct. 449, 66 L.Ed. 817 (1922).

So the question is, quite simply, whether the exaction here is imposed for violation of the law. It unquestionably is. The minimum-coverage provision is found in 26 U.S.C. § 5000A, entitled "Requirement to maintain minimum essential coverage." (Emphasis added.) It commands that every "applicable individual shall ... ensure that the individual ... is covered under minimum essential coverage." Ibid. (emphasis added). And the immediately following provision states that, "[i]f ... an applicable individual ... fails to meet the requirement of subsection (a) ... there is hereby imposed ... a penalty." § 5000A(b) (emphasis added). And several of Congress' legislative "findings" with regard to § 5000A confirm that it sets forth a legal requirement and constitutes the assertion of regulatory power, not mere taxing power. See 42 U.S.C. § 18091(2)(A) ("The requirement regulates activity ..."); § 18091(2)(C) ("The requirement... will add millions of new consumers to the health insurance market..."); § 18091(2)(D) ("The requirement achieves near-universal coverage"); § 18091(2)(H) ("The requirement is an essential part of this larger regulation of economic activity, and the absence of the requirement would undercut Federal regulation of the health insurance market"); § 18091(3) ("[T]he Supreme Court of the United States ruled that insurance is interstate commerce subject to Federal regulation").

The Government and those who support its view on the tax point rely on New York v. United States, 505 U.S. 144, 112 S.Ct. 2408, 120 L.Ed.2d 120, to justify reading "shall" to mean "may." The "shall" in that case was contained in an introductory provision — a recital that provided for no legal consequences — which said that "[e]ach State shall be responsible for providing... for the disposal of ... low-level radioactive waste." 42 U.S.C. § 2021c(a)(1)(A). The Court did not hold that "shall" could be construed to mean "may," but rather that this preliminary provision could not impose upon the operative provisions of the Act a mandate that they did not contain: "We ... decline petitioners' invitation to construe § 2021c(a)(1)(A), alone and in isolation, as a command to the States independent of the remainder of the Act." New York, 505 U.S., at 170, 112 S.Ct. 2408. Our opinion then proceeded to "consider each [of the three operative provisions] in turn." Ibid. Here the mandate — the "shall" — is contained not in an inoperative preliminary recital, but in the dispositive operative provision itself. New York provides no support for reading it to be permissive.

Quite separately, the fact that Congress (in its own words) "imposed ... a penalty," 26 U.S.C. § 5000A(b)(1), for failure to buy insurance is alone sufficient to render that failure unlawful. It is one of the canons of interpretation that a statute that penalizes an act makes it unlawful: "[W]here the statute inflicts a penalty for doing an act, although the act itself is not expressly prohibited, yet to do the act is unlawful, because it cannot be supposed that the Legislature intended that a penalty should be inflicted for a lawful act." Powhatan Steamboat Co. v. Appomattox R. Co., 24 How. 247, 252, 16 L.Ed. 682 (1861). Or in the words of Chancellor Kent: "If a statute inflicts a penalty for doing an act, the penalty implies a prohibition, and the thing is unlawful, though there be no prohibitory words in the statute." 1 J. Kent, Commentaries on American Law 436 (1826).

[2653] We never have classified as a tax an exaction imposed for violation of the law, and so too, we never have classified as a tax an exaction described in the legislation itself as a penalty. To be sure, we have sometimes treated as a tax a statutory exaction (imposed for something other than a violation of law) which bore an agnostic label that does not entail the significant constitutional consequences of a penalty — such as "license" (License Tax Cases, 5 Wall. 462, 18 L.Ed. 497 (1867)) or "surcharge" (New York v. United States, supra.). But we have never — never — treated as a tax an exaction which faces up to the critical difference between a tax and a penalty, and explicitly denominates the exaction a "penalty." Eighteen times in § 5000A itself and elsewhere throughout the Act, Congress called the exaction in § 5000A(b) a "penalty."

That § 5000A imposes not a simple tax but a mandate to which a penalty is attached is demonstrated by the fact that some are exempt from the tax who are not exempt from the mandate — a distinction that would make no sense if the mandate were not a mandate. Section 5000A(d) exempts three classes of people from the definition of "applicable individual" subject to the minimum coverage requirement: Those with religious objections or who participate in a "health care sharing ministry," § 5000A(d)(2); those who are "not lawfully present" in the United States, § 5000A(d)(3); and those who are incarcerated, § 5000A(d)(4). Section 5000A(e) then creates a separate set of exemptions, excusing from liability for the penalty certain individuals who are subject to the minimum coverage requirement: Those who cannot afford coverage, § 5000A(e)(1); who earn too little income to require filing a tax return, § 5000A(e)(2); who are members of an Indian tribe, § 5000A(e)(3); who experience only short gaps in coverage, § 5000A(e)(4); and who, in the judgment of the Secretary of Health and Human Services, "have suffered a hardship with respect to the capability to obtain coverage," § 5000A(e)(5). If § 5000A were a tax, these two classes of exemption would make no sense; there being no requirement, all the exemptions would attach to the penalty (renamed tax) alone.

In the face of all these indications of a regulatory requirement accompanied by a penalty, the Solicitor General assures us that "neither the Treasury Department nor the Department of Health and Human Services interprets Section 5000A as imposing a legal obligation," Petitioners' Minimum Coverage Brief 61, and that "[i]f [those subject to the Act] pay the tax penalty, they're in compliance with the law," Tr. of Oral Arg. 50 (Mar. 26, 2012). These self-serving litigating positions are entitled to no weight. What counts is what the statute says, and that is entirely clear. It is worth noting, moreover, that these assurances contradict the Government's position in related litigation. Shortly before the Affordable Care Act was passed, the Commonwealth of Virginia enacted Va.Code Ann. § 38.2-3430.1:1 (Lexis Supp. 2011), which states, "No resident of [the] Commonwealth ... shall be required to obtain or maintain a policy of individual insurance coverage except as required by a court or the Department of Social Services...." In opposing Virginia's assertion of standing to challenge § 5000A based on this statute, the Government said that "if the minimum coverage provision is unconstitutional, the [Virginia] statute is unnecessary, and if the minimum coverage provision is upheld, the state statute is void under the Supremacy Clause." Brief for Appellant in No. 11-1057 etc. (CA4), p. 29. But it would be void under the Supremacy Clause only if it was contradicted by a federal "require[ment] [2654] to obtain or maintain a policy of individual insurance coverage."

Against the mountain of evidence that the minimum coverage requirement is what the statute calls it — a requirement — and that the penalty for its violation is what the statute calls it — a penalty — the Government brings forward the flimsiest of indications to the contrary. It notes that "[t]he minimum coverage provision amends the Internal Revenue Code to provide that a non-exempted individual ... will owe a monetary penalty, in addition to the income tax itself," and that "[t]he [Internal Revenue Service (IRS)] will assess and collect the penalty in the same manner as assessable penalties under the Internal Revenue Code." Petitioners' Minimum Coverage Brief 53. The manner of collection could perhaps suggest a tax if IRS penalty-collection were unheard-of or rare. It is not. See, e.g., 26 U.S.C. § 527(j) (2006 ed.) (IRS-collectible penalty for failure to make campaign-finance disclosures); § 5761(c) (IRS-collectible penalty for domestic sales of tobacco products labeled for export); § 9707 (IRS-collectible penalty for failure to make required health-insurance premium payments on behalf of mining employees). In Reorganized CF & I Fabricators of Utah, Inc., 518 U.S. 213, 116 S.Ct. 2106, 135 L.Ed.2d 506, we held that an exaction not only enforced by the Commissioner of Internal Revenue but even called a "tax" was in fact a penalty. "[I]f the concept of penalty means anything," we said, "it means punishment for an unlawful act or omission." Id., at 224, 116 S.Ct. 2106. See also Lipke v. Lederer, 259 U.S. 557, 42 S.Ct. 549, 66 L.Ed. 1061 (1922) (same). Moreover, while the penalty is assessed and collected by the IRS, § 5000A is administered both by that agency and by the Department of Health and Human Services (and also the Secretary of Veteran Affairs), see § 5000A(e)(1)(D), (e)(5), (f)(1)(A)(v), (f)(1)(E) (2006 ed., Supp. IV), which is responsible for defining its substantive scope — a feature that would be quite extraordinary for taxes.

The Government points out that "[t]he amount of the penalty will be calculated as a percentage of household income for federal income tax purposes, subject to a floor and [a] ca[p]," and that individuals who earn so little money that they "are not required to file income tax returns for the taxable year are not subject to the penalty" (though they are, as we discussed earlier, subject to the mandate). Petitioners' Minimum Coverage Brief 12, 53. But varying a penalty according to ability to pay is an utterly familiar practice. See, e.g., 33 U.S.C. § 1319(d) (2006 ed., Supp. IV) ("In determining the amount of a civil penalty the court shall consider ... the economic impact of the penalty on the violator"); see also 6 U.S.C. § 488e(c); 7 U.S.C. §§ 7734(b)(2), 8313(b)(2); 12 U.S.C. §§ 1701q-1(d)(3), 1723i(c)(3), 1735f-14(c)(3), 1735f-15(d)(3), 4585(c)(2); 15 U.S.C. §§ 45(m)(1)(C), 77h-1(g)(3), 78u-2(d), 80a-9(d)(4), 80b-3(i)(4), 1681s(a)(2)(B), 1717a(b)(3), 1825(b)(1), 2615(a)(2)(B), 5408(b)(2); 33 U.S.C. § 2716a(a).

The last of the feeble arguments in favor of petitioners that we will address is the contention that what this statute repeatedly calls a penalty is in fact a tax because it contains no scienter requirement. The presence of such a requirement suggests a penalty — though one can imagine a tax imposed only on willful action; but the absence of such a requirement does not suggest a tax. Penalties for absolute-liability offenses are commonplace. And where a statute is silent as to scienter, we traditionally presume a mens rea requirement if the statute imposes a "severe penalty." Staples v. United States, 511 U.S. 600, 618, 114 S.Ct. 1793, 128 L.Ed.2d 608 [2655] (1994). Since we have an entire jurisprudence addressing when it is that a scienter requirement should be inferred from a penalty, it is quite illogical to suggest that a penalty is not a penalty for want of an express scienter requirement.

And the nail in the coffin is that the mandate and penalty are located in Title I of the Act, its operative core, rather than where a tax would be found — in Title IX, containing the Act's "Revenue Provisions." In sum, "the terms of [the] act rende[r] it unavoidable," Parsons v. Bedford, 3 Pet. 433, 448, 7 L.Ed. 732 (1830), that Congress imposed a regulatory penalty, not a tax.

For all these reasons, to say that the Individual Mandate merely imposes a tax is not to interpret the statute but to rewrite it. Judicial tax-writing is particularly troubling. Taxes have never been popular, see, e.g., Stamp Act of 1765, and in part for that reason, the Constitution requires tax increases to originate in the House of Representatives. See Art. I, § 7, cl. 1. That is to say, they must originate in the legislative body most accountable to the people, where legislators must weigh the need for the tax against the terrible price they might pay at their next election, which is never more than two years off. The Federalist No. 58 "defend[ed] the decision to give the origination power to the House on the ground that the Chamber that is more accountable to the people should have the primary role in raising revenue." United States v. Munoz-Flores, 495 U.S. 385, 395, 110 S.Ct. 1964, 109 L.Ed.2d 384 (1990). We have no doubt that Congress knew precisely what it was doing when it rejected an earlier version of this legislation that imposed a tax instead of a requirement-with-penalty. See Affordable Health Care for America Act, H.R. 3962, 111th Cong., 1st Sess., § 501 (2009); America's Healthy Future Act of 2009, S. 1796, 111th Cong., 1st Sess., § 1301. Imposing a tax through judicial legislation inverts the constitutional scheme, and places the power to tax in the branch of government least accountable to the citizenry.

Finally, we must observe that rewriting § 5000A as a tax in order to sustain its constitutionality would force us to confront a difficult constitutional question: whether this is a direct tax that must be apportioned among the States according to their population. Art. I, § 9, cl. 4. Perhaps it is not (we have no need to address the point); but the meaning of the Direct Tax Clause is famously unclear, and its application here is a question of first impression that deserves more thoughtful consideration than the lick-and-a-promise accorded by the Government and its supporters. The Government's opening brief did not even address the question — perhaps because, until today, no federal court has accepted the implausible argument that § 5000A is an exercise of the tax power. And once respondents raised the issue, the Government devoted a mere 21 lines of its reply brief to the issue. Petitioners' Minimum Coverage Reply Brief 25. At oral argument, the most prolonged statement about the issue was just over 50 words. Tr. of Oral Arg. 79 (Mar. 27, 2012). One would expect this Court to demand more than fly-by-night briefing and argument before deciding a difficult constitutional question of first impression.

III

The Anti-Injunction Act

There is another point related to the Individual Mandate that we must discuss — a point that logically should have been discussed first: Whether jurisdiction over the challenges to the minimum-coverage provision is precluded by the Anti-Injunction Act, which provides that "no suit for the purpose of restraining the assessment or collection of any tax shall be [2656] maintained in any court by any person," 26 U.S.C. § 7421(a) (2006 ed.).

We have left the question to this point because it seemed to us that the dispositive question whether the minimum-coverage provision is a tax is more appropriately addressed in the significant constitutional context of whether it is an exercise of Congress' taxing power. Having found that it is not, we have no difficulty in deciding that these suits do not have "the purpose of restraining the assessment or collection of any tax."^[47]

The Government and those who support its position on this point make the remarkable argument that § 5000A is not a tax for purposes of the Anti-Injunction Act, see Brief for Petitioners in No. 11-398 (Anti-Injunction Act), but is a tax for constitutional purposes, see Petitioners' Minimum Coverage Brief 52-62. The rhetorical device that tries to cloak this argument in superficial plausibility is the same device employed in arguing that for constitutional purposes the minimum-coverage provision is a tax: confusing the question of what Congress did with the question of what Congress could have done. What qualifies as a tax for purposes of the Anti-Injunction Act, unlike what qualifies as a tax for purposes of the Constitution, is entirely within the control of Congress. Compare Bailey v. George, 259 U.S. 16, 20, 42 S.Ct. 419, 66 L.Ed. 816 (1922) (Anti-Injunction Act barred suit to restrain collections under the Child Labor Tax Law), with Child Labor Tax Case, 259 U.S., at 36-41, 42 S.Ct. 449 (holding the same law unconstitutional as exceeding Congress' taxing power). Congress could have defined "tax" for purposes of that statute in such fashion as to exclude some exactions that in fact are "taxes." It might have prescribed, for example, that a particular exercise of the taxing power "shall not be regarded as a tax for purposes of the Anti-Injunction Act." But there is no such prescription here. What the Government would have us believe in these cases is that the very same textual indications that show this is not a tax under the Anti-Injunction Act show that it is a tax under the Constitution. That carries verbal wizardry too far, deep into the forbidden land of the sophists.

IV

The Medicaid Expansion

We now consider respondents' second challenge to the constitutionality of the [2657] ACA, namely, that the Act's dramatic expansion of the Medicaid program exceeds Congress' power to attach conditions to federal grants to the States.

The ACA does not legally compel the States to participate in the expanded Medicaid program, but the Act authorizes a severe sanction for any State that refuses to go along: termination of all the State's Medicaid funding. For the average State, the annual federal Medicaid subsidy is equal to more than one-fifth of the State's expenditures.^[48] A State forced out of the program would not only lose this huge sum but would almost certainly find it necessary to increase its own health-care expenditures substantially, requiring either a drastic reduction in funding for other programs or a large increase in state taxes. And these new taxes would come on top of the federal taxes already paid by the State's citizens to fund the Medicaid program in other States.

The States challenging the constitutionality of the ACA's Medicaid Expansion contend that, for these practical reasons, the Act really does not give them any choice at all. As proof of this, they point to the goal and the structure of the ACA. The goal of the Act is to provide near-universal medical coverage, 42 U.S.C. § 18091(2)(D), and without 100% State participation in the Medicaid program, attainment of this goal would be thwarted. Even if States could elect to remain in the old Medicaid program, while declining to participate in the Expansion, there would be a gaping hole in coverage. And if a substantial number of States were entirely expelled from the program, the number of persons without coverage would be even higher.

In light of the ACA's goal of near-universal coverage, petitioners argue, if Congress had thought that anything less than 100% state participation was a realistic possibility, Congress would have provided a backup scheme. But no such scheme is to be found anywhere in the more than 900 pages of the Act. This shows, they maintain, that Congress was certain that the ACA's Medicaid offer was one that no State could refuse.

In response to this argument, the Government contends that any congressional assumption about uniform state participation was based on the simple fact that the offer of federal funds associated with the expanded coverage is such a generous gift that no State would want to turn it down.

To evaluate these arguments, we consider the extent of the Federal Government's power to spend money and to attach conditions to money granted to the States.

A

No one has ever doubted that the Constitution authorizes the Federal Government to spend money, but for many years the scope of this power was unsettled. The Constitution grants Congress the power to collect taxes "to ... provide for the ... general Welfare of the United States," Art. I, § 8, cl. 1, and from "the foundation of the Nation sharp differences of opinion have persisted as to the true interpretation of the phrase" "the general welfare." Butler, 297 U.S., at 65, 56 S.Ct. 312. Madison, it has been said, thought that the phrase "amounted to no more than a reference to the other powers enumerated in the subsequent clauses of the same section," while Hamilton "maintained the clause confers a power separate and distinct from those later enumerated [and] [2658] is not restricted in meaning by the grant of them." Ibid.

The Court resolved this dispute in Butler. Writing for the Court, Justice Roberts opined that the Madisonian view would make Article I's grant of the spending power a "mere tautology." Ibid. To avoid that, he adopted Hamilton's approach and found that "the power of Congress to authorize expenditure of public moneys for public purposes is not limited by the direct grants of legislative power found in the Constitution." Id., at 66, 56 S.Ct. 312. Instead, he wrote, the spending power's "confines are set in the clause which confers it, and not in those of section 8 which bestow and define the legislative powers of the Congress." Ibid.; see also Steward Machine Co. v. Davis, 301 U.S. 548, 586-587, 57 S.Ct. 883, 81 L.Ed. 1279 (1937); Helvering v. Davis, 301 U.S. 619, 640, 57 S.Ct. 904, 81 L.Ed. 1307 (1937).

The power to make any expenditure that furthers "the general welfare" is obviously very broad, and shortly after Butler was decided the Court gave Congress wide leeway to decide whether an expenditure qualifies. See Helvering, 301 U.S., at 640-641, 57 S.Ct. 904. "The discretion belongs to Congress," the Court wrote, "unless the choice is clearly wrong, a display of arbitrary power, not an exercise of judgment." Id., at 640, 57 S.Ct. 904. Since that time, the Court has never held that a federal expenditure was not for "the general welfare."

B

One way in which Congress may spend to promote the general welfare is by making grants to the States. Monetary grants, so-called grants-in-aid, became more frequent during the 1930's, G. Stephens & N. Wikstrom, American Intergovernmental Relations — A Fragmented Federal Polity 83 (2007), and by 1950 they had reached $20 billion^[49] or 11.6% of state and local government expenditures from their own sources.^[50] By 1970 this number had grown to $123.7 billion^[51] or 29.1% of state and local government expenditures from their own sources.^[52] As of 2010, federal outlays to state and local governments came to over $608 billion or 37.5% of state and local government expenditures.^[53]

When Congress makes grants to the States, it customarily attaches conditions, and this Court has long held that the Constitution generally permits Congress to do this. See Pennhurst State School and Hospital v. Halderman, 451 U.S. 1, 17, 101 S.Ct. 1531, 67 L.Ed.2d 694 (1981); South Dakota v. Dole, 483 U.S. 203, 206, 107 S.Ct. 2793, 97 L.Ed.2d 171 (1987); Fullilove v. Klutznick, 448 U.S. 448, 474, 100 S.Ct. 2758, 65 L.Ed.2d 902 (1980) (opinion of Burger, C.J.); Steward Machine, supra, at 593, 57 S.Ct. 883.

[2659] C

This practice of attaching conditions to federal funds greatly increases federal power. "[O]bjectives not thought to be within Article I's enumerated legislative fields, may nevertheless be attained through the use of the spending power and the conditional grant of federal funds." Dole, supra, at 207, 107 S.Ct. 2793 (internal quotation marks and citation omitted); see also College Savings Bank v. Florida Prepaid Postsecondary Ed. Expense Bd., 527 U.S. 666, 686, 119 S.Ct. 2219, 144 L.Ed.2d 605 (1999) (by attaching conditions to federal funds, Congress may induce the States to "tak[e] certain actions that Congress could not require them to take").

This formidable power, if not checked in any way, would present a grave threat to the system of federalism created by our Constitution. If Congress'"Spending Clause power to pursue objectives outside of Article I's enumerated legislative fields," Davis v. Monroe County Bd. of Ed., 526 U.S. 629, 654, 119 S.Ct. 1661, 143 L.Ed.2d 839 (1999) (KENNEDY, J., dissenting) (internal quotation marks omitted), is "limited only by Congress' notion of the general welfare, the reality, given the vast financial resources of the Federal Government, is that the Spending Clause gives `power to the Congress to tear down the barriers, to invade the states' jurisdiction, and to become a parliament of the whole people, subject to no restrictions save such as are self-imposed,'" Dole, supra, at 217, 107 S.Ct. 2793 (O'Connor, J., dissenting) (quoting Butler, 297 U.S., at 78, 56 S.Ct. 312). "[T]he Spending Clause power, if wielded without concern for the federal balance, has the potential to obliterate distinctions between national and local spheres of interest and power by permitting the Federal Government to set policy in the most sensitive areas of traditional state concern, areas which otherwise would lie outside its reach." Davis, supra, at 654-655, 57 S.Ct. 883 (KENNEDY, J., dissenting).

Recognizing this potential for abuse, our cases have long held that the power to attach conditions to grants to the States has limits. See, e.g., Dole, supra, at 207-208, 107 S.Ct. 2793; id., at 207, 107 S.Ct. 2793 (spending power is "subject to several general restrictions articulated in our cases"). For one thing, any such conditions must be unambiguous so that a State at least knows what it is getting into. See Pennhurst, supra, at 17, 101 S.Ct. 1531. Conditions must also be related "to the federal interest in particular national projects or programs," Massachusetts v. United States, 435 U.S. 444, 461, 98 S.Ct. 1153, 55 L.Ed.2d 403 (1978), and the conditional grant of federal funds may not "induce the States to engage in activities that would themselves be unconstitutional," Dole, supra, at 210, 107 S.Ct. 2793; see Lawrence County v. Lead-Deadwood School Dist. No. 40-1, 469 U.S. 256, 269-270, 105 S.Ct. 695, 83 L.Ed.2d 635 (1985). Finally, while Congress may seek to induce States to accept conditional grants, Congress may not cross the "point at which pressure turns into compulsion, and ceases to be inducement." Steward Machine, 301 U.S., at 590, 57 S.Ct. 883. Accord, College Savings Bank, supra, at 687, 119 S.Ct. 2219; Metropolitan Washington Airports Authority v. Citizens for Abatement of Aircraft Noise, Inc., 501 U.S. 252, 285, 111 S.Ct. 2298, 115 L.Ed.2d 236 (1991) (White, J., dissenting); Dole, supra, at 211, 107 S.Ct. 2793.

When federal legislation gives the States a real choice whether to accept or decline a federal aid package, the federal-state relationship is in the nature of a contractual relationship. See Barnes v. Gorman, 536 U.S. 181, 186, 122 S.Ct. 2097, 153 L.Ed.2d [2660] 230 (2002); Pennhurst, 451 U.S., at 17, 101 S.Ct. 1531. And just as a contract is voidable if coerced, "[t]he legitimacy of Congress' power to legislate under the spending power ... rests on whether the State voluntarily and knowingly accepts the terms of the `contract.'" Ibid. (emphasis added). If a federal spending program coerces participation the States have not "exercise[d] their choice" — let alone made an "informed choice." Id., at 17, 25, 101 S.Ct. 1531.

Coercing States to accept conditions risks the destruction of the "unique role of the States in our system." Davis, supra, at 685, 57 S.Ct. 883 (KENNEDY, J., dissenting). "[T]he Constitution has never been understood to confer upon Congress the ability to require the States to govern according to Congress' instructions." New York, 505 U.S., at 162, 112 S.Ct. 2408. Congress may not "simply commandeer the legislative processes of the States by directly compelling them to enact and enforce a federal regulatory program." Id., at 161, 112 S.Ct. 2408 (internal quotation marks and brackets omitted). Congress effectively engages in this impermissible compulsion when state participation in a federal spending program is coerced, so that the States' choice whether to enact or administer a federal regulatory program is rendered illusory.

Where all Congress has done is to "encourag[e] state regulation rather than compe[l] it, state governments remain responsive to the local electorate's preferences; state officials remain accountable to the people. [But] where the Federal Government compels States to regulate, the accountability of both state and federal officials is diminished." New York, supra, at 168, 112 S.Ct. 2408.

Amici who support the Government argue that forcing state employees to implement a federal program is more respectful of federalism than using federal workers to implement that program. See, e.g., Brief for Service Employees International Union et al. as Amici Curiae in No. 11-398, pp. 25-26. They note that Congress, instead of expanding Medicaid, could have established an entirely federal program to provide coverage for the same group of people. By choosing to structure Medicaid as a cooperative federal-state program, they contend, Congress allows for more state control. Ibid.

This argument reflects a view of federalism that our cases have rejected — and with good reason. When Congress compels the States to do its bidding, it blurs the lines of political accountability. If the Federal Government makes a controversial decision while acting on its own, "it is the Federal Government that makes the decision in full view of the public, and it will be federal officials that suffer the consequences if the decision turns out to be detrimental or unpopular." New York, 505 U.S., at 168, 112 S.Ct. 2408. But when the Federal Government compels the States to take unpopular actions, "it may be state officials who will bear the brunt of public disapproval, while the federal officials who devised the regulatory program may remain insulated from the electoral ramifications of their decision." Id., at 169, 112 S.Ct. 2408; see Printz, supra, at 930, 117 S.Ct. 2365. For this reason, federal officeholders may view this "departur[e] from the federal structure to be in their personal interests ... as a means of shifting responsibility for the eventual decision." New York, 505 U.S., at 182-183, 112 S.Ct. 2408. And even state officials may favor such a "departure from the constitutional plan," since uncertainty concerning responsibility may also permit them to escape accountability. Id., at 182, 112 S.Ct. 2408. If a program is popular, state officials may claim credit; if it is unpopular, [2661] they may protest that they were merely responding to a federal directive.

Once it is recognized that spending-power legislation cannot coerce state participation, two questions remain: (1) What is the meaning of coercion in this context? (2) Is the ACA's expanded Medicaid coverage coercive? We now turn to those questions.

D

1

The answer to the first of these questions — the meaning of coercion in the present context — is straightforward. As we have explained, the legitimacy of attaching conditions to federal grants to the States depends on the voluntariness of the States' choice to accept or decline the offered package. Therefore, if States really have no choice other than to accept the package, the offer is coercive, and the conditions cannot be sustained under the spending power. And as our decision in South Dakota v. Dole makes clear, theoretical voluntariness is not enough.

In South Dakota v. Dole, we considered whether the spending power permitted Congress to condition 5% of the State's federal highway funds on the State's adoption of a minimum drinking age of 21 years. South Dakota argued that the program was impermissibly coercive, but we disagreed, reasoning that "Congress ha[d] directed only that a State desiring to establish a minimum drinking age lower than 21 lose a relatively small percentage of certain federal highway funds." 483 U.S., at 211, 107 S.Ct. 2793. Because "all South Dakota would lose if she adhere[d] to her chosen course as to a suitable minimum drinking age [was] 5% of the funds otherwise obtainable under specified highway grant programs," we found that "Congress ha[d] offered relatively mild encouragement to the States to enact higher minimum drinking ages than they would otherwise choose." Ibid. Thus, the decision whether to comply with the federal condition "remain[ed] the prerogative of the States not merely in theory but in fact," and so the program at issue did not exceed Congress' power. Id., at 211-212, 107 S.Ct. 2793 (emphasis added).

The question whether a law enacted under the spending power is coercive in fact will sometimes be difficult, but where Congress has plainly "crossed the line distinguishing encouragement from coercion," New York, supra, at 175, 112 S.Ct. 2408, a federal program that coopts the States' political processes must be declared unconstitutional. "[T]he federal balance is too essential a part of our constitutional structure and plays too vital a role in securing freedom for us to admit inability to intervene." Lopez, 514 U.S., at 578, 115 S.Ct. 1624 (KENNEDY, J., concurring).

2

The Federal Government's argument in this case at best pays lip service to the anticoercion principle. The Federal Government suggests that it is sufficient if States are "free, as a matter of law, to turn down" federal funds. Brief for Respondents in No. 11-400, p. 17 (emphasis added); see also id., at 25. According to the Federal Government, neither the amount of the offered federal funds nor the amount of the federal taxes extracted from the taxpayers of a State to pay for the program in question is relevant in determining whether there is impermissible coercion. Id., at 41-46.

This argument ignores reality. When a heavy federal tax is levied to support a federal program that offers large grants to the States, States may, as a practical matter, be unable to refuse to participate in the federal program and to substitute a state alternative. Even if a State believes that the federal program is ineffective and [2662] inefficient, withdrawal would likely force the State to impose a huge tax increase on its residents, and this new state tax would come on top of the federal taxes already paid by residents to support subsidies to participating States.^[54]

Acceptance of the Federal Government's interpretation of the anticoercion rule would permit Congress to dictate policy in areas traditionally governed primarily at the state or local level. Suppose, for example, that Congress enacted legislation offering each State a grant equal to the State's entire annual expenditures for primary and secondary education. Suppose also that this funding came with conditions governing such things as school curriculum, the hiring and tenure of teachers, the drawing of school districts, the length and hours of the school day, the school calendar, a dress code for students, and rules for student discipline. As a matter of law, a State could turn down that offer, but if it did so, its residents would not only be required to pay the federal taxes needed to support this expensive new program, but they would also be forced to pay an equivalent amount in state taxes. And if the State gave in to the federal law, the State and its subdivisions would surrender their traditional authority in the field of education. Asked at oral argument whether such a law would be allowed under the spending power, the Solicitor General responded that it would. Tr. of Oral Arg. 44-45 (Mar. 28, 2012).

E

Whether federal spending legislation crosses the line from enticement to coercion is often difficult to determine, and courts should not conclude that legislation is unconstitutional on this ground unless the coercive nature of an offer is unmistakably clear. In this case, however, there can be no doubt. In structuring the ACA, Congress unambiguously signaled its belief that every State would have no real choice but to go along with the Medicaid Expansion. If the anticoercion rule does not apply in this case, then there is no such rule.

1

The dimensions of the Medicaid program lend strong support to the petitioner States' argument that refusing to accede to the conditions set out in the ACA is not a realistic option. Before the ACA's enactment, Medicaid funded medical care for pregnant women, families with dependents, children, the blind, the elderly, and the disabled. See 42 U.S.C. § 1396a(a)(10) (2006 ed., Supp. IV). The ACA greatly expands the program's reach, making new funds available to States that agree to extend coverage to all individuals who are under age 65 and have incomes below 133% of the federal poverty line. See § 1396a(a)(10)(A)(i)(VIII). Any State that refuses to expand its Medicaid programs in this way is threatened with a severe sanction: the loss of all its federal Medicaid funds. See § 1396c (2006 ed.).

Medicaid has long been the largest federal program of grants to the States. See Brief for Respondents in No. 11-400, at 37. In 2010, the Federal Government directed [2663] more than $552 billion in federal funds to the States. See Nat. Assn. of State Budget Officers, 2010 State Expenditure Report: Examining Fiscal 2009-2011 State Spending, p. 7 (2011) (NASBO Report). Of this, more than $233 billion went to pre-expansion Medicaid. See id., at 47.^[55]This amount equals nearly 22% of all state expenditures combined. See id., at 7.

The States devote a larger percentage of their budgets to Medicaid than to any other item. Id., at 5. Federal funds account for anywhere from 50% to 83% of each State's total Medicaid expenditures, see § 1396d(b) (2006 ed., Supp. IV); most States receive more than $1 billion in federal Medicaid funding; and a quarter receive more than $5 billion, NASBO Report 47. These federal dollars total nearly two thirds — 64.6% — of all Medicaid expenditures nationwide.^[56]Id., at 46.

The Court of Appeals concluded that the States failed to establish coercion in this case in part because the "states have the power to tax and raise revenue, and therefore can create and fund programs of their own if they do not like Congress's terms." 648 F.3d 1235, 1268 (C.A.11 2011); see Brief for Sen. Harry Reid et al. as Amici Curiae in No. 11-400, p. 21 ("States may always choose to decrease expenditures on other programs or to raise revenues"). But the sheer size of this federal spending program in relation to state expenditures means that a State would be very hard pressed to compensate for the loss of federal funds by cutting other spending or raising additional revenue. Arizona, for example, commits 12% of its state expenditures to Medicaid, and relies on the Federal Government to provide the rest: $5.6 billion, equaling roughly one-third of Arizona's annual state expenditures of $17 billion. See NASBO Report 7, 47. Therefore, if Arizona lost federal Medicaid funding, the State would have to commit an additional 33% of all its state expenditures to fund an equivalent state program along the lines of pre-expansion Medicaid. This means that the State would have to allocate 45% of its annual expenditures for that one purpose. See ibid.

The States are far less reliant on federal funding for any other program. After Medicaid, the next biggest federal funding item is aid to support elementary and secondary education, which amounts to 12.8% of total federal outlays to the States, see id., at 7, 16, and equals only 6.6% of all state expenditures combined. See ibid. In Arizona, for example, although federal Medicaid expenditures are equal to 33% of all state expenditures, federal education funds amount to only 9.8% of all state [2664] expenditures. See ibid. And even in States with less than average federal Medicaid funding, that funding is at least twice the size of federal education funding as a percentage of state expenditures. Id., at 7, 16, 47.

A State forced out of the Medicaid program would face burdens in addition to the loss of federal Medicaid funding. For example, a nonparticipating State might be found to be ineligible for other major federal funding sources, such as Temporary Assistance for Needy Families (TANF), which is premised on the expectation that States will participate in Medicaid. See 42 U.S.C. § 602(a)(3) (2006 ed.) (requiring that certain beneficiaries of TANF funds be "eligible for medical assistance under the State['s Medicaid] plan"). And withdrawal or expulsion from the Medicaid program would not relieve a State's hospitals of their obligation under federal law to provide care for patients who are unable to pay for medical services. The Emergency Medical Treatment and Active Labor Act, § 1395dd, requires hospitals that receive any federal funding to provide stabilization care for indigent patients but does not offer federal funding to assist facilities in carrying out its mandate. Many of these patients are now covered by Medicaid. If providers could not look to the Medicaid program to pay for this care, they would find it exceedingly difficult to comply with federal law unless they were given substantial state support. See, e.g., Brief for Economists as Amici Curiae in No 11-400, p. 11.

For these reasons, the offer that the ACA makes to the States — go along with a dramatic expansion of Medicaid or potentially lose all federal Medicaid funding — is quite unlike anything that we have seen in a prior spending-power case. In South Dakota v. Dole, the total amount that the States would have lost if every single State had refused to comply with the 21-year-old drinking age was approximately $614.7 million — or about 0.19% of all state expenditures combined. See Nat. Assn. of State Budget Officers, 1989 (Fiscal Years 1987-1989 Data) State Expenditure Report 10, 84 (1989), http://www.nasbo.org/ publications-data/state-expenditure-report/ archives. South Dakota stood to lose, at most, funding that amounted to less than 1% of its annual state expenditures. See ibid. Under the ACA, by contrast, the Federal Government has threatened to withhold 42.3% of all federal outlays to the states, or approximately $233 billion. See NASBO Report 7, 10, 47. South Dakota stands to lose federal funding equaling 28.9% of its annual state expenditures. See id., at 7, 47. Withholding $614.7 million, equaling only 0.19% of all state expenditures combined, is aptly characterized as "relatively mild encouragement," but threatening to withhold $233 billion, equaling 21.86% of all state expenditures combined, is a different matter.

2

What the statistics suggest is confirmed by the goal and structure of the ACA. In crafting the ACA, Congress clearly expressed its informed view that no State could possibly refuse the offer that the ACA extends.

The stated goal of the ACA is near-universal health care coverage. To achieve this goal, the ACA mandates that every person obtain a minimum level of coverage. It attempts to reach this goal in several different ways. The guaranteed issue and community-rating provisions are designed to make qualifying insurance available and affordable for persons with medical conditions that may require expensive care. Other ACA provisions seek to make such policies more affordable for people of modest means. Finally, for low-income individuals who are simply not able [2665] to obtain insurance, Congress expanded Medicaid, transforming it from a program covering only members of a limited list of vulnerable groups into a program that provides at least the requisite minimum level of coverage for the poor. See 42 U.S.C. §§ 1396a(a)(10)(A)(i)(VIII) (2006 ed., Supp. IV), 1396u-7(a), (b)(5), 18022(a). This design was intended to provide at least a specified minimum level of coverage for all Americans, but the achievement of that goal obviously depends on participation by every single State. If any State — not to mention all of the 26 States that brought this suit — chose to decline the federal offer, there would be a gaping hole in the ACA's coverage.

It is true that some persons who are eligible for Medicaid coverage under the ACA may be able to secure private insurance, either through their employers or by obtaining subsidized insurance through an exchange. See 26 U.S.C. § 36B(a) (2006 ed., Supp. IV); Brief for Respondents in No. 11-400, at 12. But the new federal subsidies are not available to those whose income is below the federal poverty level, and the ACA provides no means, other than Medicaid, for these individuals to obtain coverage and comply with the Mandate. The Government counters that these people will not have to pay the penalty, see, e.g., Tr. of Oral Arg. 68 (Mar. 28, 2012); Brief for Respondents in No. 11-400, at 49-50, but that argument misses the point: Without Medicaid, these individuals will not have coverage and the ACA's goal of near-universal coverage will be severely frustrated.

If Congress had thought that States might actually refuse to go along with the expansion of Medicaid, Congress would surely have devised a backup scheme so that the most vulnerable groups in our society, those previously eligible for Medicaid, would not be left out in the cold. But nowhere in the over 900-page Act is such a scheme to be found. By contrast, because Congress thought that some States might decline federal funding for the operation of a "health benefit exchange," Congress provided a backup scheme; if a State declines to participate in the operation of an exchange, the Federal Government will step in and operate an exchange in that State. See 42 U.S.C. § 18041(c)(1). Likewise, knowing that States would not necessarily provide affordable health insurance for aliens lawfully present in the United States — because Medicaid does not require States to provide such coverage — Congress extended the availability of the new federal insurance subsidies to all aliens. See 26 U.S.C. § 36B(c)(1)(B)(ii) (excepting from the income limit individuals who are "not eligible for the medicaid program ... by reason of [their] alien status"). Congress did not make these subsidies available for citizens with incomes below the poverty level because Congress obviously assumed that they would be covered by Medicaid. If Congress had contemplated that some of these citizens would be left without Medicaid coverage as a result of a State's withdrawal or expulsion from the program, Congress surely would have made them eligible for the tax subsidies provided for low-income aliens.

These features of the ACA convey an unmistakable message: Congress never dreamed that any State would refuse to go along with the expansion of Medicaid. Congress well understood that refusal was not a practical option.

The Federal Government does not dispute the inference that Congress anticipated 100% state participation, but it argues that this assumption was based on the fact that ACA's offer was an "exceedingly generous" gift. Brief for Respondents in No. 11-400, at 50. As the Federal Government sees things, Congress is like the [2666] generous benefactor who offers $1 million with few strings attached to 50 randomly selected individuals. Just as this benefactor might assume that all of these 50 individuals would snap up his offer, so Congress assumed that every State would gratefully accept the federal funds (and conditions) to go with the expansion of Medicaid.

This characterization of the ACA's offer raises obvious questions. If that offer is "exceedingly generous," as the Federal Government maintains, why have more than half the States brought this lawsuit, contending that the offer is coercive? And why did Congress find it necessary to threaten that any State refusing to accept this "exceedingly generous" gift would risk losing all Medicaid funds? Congress could have made just the new funding provided under the ACA contingent on acceptance of the terms of the Medicaid Expansion. Congress took such an approach in some earlier amendments to Medicaid, separating new coverage requirements and funding from the rest of the program so that only new funding was conditioned on new eligibility extensions. See, e.g., Social Security Amendments of 1972, 86 Stat. 1465.

Congress' decision to do otherwise here reflects its understanding that the ACA offer is not an "exceedingly generous" gift that no State in its right mind would decline. Instead, acceptance of the offer will impose very substantial costs on participating States. It is true that the Federal Government will bear most of the initial costs associated with the Medicaid Expansion, first paying 100% of the costs of covering newly eligible individuals between 2014 and 2016. 42 U.S.C. § 1396d(y). But that is just part of the picture. Participating States will be forced to shoulder substantial costs as well, because after 2019 the Federal Government will cover only 90% of the costs associated with the Expansion, see ibid., with state spending projected to increase by at least $20 billion by 2020 as a consequence. Statement of Douglas W. Elmendorf, CBO's Analysis of the Major Health Care Legislation Enacted in March 2010, p. 24 (Mar. 30, 2011); see also R. Bovbjerg, B. Ormond, & V. Chen, Kaiser Commission on Medicaid and the Uninsured, State Budgets under Federal Health Reform: The Extent and Causes of Variations in Estimated Impacts 4, n. 27 (Feb. 2011) (estimating new state spending at $43.2 billion through 2019). After 2019, state spending is expected to increase at a faster rate; the CBO estimates new state spending at $60 billion through 2021. Statement of Douglas W. Elmendorf, supra, at 24. And these costs may increase in the future because of the very real possibility that the Federal Government will change funding terms and reduce the percentage of funds it will cover. This would leave the States to bear an increasingly large percentage of the bill. See Tr. of Oral Arg. 74-76 (Mar. 28, 2012). Finally, after 2015, the States will have to pick up the tab for 50% of all administrative costs associated with implementing the new program, see §§ 1396b(a)(2)-(5), (7) (2006 ed., Supp. IV), costs that could approach $12 billion between fiscal years 2014 and 2020, see Dept. of Health and Human Services, Center for Medicaid and Medicare Services, 2010 Actuarial Report on the Financial Outlook for Medicaid 30.

In sum, it is perfectly clear from the goal and structure of the ACA that the offer of the Medicaid Expansion was one that Congress understood no State could refuse. The Medicaid Expansion therefore exceeds Congress' spending power and cannot be implemented.

F

Seven Members of the Court agree that the Medicaid Expansion, as enacted by [2667] Congress, is unconstitutional. See Part IV-A to IV-E, supra; Part IV-A, ante, at 2598-2607 (opinion of ROBERTS, C.J., joined by BREYER and KAGAN, JJ.). Because the Medicaid Expansion is unconstitutional, the question of remedy arises. The most natural remedy would be to invalidate the Medicaid Expansion. However, the Government proposes — in two cursory sentences at the very end of its brief — preserving the Expansion. Under its proposal, States would receive the additional Medicaid funds if they expand eligibility, but States would keep their pre-existing Medicaid funds if they do not expand eligibility. We cannot accept the Government's suggestion.

The reality that States were given no real choice but to expand Medicaid was not an accident. Congress assumed States would have no choice, and the ACA depends on States' having no choice, because its Mandate requires low-income individuals to obtain insurance many of them can afford only through the Medicaid Expansion. Furthermore, a State's withdrawal might subject everyone in the State to much higher insurance premiums. That is because the Medicaid Expansion will no longer offset the cost to the insurance industry imposed by the ACA's insurance regulations and taxes, a point that is explained in more detail in the severability section below. To make the Medicaid Expansion optional despite the ACA's structure and design "`would be to make a new law, not to enforce an old one. This is no part of our duty.'" Trade-Mark Cases, 100 U.S. 82, 99, 25 L.Ed. 550 (1879).

Worse, the Government's proposed remedy introduces a new dynamic: States must choose between expanding Medicaid or paying huge tax sums to the federal fisc for the sole benefit of expanding Medicaid in other States. If this divisive dynamic between and among States can be introduced at all, it should be by conscious congressional choice, not by Court-invented interpretation. We do not doubt that States are capable of making decisions when put in a tight spot. We do doubt the authority of this Court to put them there.

The Government cites a severability clause codified with Medicaid in Chapter 7 of the United States Code stating that if "any provision of this chapter, or the application thereof to any person or circumstance, is held invalid, the remainder of the chapter, and the application of such provision to other persons or circumstances shall not be affected thereby." 42 U.S.C. § 1303 (2006 ed.). But that clause tells us only that other provisions in Chapter 7 should not be invalidated if § 1396c, the authorization for the cut-off of all Medicaid funds, is unconstitutional. It does not tell us that § 1396c can be judicially revised, to say what it does not say. Such a judicial power would not be called the doctrine of severability but perhaps the doctrine of amendatory invalidation — similar to the amendatory veto that permits the Governors of some States to reduce the amounts appropriated in legislation. The proof that such a power does not exist is the fact that it would not preserve other congressional dispositions, but would leave it up to the Court what the "validated" legislation will contain. The Court today opts for permitting the cut-off of only incremental Medicaid funding, but it might just as well have permitted, say, the cut-off of funds that represent no more than x percent of the State's budget. The Court severs nothing, but simply revises § 1396c to read as the Court would desire.

We should not accept the Government's invitation to attempt to solve a constitutional problem by rewriting the Medicaid Expansion so as to allow States that reject it to retain their pre-existing Medicaid funds. Worse, the Government's remedy, [2668] now adopted by the Court, takes the ACA and this Nation in a new direction and charts a course for federalism that the Court, not the Congress, has chosen; but under the Constitution, that power and authority do not rest with this Court.

V

Severability

The Affordable Care Act seeks to achieve "near-universal" health insurance coverage. § 18091(2)(D) (2006 ed., Supp. IV). The two pillars of the Act are the Individual Mandate and the expansion of coverage under Medicaid. In our view, both these central provisions of the Act — the Individual Mandate and Medicaid Expansion — are invalid. It follows, as some of the parties urge, that all other provisions of the Act must fall as well. The following section explains the severability principles that require this conclusion. This analysis also shows how closely interrelated the Act is, and this is all the more reason why it is judicial usurpation to impose an entirely new mechanism for withdrawal of Medicaid funding, see Part IV-F, supra, which is one of many examples of how rewriting the Act alters its dynamics.

A

When an unconstitutional provision is but a part of a more comprehensive statute, the question arises as to the validity of the remaining provisions. The Court's authority to declare a statute partially unconstitutional has been well established since Marbury v. Madison, 1 Cranch 137, 2 L.Ed. 60 (1803), when the Court severed an unconstitutional provision from the Judiciary Act of 1789. And while the Court has sometimes applied "at least a modest presumption in favor of ... severability," C. Nelson, Statutory Interpretation 144 (2010), it has not always done so, see, e.g., Minnesota v. Mille Lacs Band of Chippewa Indians, 526 U.S. 172, 190-195, 119 S.Ct. 1187, 143 L.Ed.2d 270 (1999).

An automatic or too cursory severance of statutory provisions risks "rewrit[ing] a statute and giv[ing] it an effect altogether different from that sought by the measure viewed as a whole." Railroad Retirement Bd. v. Alton R. Co., 295 U.S. 330, 362, 55 S.Ct. 758, 79 L.Ed. 1468 (1935). The Judiciary, if it orders uncritical severance, then assumes the legislative function; for it imposes on the Nation, by the Court's decree, its own new statutory regime, consisting of policies, risks, and duties that Congress did not enact. That can be a more extreme exercise of the judicial power than striking the whole statute and allowing Congress to address the conditions that pertained when the statute was considered at the outset.

The Court has applied a two-part guide as the framework for severability analysis. The test has been deemed "well established." Alaska Airlines, Inc. v. Brock, 480 U.S. 678, 684, 107 S.Ct. 1476, 94 L.Ed.2d 661 (1987). First, if the Court holds a statutory provision unconstitutional, it then determines whether the now truncated statute will operate in the manner Congress intended. If not, the remaining provisions must be invalidated. See id., at 685, 107 S.Ct. 1476. In Alaska Airlines, the Court clarified that this first inquiry requires more than asking whether "the balance of the legislation is incapable of functioning independently." Id., at 684, 107 S.Ct. 1476. Even if the remaining provisions will operate in some coherent way, that alone does not save the statute. The question is whether the provisions will work as Congress intended. The "relevant inquiry in evaluating severability is whether the statute will function in a manner consistent with the intent of Congress." Id., at 685, 107 S.Ct. 1476 (emphasis [2669] in original). See also Free Enterprise Fund v. Public Company Accounting Oversight Bd., 561 U.S. ___, ___, 130 S.Ct. 3138, 3161, 177 L.Ed.2d 706 (2010) (the Act "remains fully operative as a law with these tenure restrictions excised") (internal quotation marks omitted); United States v. Booker, 543 U.S. 220, 227, 125 S.Ct. 738, 160 L.Ed.2d 621 (2005) ("[T]wo provisions ... must be invalidated in order to allow the statute to operate in a manner consistent with congressional intent"); Mille Lacs, supra, at 194, 119 S.Ct. 1187 ("[E]mbodying as it did one coherent policy, [the entire order] is inseverable").

Second, even if the remaining provisions can operate as Congress designed them to operate, the Court must determine if Congress would have enacted them standing alone and without the unconstitutional portion. If Congress would not, those provisions, too, must be invalidated. See Alaska Airlines, supra, at 685, 107 S.Ct. 1476 ("[T]he unconstitutional provision must be severed unless the statute created in its absence is legislation that Congress would not have enacted"); see also Free Enterprise Fund, supra, at ___, 130 S.Ct., at 3162 ("[N]othing in the statute's text or historical context makes it `evident' that Congress, faced with the limitations imposed by the Constitution, would have preferred no Board at all to a Board whose members are removable at will"); Ayotte v. Planned Parenthood of Northern New Eng., 546 U.S. 320, 330, 126 S.Ct. 961, 163 L.Ed.2d 812 (2006) ("Would the legislature have preferred what is left of its statute to no statute at all"); Denver Area Ed. Telecommunications Consortium, Inc. v. FCC, 518 U.S. 727, 767, 116 S.Ct. 2374, 135 L.Ed.2d 888 (1996) (plurality opinion) ("Would Congress still have passed § 10(a) had it known that the remaining provisions were invalid" (internal quotation marks and brackets omitted)).

The two inquiries — whether the remaining provisions will operate as Congress designed them, and whether Congress would have enacted the remaining provisions standing alone — often are interrelated. In the ordinary course, if the remaining provisions cannot operate according to the congressional design (the first inquiry), it almost necessarily follows that Congress would not have enacted them (the second inquiry). This close interaction may explain why the Court has not always been precise in distinguishing between the two. There are, however, occasions in which the severability standard's first inquiry (statutory functionality) is not a proxy for the second inquiry (whether the Legislature intended the remaining provisions to stand alone).

B

The Act was passed to enable affordable, "near-universal" health insurance coverage. 42 U.S.C. § 18091(2)(D). The resulting, complex statute consists of mandates and other requirements; comprehensive regulation and penalties; some undoubted taxes; and increases in some governmental expenditures, decreases in others. Under the severability test set out above, it must be determined if those provisions function in a coherent way and as Congress would have intended, even when the major provisions establishing the Individual Mandate and Medicaid Expansion are themselves invalid.

Congress did not intend to establish the goal of near-universal coverage without regard to fiscal consequences. See, e.g., ACA § 1563, 124 Stat. 270 ("[T]his Act will reduce the Federal deficit between 2010 and 2019"). And it did not intend to impose the inevitable costs on any one industry or group of individuals. The whole design of the Act is to balance the costs and benefits affecting each set of regulated [2670] parties. Thus, individuals are required to obtain health insurance. See 26 U.S.C. § 5000A(a). Insurance companies are required to sell them insurance regardless of patients' pre-existing conditions and to comply with a host of other regulations. And the companies must pay new taxes. See § 4980I (high-cost insurance plans); 42 U.S.C. §§ 300gg(a)(1), 300gg-4(b) (community rating); §§ 300gg-1, 300gg-3, 300gg-4(a) (guaranteed issue); § 300gg-11 (elimination of coverage limits); § 300gg-14(a) (dependent children up to age 26); ACA §§ 9010, 10905, 124 Stat. 865, 1017 (excise tax); Health Care and Education Reconciliation Act of 2010 (HCERA) § 1401, 124 Stat. 1059 (excise tax). States are expected to expand Medicaid eligibility and to create regulated marketplaces called exchanges where individuals can purchase insurance. See 42 U.S.C. §§ 1396a(a)(10)(A)(i)(VIII) (2006 ed., Supp. IV) (Medicaid Expansion), 18031 (exchanges). Some persons who cannot afford insurance are provided it through the Medicaid Expansion, and others are aided in their purchase of insurance through federal subsidies available on health-insurance exchanges. See 26 U.S.C. § 36B (2006 ed., Supp. IV), 42 U.S.C. § 18071 (2006 ed., Supp. IV) (federal subsidies). The Federal Government's increased spending is offset by new taxes and cuts in other federal expenditures, including reductions in Medicare and in federal payments to hospitals. See, e.g., § 1395ww(r) (Medicare cuts); ACA Title IX, Subtitle A, 124 Stat. 847 ("Revenue Offset Provisions"). Employers with at least 50 employees must either provide employees with adequate health benefits or pay a financial exaction if an employee who qualifies for federal subsidies purchases insurance through an exchange. See 26 U.S.C. § 4980H (2006 ed., Supp. IV).

In short, the Act attempts to achieve near-universal health insurance coverage by spreading its costs to individuals, insurers, governments, hospitals, and employers — while, at the same time, offsetting significant portions of those costs with new benefits to each group. For example, the Federal Government bears the burden of paying billions for the new entitlements mandated by the Medicaid Expansion and federal subsidies for insurance purchases on the exchanges; but it benefits from reductions in the reimbursements it pays to hospitals. Hospitals lose those reimbursements; but they benefit from the decrease in uncompensated care, for under the insurance regulations it is easier for individuals with pre-existing conditions to purchase coverage that increases payments to hospitals. Insurance companies bear new costs imposed by a collection of insurance regulations and taxes, including "guaranteed issue" and "community rating" requirements to give coverage regardless of the insured's pre-existing conditions; but the insurers benefit from the new, healthy purchasers who are forced by the Individual Mandate to buy the insurers' product and from the new low-income Medicaid recipients who will enroll in insurance companies' Medicaid-funded managed care programs. In summary, the Individual Mandate and Medicaid Expansion offset insurance regulations and taxes, which offset reduced reimbursements to hospitals, which offset increases in federal spending. So, the Act's major provisions are interdependent.

The Act then refers to these interdependencies as "shared responsibility." See ACA Subtitle F, Title I, 124 Stat. 242 ("Shared Responsibility"); ACA § 1501, ibid. (same); ACA § 1513, id., at 253 (same); ACA § 4980H, ibid. (same). In at least six places, the Act describes the Individual Mandate as working "together with the other provisions of this Act." 42 U.S.C. § 18091(2)(C) (2006 ed., Supp. IV) [2671] (working "together" to "add millions of new consumers to the health insurance market"); § 18091(2)(E) (working "together" to "significantly reduce" the economic cost of the poorer health and shorter lifespan of the uninsured); § 18091(2)(F) (working "together" to "lower health insurance premiums"); § 18091(2)(G) (working "together" to "improve financial security for families"); § 18091(2)(I) (working "together" to minimize "adverse selection and broaden the health insurance risk pool to include healthy individuals"); § 18091(2)(J) (working "together" to "significantly reduce administrative costs and lower health insurance premiums"). The Act calls the Individual Mandate "an essential part" of federal regulation of health insurance and warns that "the absence of the requirement would undercut Federal regulation of the health insurance market." § 18091(2)(H).

C

One preliminary point should be noted before applying severability principles to the Act. To be sure, an argument can be made that those portions of the Act that none of the parties has standing to challenge cannot be held nonseverable. The response to this argument is that our cases do not support it. See, e.g., Williams v. Standard Oil Co. of La., 278 U.S. 235, 242-244, 49 S.Ct. 115, 73 L.Ed. 287 (1929) (holding nonseverable statutory provisions that did not burden the parties). It would be particularly destructive of sound government to apply such a rule with regard to a multifaceted piece of legislation like the ACA. It would take years, perhaps decades, for each of its provisions to be adjudicated separately — and for some of them (those simply expending federal funds) no one may have separate standing. The Federal Government, the States, and private parties ought to know at once whether the entire legislation fails.

The opinion now explains in Part V-C-1, infra, why the Act's major provisions are not severable from the Mandate and Medicaid Expansion. It proceeds from the insurance regulations and taxes (C-1-a), to the reductions in reimbursements to hospitals and other Medicare reductions (C-1-b), the exchanges and their federal subsidies (C-1-c), and the employer responsibility assessment (C-1-d). Part V-C-2, infra, explains why the Act's minor provisions also are not severable.

1

The Act's Major Provisions

Major provisions of the Affordable Care Act — i.e., the insurance regulations and taxes, the reductions in federal reimbursements to hospitals and other Medicare spending reductions, the exchanges and their federal subsidies, and the employer responsibility assessment — cannot remain once the Individual Mandate and Medicaid Expansion are invalid. That result follows from the undoubted inability of the other major provisions to operate as Congress intended without the Individual Mandate and Medicaid Expansion. Absent the invalid portions, the other major provisions could impose enormous risks of unexpected burdens on patients, the health-care community, and the federal budget. That consequence would be in absolute conflict with the ACA's design of "shared responsibility," and would pose a threat to the Nation that Congress did not intend.

a

Insurance Regulations and Taxes

Without the Individual Mandate and Medicaid Expansion, the Affordable Care Act's insurance regulations and insurance taxes impose risks on insurance companies and their customers that this Court cannot measure. Those risks would undermine Congress' scheme of "shared responsibility." [2672] See 26 U.S.C. § 4980I (2006 ed., Supp. IV) (high-cost insurance plans); 42 U.S.C. §§ 300gg(a)(1) (2006 ed., Supp. IV), 300gg-4(b) (community rating); §§ 300gg-1, 300gg-3, 300gg-4(a) (guaranteed issue); § 300gg-11 (elimination of coverage limits); § 300gg-14(a) (dependent children up to age 26); ACA §§ 9010, 10905, 124 Stat. 865, 1017 (excise tax); HCERA § 1401, 124 Stat. 1059 (excise tax).

The Court has been informed by distinguished economists that the Act's Individual Mandate and Medicaid Expansion would each increase revenues to the insurance industry by about $350 billion over 10 years; that this combined figure of $700 billion is necessary to offset the approximately $700 billion in new costs to the insurance industry imposed by the Act's insurance regulations and taxes; and that the new $700-billion burden would otherwise dwarf the industry's current profit margin. See Brief for Economists as Amici Curiae in No. 11-393 etc. (Severability), pp. 9-16, 10a.

If that analysis is correct, the regulations and taxes will mean higher costs for insurance companies. Higher costs may mean higher premiums for consumers, despite the Act's goal of "lower[ing] health insurance premiums." 42 U.S.C. § 18091(2)(F) (2006 ed., Supp. IV). Higher costs also could threaten the survival of health-insurance companies, despite the Act's goal of "effective health insurance markets." § 18091(2)(J).

The actual cost of the regulations and taxes may be more or less than predicted. What is known, however, is that severing other provisions from the Individual Mandate and Medicaid Expansion necessarily would impose significant risks and real uncertainties on insurance companies, their customers, all other major actors in the system, and the government treasury. And what also is known is this: Unnecessary risks and avoidable uncertainties are hostile to economic progress and fiscal stability and thus to the safety and welfare of the Nation and the Nation's freedom. If those risks and uncertainties are to be imposed, it must not be by the Judiciary.

b

Reductions in Reimbursements to Hospitals and Other Reductions in Medicare Expenditures

The Affordable Care Act reduces payments by the Federal Government to hospitals by more than $200 billion over 10 years. See 42 U.S.C. § 1395ww(b)(3)(B)(xi)-(xii) (2006 ed., Supp. IV); § 1395ww(q); § 1395ww(r); § 1396r-4(f)(7).

The concept is straightforward: Near-universal coverage will reduce uncompensated care, which will increase hospitals' revenues, which will offset the government's reductions in Medicare and Medicaid reimbursements to hospitals. Responsibility will be shared, as burdens and benefits balance each other. This is typical of the whole dynamic of the Act.

Invalidating the key mechanisms for expanding insurance coverage, such as community rating and the Medicaid Expansion, without invalidating the reductions in Medicare and Medicaid, distorts the ACA's design of "shared responsibility." Some hospitals may be forced to raise the cost of care in order to offset the reductions in reimbursements, which could raise the cost of insurance premiums, in contravention of the Act's goal of "lower[ing] health insurance premiums." 42 U.S.C. § 18091(2)(F) (2006 ed., Supp. IV). See also § 18091(2)(I) (goal of "lower[ing] health insurance premiums"); § 18091(2)(J) (same). Other hospitals, particularly safety-net hospitals that serve a large number of uninsured patients, may be forced to shut down. Cf. National Assn. of Public [2673] Hospitals, 2009 Annual Survey: Safety Net Hospitals and Health Systems Fulfill Mission in Uncertain Times 5-6 (Feb. 2011). Like the effect of preserving the insurance regulations and taxes, the precise degree of risk to hospitals is unknowable. It is not the proper role of the Court, by severing part of a statute and allowing the rest to stand, to impose unknowable risks that Congress could neither measure nor predict. And Congress could not have intended that result in any event.

There is a second, independent reason why the reductions in reimbursements to hospitals and the ACA's other Medicare cuts must be invalidated. The ACA's $455 billion in Medicare and Medicaid savings offset the $434-billion cost of the Medicaid Expansion. See CBO Estimate, Table 2 (Mar. 20, 2010). The reductions allowed Congress to find that the ACA "will reduce the Federal deficit between 2010 and 2019" and "will continue to reduce budget deficits after 2019." ACA §§ 1563(a)(1), (2), 124 Stat. 270.

That finding was critical to the ACA. The Act's "shared responsibility" concept extends to the federal budget. Congress chose to offset new federal expenditures with budget cuts and tax increases. That is why the United States has explained in the course of this litigation that "[w]hen Congress passed the ACA, it was careful to ensure that any increased spending, including on Medicaid, was offset by other revenue-raising and cost-saving provisions." Memorandum in Support of Government's Motion for Summary Judgment in No. 3-10-cv-91, p. 41.

If the Medicare and Medicaid reductions would no longer be needed to offset the costs of the Medicaid Expansion, the reductions would no longer operate in the manner Congress intended. They would lose their justification and foundation. In addition, to preserve them would be "to eliminate a significant quid pro quo of the legislative compromise" and create a statute Congress did not enact. Legal Services Corporation v. Velazquez, 531 U.S. 533, 561, 121 S.Ct. 1043, 149 L.Ed.2d 63 (2001) (SCALIA, J., dissenting). It is no secret that cutting Medicare is unpopular; and it is most improbable Congress would have done so without at least the assurance that it would render the ACA deficit-neutral. See ACA §§ 1563(a)(1), (2), 124 Stat. 270.

c

Health Insurance Exchanges and Their Federal Subsidies

The ACA requires each State to establish a health-insurance "exchange." Each exchange is a one-stop marketplace for individuals and small businesses to compare community-rated health insurance and purchase the policy of their choice. The exchanges cannot operate in the manner Congress intended if the Individual Mandate, Medicaid Expansion, and insurance regulations cannot remain in force.

The Act's design is to allocate billions of federal dollars to subsidize individuals' purchases on the exchanges. Individuals with incomes between 100 and 400 percent of the poverty level receive tax credits to offset the cost of insurance to the individual purchaser. 26 U.S.C. § 36B (2006 ed., Supp. IV); 42 U.S.C. § 18071 (2006 ed., Supp. IV). By 2019, 20 million of the 24 million people who will obtain insurance through an exchange are expected to receive an average federal subsidy of $6,460 per person. See CBO, Analysis of the Major Health Care Legislation Enacted in March 2010, pp. 18-19 (Mar. 30, 2011). Without the community-rating insurance regulation, however, the average federal subsidy could be much higher; for community rating greatly lowers the enormous [2674] premiums unhealthy individuals would otherwise pay. Federal subsidies would make up much of the difference.

The result would be an unintended boon to insurance companies, an unintended harm to the federal fisc, and a corresponding breakdown of the "shared responsibility" between the industry and the federal budget that Congress intended. Thus, the federal subsidies must be invalidated.

In the absence of federal subsidies to purchasers, insurance companies will have little incentive to sell insurance on the exchanges. Under the ACA's scheme, few, if any, individuals would want to buy individual insurance policies outside of an exchange, because federal subsidies would be unavailable outside of an exchange. Difficulty in attracting individuals outside of the exchange would in turn motivate insurers to enter exchanges, despite the exchanges' onerous regulations. See 42 U.S.C. § 18031. That system of incentives collapses if the federal subsidies are invalidated. Without the federal subsidies, individuals would lose the main incentive to purchase insurance inside the exchanges, and some insurers may be unwilling to offer insurance inside of exchanges. With fewer buyers and even fewer sellers, the exchanges would not operate as Congress intended and may not operate at all.

There is a second reason why, if community rating is invalidated by the Mandate and Medicaid Expansion's invalidity, exchanges cannot be implemented in a manner consistent with the Act's design. A key purpose of an exchange is to provide a marketplace of insurance options where prices are standardized regardless of the buyer's pre-existing conditions. See ibid. An individual who shops for insurance through an exchange will evaluate different insurance products. The products will offer different benefits and prices. Congress designed the exchanges so the shopper can compare benefits and prices. But the comparison cannot be made in the way Congress designed if the prices depend on the shopper's pre-existing health conditions. The prices would vary from person to person. So without community rating — which prohibits insurers from basing the price of insurance on pre-existing conditions — the exchanges cannot operate in the manner Congress intended.

d

Employer-Responsibility Assessment

The employer responsibility assessment provides an incentive for employers with at least 50 employees to provide their employees with health insurance options that meet minimum criteria. See 26 U.S.C. § 4980H (2006 ed., Supp. IV). Unlike the Individual Mandate, the employer-responsibility assessment does not require employers to provide an insurance option. Instead, it requires them to make a payment to the Federal Government if they do not offer insurance to employees and if insurance is bought on an exchange by an employee who qualifies for the exchange's federal subsidies. See ibid.

For two reasons, the employer-responsibility assessment must be invalidated. First, the ACA makes a direct link between the employer-responsibility assessment and the exchanges. The financial assessment against employers occurs only under certain conditions. One of them is the purchase of insurance by an employee on an exchange. With no exchanges, there are no purchases on the exchanges; and with no purchases on the exchanges, there is nothing to trigger the employer-responsibility assessment.

Second, after the invalidation of burdens on individuals (the Individual Mandate), insurers (the insurance regulations and taxes), States (the Medicaid Expansion), the Federal Government (the federal subsidies [2675] for exchanges and for the Medicaid Expansion), and hospitals (the reductions in reimbursements), the preservation of the employer-responsibility assessment would upset the ACA's design of "shared responsibility." It would leave employers as the only parties bearing any significant responsibility. That was not the congressional intent.

2

The Act's Minor Provisions

The next question is whether the invalidation of the ACA's major provisions requires the Court to invalidate the ACA's other provisions. It does.

The ACA is over 900 pages long. Its regulations include requirements ranging from a break time and secluded place at work for nursing mothers, see 29 U.S.C. § 207(r)(1) (2006 ed., Supp. IV), to displays of nutritional content at chain restaurants, see 21 U.S.C. § 343(q)(5)(H). The Act raises billions of dollars in taxes and fees, including exactions imposed on high-income taxpayers, see ACA §§ 9015, 10906; HCERA § 1402, medical devices, see 26 U.S.C. § 4191 (2006 ed., Supp. IV), and tanning booths, see § 5000B. It spends government money on, among other things, the study of how to spend less government money. 42 U.S.C. § 1315a. And it includes a number of provisions that provide benefits to the State of a particular legislator. For example, § 10323, 124 Stat. 954, extends Medicare coverage to individuals exposed to asbestos from a mine in Libby, Montana. Another provision, § 2006, id., at 284, increases Medicaid payments only in Louisiana.

Such provisions validate the Senate Majority Leader's statement, "`I don't know if there is a senator that doesn't have something in this bill that was important to them.... [And] if they don't have something in it important to them, then it doesn't speak well of them. That's what this legislation is all about: It's the art of compromise.'" Pear, In Health Bill for Everyone, Provisions for a Few, N.Y. Times, Jan. 4, 2010, p. A10 (quoting Sen. Reid). Often, a minor provision will be the price paid for support of a major provision. So, if the major provision were unconstitutional, Congress would not have passed the minor one.

Without the ACA's major provisions, many of these minor provisions will not operate in the manner Congress intended. For example, the tax increases are "Revenue Offset Provisions" designed to help offset the cost to the Federal Government of programs like the Medicaid Expansion and the exchanges' federal subsidies. See Title IX, Subtitle A — Revenue Offset Provisions, 124 Stat. 847. With the Medicaid Expansion and the exchanges invalidated, the tax increases no longer operate to offset costs, and they no longer serve the purpose in the Act's scheme of "shared responsibility" that Congress intended.

Some provisions, such as requiring chain restaurants to display nutritional content, appear likely to operate as Congress intended, but they fail the second test for severability. There is no reason to believe that Congress would have enacted them independently. The Court has not previously had occasion to consider severability in the context of an omnibus enactment like the ACA, which includes not only many provisions that are ancillary to its central provisions but also many that are entirely unrelated — hitched on because it was a quick way to get them passed despite opposition, or because their proponents could exact their enactment as the quid pro quo for their needed support. When we are confronted with such a so-called "Christmas tree," a law to which many nongermane ornaments have been attached, we think the proper rule must be [2676] that when the tree no longer exists the ornaments are superfluous. We have no reliable basis for knowing which pieces of the Act would have passed on their own. It is certain that many of them would not have, and it is not a proper function of this Court to guess which. To sever the statute in that manner "`would be to make a new law, not to enforce an old one. This is not part of our duty.'" Trade-Mark Cases, 100 U.S., at 99.

This Court must not impose risks unintended by Congress or produce legislation Congress may have lacked the support to enact. For those reasons, the unconstitutionality of both the Individual Mandate and the Medicaid Expansion requires the invalidation of the Affordable Care Act's other provisions.

* * *

The Court today decides to save a statute Congress did not write. It rules that what the statute declares to be a requirement with a penalty is instead an option subject to a tax. And it changes the intentionally coercive sanction of a total cut-off of Medicaid funds to a supposedly noncoercive cut-off of only the incremental funds that the Act makes available.

The Court regards its strained statutory interpretation as judicial modesty. It is not. It amounts instead to a vast judicial overreaching. It creates a debilitated, inoperable version of health-care regulation that Congress did not enact and the public does not expect. It makes enactment of sensible health-care regulation more difficult, since Congress cannot start afresh but must take as its point of departure a jumble of now senseless provisions, provisions that certain interests favored under the Court's new design will struggle to retain. And it leaves the public and the States to expend vast sums of money on requirements that may or may not survive the necessary congressional revision.

The Court's disposition, invented and atextual as it is, does not even have the merit of avoiding constitutional difficulties. It creates them. The holding that the Individual Mandate is a tax raises a difficult constitutional question (what is a direct tax?) that the Court resolves with inadequate deliberation. And the judgment on the Medicaid Expansion issue ushers in new federalism concerns and places an unaccustomed strain upon the Union. Those States that decline the Medicaid Expansion must subsidize, by the federal tax dollars taken from their citizens, vast grants to the States that accept the Medicaid Expansion. If that destabilizing political dynamic, so antagonistic to a harmonious Union, is to be introduced at all, it should be by Congress, not by the Judiciary.

The values that should have determined our course today are caution, minimalism, and the understanding that the Federal Government is one of limited powers. But the Court's ruling undermines those values at every turn. In the name of restraint, it overreaches. In the name of constitutional avoidance, it creates new constitutional questions. In the name of cooperative federalism, it undermines state sovereignty.

The Constitution, though it dates from the founding of the Republic, has powerful meaning and vital relevance to our own times. The constitutional protections that this case involves are protections of structure. Structural protections — notably, the restraints imposed by federalism and separation of powers — are less romantic and have less obvious a connection to personal freedom than the provisions of the Bill of Rights or the Civil War Amendments. Hence they tend to be undervalued or even forgotten by our citizens. It should be the responsibility of the Court to teach otherwise, to remind our people that the Framers considered structural protections [2677] of freedom the most important ones, for which reason they alone were embodied in the original Constitution and not left to later amendment. The fragmentation of power produced by the structure of our Government is central to liberty, and when we destroy it, we place liberty at peril. Today's decision should have vindicated, should have taught, this truth; instead, our judgment today has disregarded it.

For the reasons here stated, we would find the Act invalid in its entirety. We respectfully dissent.

Justice THOMAS, dissenting.

I dissent for the reasons stated in our joint opinion, but I write separately to say a word about the Commerce Clause. The joint dissent and THE CHIEF JUSTICE correctly apply our precedents to conclude that the Individual Mandate is beyond the power granted to Congress under the Commerce Clause and the Necessary and Proper Clause. Under those precedents, Congress may regulate "economic activity [that] substantially affects interstate commerce." United States v. Lopez, 514 U.S. 549, 560, 115 S.Ct. 1624, 131 L.Ed.2d 626 (1995). I adhere to my view that "the very notion of a `substantial effects' test under the Commerce Clause is inconsistent with the original understanding of Congress' powers and with this Court's early Commerce Clause cases." United States v. Morrison, 529 U.S. 598, 627, 120 S.Ct. 1740, 146 L.Ed.2d 658 (2000) (THOMAS, J., concurring); see also Lopez, supra, at 584-602, 115 S.Ct. 1624 (THOMAS, J., concurring); Gonzales v. Raich, 545 U.S. 1, 67-69, 125 S.Ct. 2195, 162 L.Ed.2d 1 (2005) (THOMAS, J., dissenting). As I have explained, the Court's continued use of that test "has encouraged the Federal Government to persist in its view that the Commerce Clause has virtually no limits." Morrison, supra, at 627, 120 S.Ct. 1740. The Government's unprecedented claim in this suit that it may regulate not only economic activity but also inactivity that substantially affects interstate commerce is a case in point.

[1] The Eleventh Circuit did not consider whether the Anti-Injunction Act bars challenges to the individual mandate. The District Court had determined that it did not, and neither side challenged that holding on appeal. The same was true in the Fourth Circuit, but that court examined the question sua sponte because it viewed the Anti-Injunction Act as a limit on its subject matter jurisdiction. See Liberty Univ., 671 F.3d, at 400-401. The Sixth Circuit and the D.C. Circuit considered the question but determined that the Anti-Injunction Act did not apply. See Thomas More, 651 F.3d, at 539-540 (C.A.6); Seven-Sky, 661 F.3d, at 5-14 (C.A.D.C.).

[2] We appointed H. Bartow Farr III to brief and argue in support of the Eleventh Circuit's judgment with respect to severability, and Robert A. Long to brief and argue the proposition that the Anti-Injunction Act bars the current challenges to the individual mandate. 565 U.S. ___, 132 S.Ct. 603, 181 L.Ed.2d 420 (2011). Both amici have ably discharged their assigned responsibilities.

[3] The examples of other congressional mandates cited by Justice GINSBURG, post, at 2627, n. 10 (opinion concurring in part, concurring in judgment in part, and dissenting in part), are not to the contrary. Each of those mandates — to report for jury duty, to register for the draft, to purchase firearms in anticipation of militia service, to exchange gold currency for paper currency, and to file a tax return — are based on constitutional provisions other than the Commerce Clause. See Art. I, § 8, cl. 9 (to "constitute Tribunals inferior to the supreme Court"); id., cl. 12 (to "raise and support Armies"); id., cl. 16 (to "provide for organizing, arming, and disciplining, the Militia"); id., cl. 5 (to "coin Money"); id., cl. 1 (to "lay and collect Taxes").

[4] Justice GINSBURG suggests that "at the time the Constitution was framed, to `regulate' meant, among other things, to require action." Post, at 2621 (citing Seven-Sky v. Holder, 661 F.3d 1, 16 (C.A.D.C.2011); brackets and some internal quotation marks omitted). But to reach this conclusion, the case cited by Justice GINSBURG relied on a dictionary in which "[t]o order; to command" was the fifth-alternative definition of "to direct," which was itself the second-alternative definition of "to regulate." See Seven-Sky, supra, at 16 (citing S. Johnson, Dictionary of the English Language (4th ed. 1773) (reprinted 1978)). It is unlikely that the Framers had such an obscure meaning in mind when they used the word "regulate." Far more commonly, "[t]o regulate" meant "[t]o adjust by rule or method," which presupposes something to adjust. 2 Johnson, supra, at 1619; see also Gibbons, 9 Wheat., at 196 (defining the commerce power as the power "to prescribe the rule by which commerce is to be governed").

[5] Justice GINSBURG cites two eminent domain cases from the 1890s to support the proposition that our case law does not "toe the activity versus inactivity line." Post, at 2621 (citing Monongahela Nav. Co. v. United States, 148 U.S. 312, 335-337, 13 S.Ct. 622, 37 L.Ed. 463 (1893), and Cherokee Nation v. Southern Kansas R. Co., 135 U.S. 641, 657-659, 10 S.Ct. 965, 34 L.Ed. 295 (1890)). The fact that the Fifth Amendment requires the payment of just compensation when the Government exercises its power of eminent domain does not turn the taking into a commercial transaction between the landowner and the Government, let alone a government-compelled transaction between the landowner and a third party.

[6] In an attempt to recast the individual mandate as a regulation of commercial activity, Justice GINSBURG suggests that "[a]n individual who opts not to purchase insurance from a private insurer can be seen as actively selecting another form of insurance: self-insurance." Post, at 2622. But "self-insurance" is, in this context, nothing more than a description of the failure to purchase insurance. Individuals are no more "activ[e] in the self-insurance market" when they fail to purchase insurance, ibid., than they are active in the "rest" market when doing nothing.

[7] Sotelo, in particular, would seem to refute the joint dissent's contention that we have "never" treated an exaction as a tax if it was denominated a penalty. Post, at 2652. We are not persuaded by the dissent's attempt to distinguish Sotelo as a statutory construction case from the bankruptcy context. Post, at 2651, n. 5. The dissent itself treats the question here as one of statutory interpretation, and indeed also relies on a statutory interpretation case from the bankruptcy context. Post, at 2654-2655 (citing United States v. Reorganized CF & I Fabricators of Utah, Inc., 518 U.S. 213, 224, 116 S.Ct. 2106, 135 L.Ed.2d 506 (1996)).

[8] In 2016, for example, individuals making $35,000 a year are expected to owe the IRS about $60 for any month in which they do not have health insurance. Someone with an annual income of $100,000 a year would likely owe about $200. The price of a qualifying insurance policy is projected to be around $400 per month. See D. Newman, CRS Report for Congress, Individual Mandate and Related Information Requirements Under PPACA 7, and n. 25 (2011).

[9] We do not suggest that any exaction lacking a scienter requirement and enforced by the IRS is within the taxing power. See post, at 2654-2655 (joint opinion of SCALIA, KENNEDY, THOMAS, and ALITO, JJ., dissenting). Congress could not, for example, expand its authority to impose criminal fines by creating strict liability offenses enforced by the IRS rather than the FBI. But the fact the exaction here is paid like a tax, to the agency that collects taxes — rather than, for example, exacted by Department of Labor inspectors after ferreting out willful malfeasance — suggests that this exaction may be viewed as a tax.

[10] The joint dissent attempts to distinguish New York v. United States on the ground that the seemingly imperative language in that case was in an "introductory provision" that had "no legal consequences." Post, at 2652. We did not rely on that reasoning in New York. See 505 U.S., at 169-170, 112 S.Ct. 2408. Nor could we have. While the Court quoted only the broad statement that "[e]ach State shall be responsible" for its waste, that language was implemented through operative provisions that also use the words on which the dissent relies. See 42 U.S.C. § 2021e(e)(1) (entitled "Requirements for non-sited compact regions and non-member States" and directing that those entities "shall comply with the following requirements"); § 2021e(e)(2) (describing "Penalties for failure to comply"). The Court upheld those provisions not as lawful commands, but as "incentives." See 505 U.S., at 152-153, 171-173, 112 S.Ct. 2408.

[11] Of course, individuals do not have a lawful choice not to pay a tax due, and may sometimes face prosecution for failing to do so (although not for declining to make the shared responsibility payment, see 26 U.S.C. § 5000A(g)(2)). But that does not show that the tax restricts the lawful choice whether to undertake or forgo the activity on which the tax is predicated. Those subject to the individual mandate may lawfully forgo health insurance and pay higher taxes, or buy health insurance and pay lower taxes. The only thing they may not lawfully do is not buy health insurance and not pay the resulting tax.

[12] Justice GINSBURG observes that state Medicaid spending will increase by only 0.8 percent after the expansion. Post, at 2632. That not only ignores increased state administrative expenses, but also assumes that the Federal Government will continue to fund the expansion at the current statutorily specified levels. It is not unheard of, however, for the Federal Government to increase requirements in such a manner as to impose unfunded mandates on the States. More importantly, the size of the new financial burden imposed on a State is irrelevant in analyzing whether the State has been coerced into accepting that burden. "Your money or your life" is a coercive proposition, whether you have a single dollar in your pocket or $500.

[13] Nor, of course, can the number of pages the amendment occupies, or the extent to which the change preserves and works within the existing program, be dispositive. Cf. post, at 2635-2636 (opinion of GINSBURG, J.). Take, for example, the following hypothetical amendment: "All of a State's citizens are now eligible for Medicaid." That change would take up a single line and would not alter any "operational aspect[] of the program" beyond the eligibility requirements. Post, at 2635. Yet it could hardly be argued that such an amendment was a permissible modification of Medicaid, rather than an attempt to foist an entirely new health care system upon the States.

[14] Justice GINSBURG suggests that the States can have no objection to the Medicaid expansion, because "Congress could have repealed Medicaid [and,] [t]hereafter, ... could have enacted Medicaid II, a new program combining the pre-2010 coverage with the expanded coverage required by the ACA." Post, at 2636; see also post, at 2629. But it would certainly not be that easy. Practical constraints would plainly inhibit, if not preclude, the Federal Government from repealing the existing program and putting every feature of Medicaid on the table for political reconsideration. Such a massive undertaking would hardly be "ritualistic." Ibid. The same is true of Justice GINSBURG's suggestion that Congress could establish Medicaid as an exclusively federal program. Post, at 2632.

[15] According to one study conducted by the National Center for Health Statistics, the high cost of insurance is the most common reason why individuals lack coverage, followed by loss of one's job, an employer's unwillingness to offer insurance or an insurers' unwillingness to cover those with preexisting medical conditions, and loss of Medicaid coverage. See Dept. of Health and Human Services, National Center for Health Statistics, Summary Health Statistics for the U.S. Population: National Health Interview Survey — 2009, Ser. 10, No. 248, p. 71, Table 25 (Dec. 2010). "[D]id not want or need coverage" received too few responses to warrant its own category. See ibid., n. 2.

[16] Despite its success, Massachusetts' medical-care providers still administer substantial amounts of uncompensated care, much of that to uninsured patients from out-of-state. See supra, at 2611-2612.

[17] Alexander Hamilton described the problem this way: "[Often] it would be beneficial to all the states to encourage, or suppress[,] a particular branch of trade, while it would be detrimental ... to attempt it without the concurrence of the rest." The Continentalist No. V, in 3 Papers of Alexander Hamilton 75, 78 (H. Syrett ed. 1962). Because the concurrence of all States was exceedingly difficult to obtain, Hamilton observed, "the experiment would probably be left untried." Ibid.

[18] See Dept. of Health and Human Services, National Center for Health Statistics, Summary Health Statistics for U.S. Adults: National Health Interview Survey 2009, Ser. 10, No. 249, p. 124, Table 37 (Dec. 2010).

[19] Echoing THE CHIEF JUSTICE, the joint dissenters urge that the minimum coverage provision impermissibly regulates young people who "have no intention of purchasing [medical care]" and are too far "removed from the [health-care] market." See post, at 2646, 2647. This criticism ignores the reality that a healthy young person may be a day away from needing health care. See supra, at 2610. A victim of an accident or unforeseen illness will consume extensive medical care immediately, though scarcely expecting to do so.

[20] THE CHIEF JUSTICE's reliance on the quoted passages of the Constitution, see ante, at 2586-2587, is also dubious on other grounds. The power to "regulate the Value" of the national currency presumably includes the power to increase the currency's worth — i.e., to create value where none previously existed. And if the power to "[r]egulat[e] ... the land and naval Forces" presupposes "there is already [in existence] something to be regulated," i.e., an Army and a Navy, does Congress lack authority to create an Air Force?

[21] THE CHIEF JUSTICE's characterization of individuals who choose not to purchase private insurance as "doing nothing," ante, at ___, is similarly questionable. A person who self-insures opts against prepayment for a product the person will in time consume. When aggregated, exercise of that option has a substantial impact on the health-care market. See supra, at 2610-2612, 2616-2618.

[22] Some adherents to the joint dissent have questioned the existence of substantive due process rights. See McDonald v. Chicago, 561 U.S. ___, ___, 130 S.Ct. 3020, 3062, 177 L.Ed.2d 894 (2010) (THOMAS, J., concurring) (The notion that the Due Process Clause "could define the substance of th[e] righ[t to liberty] strains credulity."); Albright v. Oliver, 510 U.S. 266, 275, 114 S.Ct. 807, 127 L.Ed.2d 114 (1994) (SCALIA, J., concurring) ("I reject the proposition that the Due Process Clause guarantees certain (unspecified) liberties[.]"). Given these Justices' reluctance to interpret the Due Process Clause as guaranteeing liberty interests, their willingness to plant such protections in the Commerce Clause is striking.

[23] The failure to purchase vegetables in THE CHIEF JUSTICE's hypothetical, then, is not what leads to higher health-care costs for others; rather, it is the failure of individuals to maintain a healthy diet, and the resulting obesity, that creates the cost-shifting problem. See ante, at 2588-2589. Requiring individuals to purchase vegetables is thus several steps removed from solving the problem. The failure to obtain health insurance, by contrast, is the immediate cause of the cost-shifting Congress sought to address through the ACA. See supra, at 2610-2612. Requiring individuals to obtain insurance attacks the source of the problem directly, in a single step.

[24] Indeed, Congress regularly and uncontroversially requires individuals who are "doing nothing," see ante, at 2587, to take action. Examples include federal requirements to report for jury duty, 28 U.S.C. § 1866(g) (2006 ed., Supp. IV); to register for selective service, 50 U.S.C.App. § 453; to purchase firearms and gear in anticipation of service in the Militia, 1 Stat. 271 (Uniform Militia Act of 1792); to turn gold currency over to the Federal Government in exchange for paper currency, see Nortz v. United States, 294 U.S. 317, 328, 55 S.Ct. 428, 79 L.Ed. 907 (1935); and to file a tax return, 26 U.S.C. § 6012 (2006 ed., Supp. IV).

[25] In a separate argument, the joint dissenters contend that the minimum coverage provision is not necessary and proper because it was not the "only ... way" Congress could have made the guaranteed-issue and community-rating reforms work. Post, at 2646-2647. Congress could also have avoided an insurance-market death spiral, the dissenters maintain, by imposing a surcharge on those who did not previously purchase insurance when those individuals eventually enter the health-insurance system. Post, at 2647. Or Congress could "den[y] a full income tax credit" to those who do not purchase insurance. Ibid.

Neither a surcharge on those who purchase insurance nor the denial of a tax credit to those who do not would solve the problem created by guaranteed-issue and community-rating requirements. Neither would prompt the purchase of insurance before sickness or injury occurred.

But even assuming there were "practicable" alternatives to the minimum coverage provision, "we long ago rejected the view that the Necessary and Proper Clause demands that an Act of Congress be `absolutely necessary' to the exercise of an enumerated power." Jinks v. Richland County, 538 U.S. 456, 462, 123 S.Ct. 1667, 155 L.Ed.2d 631 (2003) (quoting McCulloch v. Maryland, 4 Wheat. 316, 414-415, 4 L.Ed. 579 (1819)). Rather, the statutory provision at issue need only be "conducive" and "[reasonably] adapted" to the goal Congress seeks to achieve. Jinks, 538 U.S., at 462, 123 S.Ct. 1667 (internal quotation marks omitted). The minimum coverage provision meets this requirement. See supra, at 2625-2626.

[26] THE CHIEF JUSTICE states that he must evaluate the constitutionality of the minimum coverage provision under the Commerce Clause because the provision "reads more naturally as a command to buy insurance than as a tax." Ante, at 2600. THE CHIEF JUSTICE ultimately concludes, however, that interpreting the provision as a tax is a "fairly possible" construction. Ante, at 2594 (internal quotation marks omitted). That being so, I see no reason to undertake a Commerce Clause analysis that is not outcome determinative.

[27] Medicaid was "plainly an extension of the existing Kerr-Mills" grant program. Huberfeld, Federalizing Medicaid, 14 U. Pa. J. Const. L. 431, 444-445 (2011). Indeed, the "section of the Senate report dealing with Title XIX" — the title establishing Medicaid — "was entitled, `Improvement and Extension of Kerr-Mills Medical Assistance Program.'" Stevens & Stevens, Welfare Medicine in America 51 (1974) (quoting S.Rep. No. 404, 89th Cong., 1st Sess., pt. 1, p. 9 (1965)). Setting the pattern for Medicaid, Kerr-Mills reimbursed States for a portion of the cost of health care provided to welfare recipients if States met conditions specified in the federal law, e.g., participating States were obliged to offer minimum coverage for hospitalization and physician services. See Huberfeld, supra, at 443-444.

[28] Available online at http://www.cms.gov/ Research-Statistics-Data-and-Systems/ Statistics-Trends-and-Reports/NationalHealth ExpendData/NationalHealthAccountsHistorical.html.

[29] Even the study on which the plaintiffs rely, see Brief for Petitioners 10, concludes that "[w]hile most states will experience some increase in spending, this is quite small relative to the federal matching payments and low relative to the costs of uncompensated care that [the states] would bear if the[re] were no health reform." See Kaiser Commission on Medicaid & the Uninsured, Medicaid Coverage & Spending in Health Reform 16 (May 2010). Thus there can be no objection to the ACA's expansion of Medicaid as an "unfunded mandate." Quite the contrary, the program is impressively well funded.

[30] In 1972, for example, Congress ended the federal cash-assistance program for the aged, blind, and disabled. That program previously had been operated jointly by the Federal and State Governments, as is the case with Medicaid today. Congress replaced the cooperative federal program with the nationalized Supplemental Security Income (SSI) program. See Schweiker v. Gray Panthers, 453 U.S. 34, 38, 101 S.Ct. 2633, 69 L.Ed.2d 460 (1981).

[31] THE CHIEF JUSTICE and the joint dissenters perceive in cooperative federalism a "threa[t]" to "political accountability." Ante, at 2602; see post, at 2660-2661. By that, they mean voter confusion: Citizens upset by unpopular government action, they posit, may ascribe to state officials blame more appropriately laid at Congress' door. But no such confusion is apparent in this case: Medicaid's status as a federally funded, state-administered program is hardly hidden from view.

[32] Although the plaintiffs, in the proceedings below, did not contest the ACA's satisfaction of these criteria, see 648 F.3d 1235, 1263 (C.A.11 2011), THE CHIEF JUSTICE appears to rely heavily on the second criterion. Compare ante, at 2605, 2606, with infra, at 2637-2638.

[33] Compare Subchapter XIX, 42 U.S.C. §§ 1396-1396v(b) (2006 ed. and Supp. IV) with §§ 1396a(a)(10)(A)(i)(VIII) (2006 ed. and Supp. IV); 1396a(a)(10)(A)(ii)(XX), 1396a(a)(75), 1396a(k), 1396a(gg) to (hh), 1396d(y), 1396r-1(e), 1396u-7(b)(5) to (6).

[34] The Deficit Reduction Act of 2005 authorized States to provide "benchmark coverage" or "benchmark equivalent coverage" to certain Medicaid populations. See § 6044, 120 Stat. 88, 42 U.S.C. § 1396u-7 (2006 ed. and Supp. IV). States may offer the same level of coverage to persons newly eligible under the ACA. See § 1396a(k).

[35] THE CHIEF JUSTICE observes that "Spending Clause legislation [i]s much in the nature of a contract." Ante, at 2602 (internal quotation marks omitted). See also post, at 2659 (joint opinion of SCALIA, KENNEDY, THOMAS, and ALITO, JJ.) (same). But the Court previously has recognized that "[u]nlike normal contractual undertakings, federal grant programs originate in and remain governed by statutory provisions expressing the judgment of Congress concerning desirable public policy." Bennett v. Kentucky Dept. of Ed., 470 U.S. 656, 669, 105 S.Ct. 1544, 84 L.Ed.2d 590 (1985).

[36] Title I of the Elementary and Secondary Education Act of 1965 provided federal grants to finance supplemental educational programs in school districts with high concentrations of children from low-income families. See Bennett v. New Jersey, 470 U.S. 632, 634-635, 105 S.Ct. 1555, 84 L.Ed.2d 572 (1985) (citing Pub. L. No. 89-10, 79 Stat. 27).

[37] Note, in this regard, the extension of Social Security, which began in 1935 as an old-age pension program, then expanded to include survivor benefits in 1939 and disability benefits in 1956. See Social Security Act, ch. 531, 49 Stat. 622-625; Social Security Act Amendments of 1939, 53 Stat. 1364-1365; Social Security Amendments of 1956, ch. 836, § 103, 70 Stat. 815-816.

[38] The joint dissenters, for their part, would make this the entire inquiry. "[I]f States really have no choice other than to accept the package," they assert, "the offer is coercive." Post, at 2661. THE CHIEF JUSTICE recognizes Congress' authority to construct a single federal program and "condition the receipt of funds on the States' complying with restrictions on the use of those funds." Ante, at 2603-2604. For the joint dissenters, however, all that matters, it appears, is whether States can resist the temptation of a given federal grant. Post, at 2660. On this logic, any federal spending program, sufficiently large and well-funded, would be unconstitutional. The joint dissenters point to smaller programs States might have the will to refuse. See post, at 2663-2664 (elementary and secondary education). But how is a court to judge whether "only 6.6% of all state expenditures," post,at 2663, is an amount States could or would do without?

Speculations of this genre are characteristic of the joint dissent. See, e.g., post, at 2660 ("it may be state officials who will bear the brunt of public disapproval" for joint federal-state endeavors); ibid., ("federal officials ... may remain insulated from the electoral ramifications of their decision"); post, at 2661 ("a heavy federal tax ... levied to support a federal program that offers large grants to the States ... may, as a practical matter, [leave States] unable to refuse to participate"); ibid. (withdrawal from a federal program "would likely force the State to impose a huge tax increase"); post, at 2666 (state share of ACA expansion costs "may increase in the future") (all emphasis added; some internal quotation marks omitted). The joint dissenters are long on conjecture and short on real-world examples.

[39] The joint dissenters also rely heavily on Congress' perceived intent to coerce the States. Post, at 2664-2666; see, e.g., post, at 2664 ("In crafting the ACA, Congress clearly expressed its informed view that no State could possibly refuse the offer that the ACA extends."). We should not lightly ascribe to Congress an intent to violate the Constitution (at least as my colleagues read it). This is particularly true when the ACA could just as well be comprehended as demonstrating Congress' mere expectation, in light of the uniformity of past participation and the generosity of the federal contribution, that States would not withdraw. Cf. South Dakota v. Dole, 483 U.S. 203, 211, 107 S.Ct. 2793, 97 L.Ed.2d 171 (1987) ("We cannot conclude ... that a conditional grant of federal money ... is unconstitutional simply by reason of its success in achieving the congressional objective.").

[40] Federal taxation of a State's citizens, according to the joint dissenters, may diminish a State's ability to raise new revenue. This, in turn, could limit a State's capacity to replace a federal program with an "equivalent" state-funded analog. Post, at 2663. But it cannot be true that "the amount of the federal taxes extracted from the taxpayers of a State to pay for the program in question is relevant in determining whether there is impermissible coercion." Post, at 2661. When the United States Government taxes United States citizens, it taxes them "in their individual capacities" as "the people of America" — not as residents of a particular State. See U.S. Term Limits, Inc. v. Thornton, 514 U.S. 779, 839, 115 S.Ct. 1842, 131 L.Ed.2d 881 (1995) (KENNEDY, J., concurring). That is because the "Framers split the atom of sovereignty[,]... establishing two orders of government" — "one state and one federal" — "each with its own direct relationship" to the people. Id.,at 838, 115 S.Ct. 1842.

A State therefore has no claim on the money its residents pay in federal taxes, and federal "spending programs need not help people in all states in the same measure." See Brief for David Satcher et al. as Amici Curiae 19. In 2004, for example, New Jersey received 55 cents in federal spending for every dollar its residents paid to the Federal Government in taxes, while Mississippi received $1.77 per tax dollar paid. C. Dubay, Tax Foundation, Federal Tax Burdens and Expenditures by State: Which States Gain Most from Federal Fiscal Operations? 2 (Mar. 2006). Thus no constitutional problem was created when Arizona declined for 16 years to participate in Medicaid, even though its residents' tax dollars financed Medicaid programs in every other State.

[41] As THE CHIEF JUSTICE observes, the Secretary is authorized to withhold all of a State's Medicaid funding. See ante, at 2604. But total withdrawal is what the Secretary may, not must, do. She has discretion to withhold only a portion of the Medicaid funds otherwise due a noncompliant State. See § 1396c; cf. 45 CFR § 80.10(f) (2011) (Secretary may enforce Title VI's nondiscrimination requirement through "refusal to grant or continue Federal financial assistance, in whole or in part." (emphasis added)). The Secretary, it is worth noting, may herself experience political pressures, which would make her all the more reluctant to cut off funds Congress has appropriated for a State's needy citizens.

[42] The most authoritative legal dictionaries of the founding era lack any definition for "regulate" or "regulation," suggesting that the term bears its ordinary meaning (rather than some specialized legal meaning) in the constitutional text. See R. Burn, A New Law Dictionary 281 (1792); G. Jacob, A New Law Dictionary (10th ed. 1782); 2 T. Cunningham, A New and Complete Law Dictionary (2d ed. 1771).

[43] Justice GINSBURG is therefore right to note that Congress is "not mandating the purchase of a discrete, unwanted product." Ante, at 2620 (opinion concurring in part, concurring in judgment in part, and dissenting in part). Instead, it is mandating the purchase of an unwanted suite of products — e.g., physician office visits, emergency room visits, hospital room and board, physical therapy, durable medical equipment, mental health care, and substance abuse detoxification. See Selected Medical Benefits: A Report from the Dept. of Labor to the Dept. of Health & Human Services (April 15, 2011) (reporting that over two-thirds of private industry health plans cover these goods and services), online at http://www.bls.gov/ncs/ ebs/sp/selmedbensreport.pdf (all Internet materials as visited June 26, 2012, and available in Clerk of Court's case file).

[44] In its effort to show the contrary, Justice GINSBURG's dissent comes up with nothing more than two condemnation cases, which it says demonstrate "Congress' authority under the commerce power to compel an `inactive' landholder to submit to an unwanted sale." Ante, at 2621. Wrong on both scores. As its name suggests, the condemnation power does not "compel" anyone to do anything. It acts in rem,against the property that is condemned, and is effective with or without a transfer of title from the former owner. More important, the power to condemn for public use is a separate sovereign power, explicitly acknowledged in the Fifth Amendment, which provides that "private property [shall not] be taken for public use, without just compensation."

Thus, the power to condemn tends to refute rather than support the power to compel purchase of unwanted goods at a prescribed price: The latter is rather like the power to condemn cash for public use. If it existed, why would it not (like the condemnation power) be accompanied by a requirement of fair compensation for the portion of the exacted price that exceeds the goods' fair market value (here, the difference between what the free market would charge for a health-insurance policy on a young, healthy person with no pre-existing conditions, and the government-exacted community-rated premium)?

[45] No one seriously contends that any of Congress' other enumerated powers gives it the authority to enact § 5000A as a regulation.

[46] Of course it can be both for statutory purposes, since Congress can define "tax" and "penalty" in its enactments any way it wishes. That is why United States v. Sotelo, 436 U.S. 268, 98 S.Ct. 1795, 56 L.Ed.2d 275 (1978), does not disprove our statement. That case held that a "penalty" for willful failure to pay one's taxes was included among the "taxes" made non-dischargeable under the Bankruptcy Code. 436 U.S., at 273-275, 98 S.Ct. 1795. Whether the "penalty" was a "tax" within the meaning of the Bankruptcy Code had absolutely no bearing on whether it escaped the constitutional limitations on penalties.

[47] The amicus appointed to defend the proposition that the Anti-Injunction Act deprives us of jurisdiction stresses that the penalty for failing to comply with the mandate "shall be assessed and collected in the same manner as an assessable penalty under subchapter B of chapter 68," 26 U.S.C. § 5000A(g)(1) (2006 ed., Supp. IV), and that such penalties "shall be assessed and collected in the same manner as taxes," § 6671(a) (2006 ed.). But that point seems to us to confirm the inapplicability of the Anti-Injunction Act. That the penalty is to be "assessed and collected in the same manner as taxes" refutes the proposition that it is a tax for all statutory purposes, including with respect to the Anti-Injunction Act. Moreover, elsewhere in the Internal Revenue Code, Congress has provided both that a particular payment shall be "assessed and collected" in the same manner as a tax and that no suit shall be maintained to restrain the assessment or collection of the payment. See, e.g.,§§ 7421(b)(1), § 6901(a); § 6305(a), (b). The latter directive would be superfluous if the former invoked the Anti-Injunction Act.

Amicus also suggests that the penalty should be treated as a tax because it is an assessable penalty, and the Code's assessment provision authorizes the Secretary of the Treasury to assess "all taxes (including interest, additional amounts, additions to the tax, and assessable penalties) imposed by this title." § 6201(a) (2006 ed., Supp. IV). But the fact that such items are included as "taxes" for purposes of assessment does not establish that they are included as "taxes" for purposes of other sections of the Code, such as the Anti-Injunction Act, that do not contain similar "including" language.

[48] "State expenditures" is used here to mean annual expenditures from the States' own funding sources, and it excludes federal grants unless otherwise noted.

[49] This number is expressed in billions of Fiscal Year 2005 dollars.

[50] See Office of Management and Budget, Historical Tables, Budget of the U.S. Government, Fiscal Year 2013, Table 12.1 — Summary Comparison of Total Outlays for Grants to State and Local Governments: 1940-2017 (hereinafter Table 12.1), http://www. whitehouse.gov/omb/budget/Historicals; id., Table 15.2 — Total Government Expenditures: 1948-2011 (hereinafter Table 15.2).

[51] This number is expressed in billions of Fiscal Year 2005 dollars.

[52] See Table 12.1; Dept. of Commerce, Bureau of Census, Statistical Abstract of the United States: 2001, p. 262 (Table 419, Federal Grants-in-Aid Summary: 1970 to 2001).

[53] See Statistical Abstract of the United States: 2012, p. 268 (Table 431, Federal Grants-in-Aid to State and Local Governments: 1990 to 2011).

[54] Justice GINSBURG argues that "[a] State... has no claim on the money its residents pay in federal taxes." Ante, at 2641, n. 26. This is true as a formal matter. "When the United States Government taxes United States citizens, it taxes them `in their individual capacities' as `the people of America' — not as residents of a particular State." Ante, at 2641, n. 26 (quoting U.S. Term Limits, Inc. v. Thornton, 514 U.S. 779, 839, 115 S.Ct. 1842, 131 L.Ed.2d 881 (1995) (KENNEDY, J., concurring)). But unless Justice GINSBURG thinks that there is no limit to the amount of money that can be squeezed out of taxpayers, heavy federal taxation diminishes the practical ability of States to collect their own taxes.

[55] The Federal Government has a higher number for federal spending on Medicaid. According to the Office of Management and Budget, federal grants to the States for Medicaid amounted to nearly $273 billion in Fiscal Year 2010. See Office of Management and Budget, Historical Tables, Budget of the U.S. Government, Fiscal Year 2013, Table 12.3 — Total Outlays for Grants to State and Local Governments by Function, Agency, and Program: 1940-2013, http://www.whitehouse. gov/omb/budget/Historicals. In that Fiscal Year, total federal outlays for grants to state and local governments amounted to over $608 billion, see Table 12.1, and state and local government expenditures from their own sources amounted to $1.6 trillion, see Table 15.2. Using these numbers, 44.8% of all federal outlays to both state and local governments was allocated to Medicaid, amounting to 16.8% of all state and local expenditures from their own sources.

[56] The Federal Government reports a higher percentage. According to Medicaid.gov, in Fiscal Year 2010, the Federal Government made Medicaid payments in the amount of nearly $260 billion, representing 67.79% of total Medicaid payments of $383 billion. See www.medicaid.gov/Medicaid-CHIP-Program-Information/By-State/By-State.html.

Appeal from District Court, Webster County; R. M. Wright, Judge.

Counterclaim asserting that damages were due from plaintiff because of a contract made between plaintiff and defendant. A demurrer to the counterclaim was overruled; hence this appeal. Reversed. [417] Frank Maher, of Ft. Dodge, for appellant.

E. H. Johnson, of Ft. Dodge, for appellee.

SALINGER, J.

I.

The counterclaim alleges that about August 18, 1916, defendant, [418] through an agent, entered into an oral agreement “whereby plaintiff agreed to furnish and to deliver to defendant orders given them” for carload shipments of coal from defendant f. o. b. mines, “to be shipped to defendant at such railroad yard stations as defendant might direct, at the price of $1.50 a ton on all orders up to September 1, 1916, and $1.65 a ton on all orders from then to April 1, 1917.” It is further alleged that “said coal ordered would be and consist” of what was known as plaintiff's Paradise 6? lump, 6x3? egg, or 3 x2? nut coal. It is next alleged that defendant has for several years last past been engaged in owning and operating what is commonly known as a line of lumber yards, located at different railroad station points tributary to Ft. Dodge, where defendant has its principal place of business; that at these several lumber yards, among other merchandise and commodities, the defendant handles coal in carload lots, with purpose of selling the same at retail to its patrons. Then comes an allegation that the agent made oral agreement “that plaintiff would furnish unto defendant coal in carload lots, that defendant would want to purchase from plaintiff” on stated terms, with character of the coal described, and that the oral contract was confirmed by the letter Exhibit 1. It is of date August 21, 1916, and recites that plaintiff is in receipt of a letter from their agent--

“asking us to name you a price [repeating the price and coal description found in the counterclaim]. Although this is a very low price, our agent, Mr. Spalding, has recommended that we quote you this price, and we hereby confirm it. Any orders received between now and September 1st are to be shipped at $1.50. We would like to have a letter from you accepting these prices, and if this is satisfactory will consider same as a contract.”

On August 26, 1916, the defendant responded:

“We have your favor of the 21st accepting our order for coal for shipment to March 31, 1917.”

The basis of the counterclaim, so far as damages are concerned, is the allegation that a stated amount of coal had to be purchased by defendant in the open market at a greater than the contract price, and that therefore there is due the defendant from the plaintiff the sum of $3,090.

The demurrer asserts that the alleged contract is “void for failure of mutuality and certainty,” is void because there is no consideration between the parties, because it appears affirmatively that the offer was simply an offer on part of plaintiff, which might be accepted by giving an order until such time as it was actually withdrawn or expired by limitation, each order and acceptance of a carload lot constituting a separate and distinct contract, and void because the agreement could not be enforced by the plaintiff on any certain or specified amount of tonnage, or for the payment of any specified tonnage.

II. 

The demurrer makes, in effect, three assertions: (a) That the arrangement between the parties is void for uncertainty; (b) that it lacks consideration; (c) that it lacks mutuality of obligation. We have given the argument and the citations on the first two propositions full consideration. But we conclude these first two are of no importance if mutuality is wanting.

The authorities that deal with uncertainty and indefiniteness hold, in effect, that whatsoever is ascertainable with reasonable effort is sufficiently certain to be enforced, if there be no objection to enforcement other than uncertainty. Now, grant that it was not difficult to ascertain how much coal defendant would sell in the time stated in the negotiations, how does that help if there was no obligation on one side to sell, or on part of the other to buy? If the defendant was under no binding obligation to buy of plaintiff, it does not matter how much defendant could sell. In fewer words, though an offer to sell a specified number of tons of coal is not uncertain or lacking in definiteness, such offer is no contract, unless the other party agrees to receive what is offered. In still fewer words, while a writing may be so uncertain as not to be enforceable, a perfectly definite writing may still be unenforceable because there is no mutuality of obligation.

And the asserted lack of consideration is bottomed on the claim that mutuality is lacking. Appellant does not deny that a promise may be a consideration for a promise. Its position is that this is so only of an enforceable promise. That is the law. If, from lack of mutuality, the promise is not binding, it cannot form a consideration. Bailey v. Austrian, 19 Minn. 535 (Gil. 465). To like effect is Walsh v. Myers, 92 Wis. 397, 66 N. W. 250, which holds there was consideration, because there were mutual promises which were enforceable. And so of Young v. Springer, 113 Minn. 382, 129 N. W. 773;Hazlehurst v. Supply Co. (),166 Fed. 191;Chicago Railway v. Dane, 43 N. Y. 242. There is no consideration by promises which lack mutuality. Cold Blast Co. v. Bolt Co., 114 Fed. at 81, 82, 52 C. C. A. 25, 57 L. R. A. 696;Campbell v. Lambert, 36 La. Ann. 35, 51 Am. Rep. 1. In the last-named case it is said that, while a promise may be a good consideration for another promise, this is not so “unless there is an absolute mutuality of engagement, so that each party has the right at once to hold the other to a positive agreement”--citing 1 Parsons on Contracts, 448. To the same effect are Utica Railway v. Brinckerhoff, 21 Wend. (N. Y.) 139, 34 Am. Dec. 220,Missouri Railway v. Bagley, 60 Kan. 424, 56 Pac. 762,Tucker v. Woods, 12 Johns. (N. Y.) 190, 7 Am. Dec. 305, Corbitt v. Gas Co., 6 Or. 405, 25 Am. Rep. 541, and 1 Chitty on Contracts, 297.

[419] The question of first importance, then, is whether there is a lack of mutuality. In the last analysis the counterclaim is based on the allegation that plaintiff undertook to furnish defendant such described coal “as defendant would want to purchase from plaintiff.” The defendant never “accepted.” Indeed, it is its position that it gave orders, and that plaintiff did the accepting. But concede, for argument's sake, that defendant did accept. What was the acceptance? At the utmost, it was a consent that plaintiff might ship it such coal as defendant “would want to purchase from plaintiff.” What obligation did this fasten upon defendant? It did not bind itself to buy all it could sell. It did not bind itself to buy of plaintiff only. It merely “agreed” to buy what it pleased. It may have been ascertainable how much it would need to buy of some one. But there was no undertaking to buy that much, or, indeed, any specified amount of coal of plaintiff. The situation is well stated in some of the cases. In Crane v. Crane, 105 Fed. at 872, 45 C. C. A. 96, 99, it is put thus:

“Should the contract under discussion be upheld, the plaintiffs in error would be held to occupy this advantageous situation: If the prices of dock oak lumber rose, they would by that much increase their ratio of profits, and probably come into a situation to outbid competitors, and increase also the quantum of orders; if, on the other hand, prices fell below the range of profits, the orders could be wholly discontinued. On the contrary, the situation of the defendant in error would be this: Should prices fall, it could not compel the plaintiffs in error to give further orders; but, should prices rise, the orders sent in would be compulsory, and the loss measured both by the increase of the ratio of profits and the probable increase of the quantum of orders.”

In American Cotton Oil Co. v. Kirk, 68 Fed. 793, 15 C. C. A. 540, 542, it is said:

“If the market price of oil should fall below the contract price, then, according to their contention as to the terms of the contract, the plaintiffs could purchase their supply of oil elsewhere and at the lower price, resorting to the contract when, and only when, the price stated was lower than the market price, and this without respect to time. Such a contract is one-sided and without mutuality.”

The “contract” on part of appellee is to buy if it pleased, when it pleased, to buy if it thought it advantageous, to buy much, little, or not at all, as it thought best.

A contract of sale is mutual where it contains an agreement to sell on the one side, and an agreement to purchase on the other. But it is not mutual where there is an obligation to sell, but no obligation to purchase, or an obligation to purchase, but no obligation to sell. 13 Corpus Juris, 339. There is no mutuality or enforceability where the agreement is that, on 60 days' notice, either party might cancel same “for good cause.” Cummer v. Butts, 40 Mich. 322, 29 Am. Rep. 530. A provision that it is understood the purchase of apples commences “as soon as it is deemed advisable by both parties to this contract, when apples can be purchased in sufficient quantities to insure getting a carload in a reasonable length of time, not to exceed three days on fall apples,” lacks mutuality. This because no party is compelled to deem anything advisable, and the courts cannot deem it for them. Woolsey v. Ryan, 59 Kan. 601, 54 Pac. 664. There is such uncertainty as to destroy mutuality where the obligation to take is conditioned upon being “as long as we can make it pay.” Davie v. Lumbermen's Co., 93 Mich. 491, 53 N. W. 625, 24 L. R. A. 357. It is said that, under such an agreement, plaintiffs must be presumed to be the sole judges of whether it would or would not pay them to do the work and of how long they should continue it, and that the defendant has no voice on whether or not plaintiffs could make it pay, and no right to say in what manner they should conduct the work in order to make it pay.

Where one party agrees to cut for the other hay “not to exceed 200 tons,” there is lack of mutuality, because the offerant was not bound to deliver any particular quantity of hay, and could cut as little as he pleased. Houston R. Co. v. Mitchell, 38 Tex. 86. So where a defendant who binds himself to receive and pay for all the ties plaintiff could produce and ship at a stated price between stated dates. As to this it was held mutuality was lacking, because there was no enforceable duty to deliver any ties. Hazlehurst v. Supply Co. (),166 Fed. 191. And so of an offer to receive and transport railroad iron, not to exceed a stated number of tons, during specified periods, and at a specified rate per ton. As to this it was held that, though plaintiff answered, assenting to the proposal, there was still no contract, because there was no agreement on his part that he would deliver any iron for transportation. Railroad v. Dane, 43 N. Y. 240;Hoffman v. Maffioli, 104 Wis. 630, 80 N. W. 1034, 47 L. R. A. 427. An agreement to purchase all that the manufacturer desires to sell at a specified price is void. 13 C. J. at 340. A written proposition to buy a stated quantity of coal at a stated price is not enforceable, because there is no corresponding obligation on the other to sell the coal at said price. Corbitt v. Gas Co., 6 Or. 405, 25 Am. Rep. 541.

No contract is created by a willingness to ship such gauge glasses as the other “might order” (Ashcroft v. Butterworth, 136 Mass. 513), nor by an engagement to deliver at a stated price “as many grapes as he (the other party) should wish” (Keller v. Ybarru, 3 Cal. 147). A so-called contract by which one engages to deliver to the other such quantities of coal as the latter may require during the year, up to a specified limit, at a specified price, but containing no engagement on part of the buyer to take or pay for any of the [420] coal, is not enforceable against the promisor. Campbell v. Lambert, 36 La. Ann. 35, 51 Am. Rep. 1. So of an agreement by one party to furnish to the former all the oak wood that the other “would require for their trade in the Chicago market during the year 1897,” at stated prices. Crane v. Crane, 105 Fed. at 871, 45 C. C. A. 96. And so an engagement by which one party engages to deliver to the other such quantities of coal as the latter may require during the year, “to the extent of 60,000 barrels, with privileges of 20,000 more,” at a stipulated price, does not work an obligation on part of the other to take or pay for any stipulated quantity, and is therefore a nudum pactum. Campbell v. Lambert, 36 La. Ann. 35, 51 Am. Rep. 1. Where plaintiff offers to deliver stone “in such quantities as may be desired,” and the other party accepts this without qualification, and without making reference to any existing contract for using the stone, there is no mutuality, because the defendant was not bound to desire any stone. Hoffman v. Maffioli, 104 Wis. 630, 80 N. W. 1032, 47 L. R. A. 427. To same effect is Oil Co. v. Kirk, 68 Fed. 793, 15 C. C. A. 540.

A contract to sell personal property is void for want of mutuality if the quantity to be delivered is conditioned entirely on the will, wish, or want of the buyer. 13 Corpus Juris, 339; Cold Blast Co. v. Bolt Co., 114 Fed. 77, 52 C. C. A. 25, 57 L. R. A. 696. So of an agreement to supply all pig iron wanted by defendants in their business between stated dates, at specified prices, even though the other party promised to purchase such iron. The argument advanced is that the buyer did not engage “to want any quantity whatever,” nor even agree to continue in their business. Bailey v. Austrian, 19 Minn. 535 (Gil. 465). It is said in Hickey v. O'Brien, 123 Mich. 611, 82 N. W. 242, 49 L. R. A. 594, 81 Am. St. Rep. 227, that in National Furnace Co. v. Manufacturing Co., 110 Ill. 427, the case of Bailey v. Austrian is distinguished by pointing out that in the Bailey Case stress is laid on the word “want”; while in the Illinois case the plaintiff agreed to sell to defendant all the iron “needed” in its business during the three ensuing years at $22.35 a ton, and the defendant agreed to take its year's supply at that price. We are unable to find any substantial difference between an “agreement” to buy what one might “want” and what one might “need.” Be that as it may, in the case at bar the language was, “would want to purchase,” and the Austrian Case is well supported in authority. An agreement to receive and pay for such beer as the plaintiff might from time to time want from the defendant lacks binding force for want of mutuality, though plaintiff agreed to sell all the beer of specified brands which plaintiff should order at prices to be agreed on. Teipel v. Meyer, 106 Wis. 41, 81 N. W. 982. To like effect is Gipps Brewing Co. v. De France, 91 Iowa, 108, 58 N. W. 1087, 28 L. R. A. 386, 51 Am. St. Rep. 329. And see Hoffman v. Maffioli, 104 Wis. 630, 80 N. W. 1035, 47 L. R. A. 427;Tarbox v. Gotzian, 20 Minn. 139 (Gil. 122); Stensgaard v. Smith, 43 Minn. 11, 44 N. W. 669, 19 Am. St. Rep. 205;Turnpike Co. v. Coy, 13 Ohio St. 84;Railroad Co. v. Brinckerhoff, 21 Wend. (N. Y.) 139, 34 Am. Dec. 220.

Indeed, in American Steel Co. v. Copeland, 159 N. C. 556, 75 S. E. 1004, and in Hickey v. O'Brien, 123 Mich. 611, 82 N. W. 241, 49 L. R. A. 594, 81 Am. St. Rep. 227, our case of Drake v. Vorse, 52 Iowa, 417, 3 N. W. 465, is construed to support the rule in Bailey v. Austrian, 19 Minn. 535 (Gil. 465), to wit: That there is no mutuality in an offer to supply all the other wants, because he is under no engagement to want any quantity whatever. Now, while we are not prepared to say that the rating which these cases have given to Drake v. Vorse can be accepted, it is certainly true that at the least it leans toward supporting appellant. Drake and Vorse on January 15, 1873, signed the following:

“I hereby agree to make all the school seat castings that A. S. Vorse may want during the year 1873, at 6 cents per pound, except inkwell covers, and them at 3 cents each, deliverable on the cars in Eddyville, Iowa. Payments, cash on delivery.”

All that seems to be decided as to this is that, where Vorse entered into a partnership after this paper was signed, it should not be construed that this contract precluded entering into a partnership during the year 1873, or that the writing would become obligatory upon the partnership. But the course of the argument leans strongly to the reasoning of cases like Bailey v. Austrian. For we said:

“It binds the plaintiff to make what castings the defendant may want. It does not expressly bind the defendant to anything except to pay in cash on delivery the prices specified.”

Then the case proceeds pro arguendo to the decision, as we have before stated. The concluding argument is this:

“He did discontinue business upon his individual account. After that he did not individually want or need any castings, and, as the firm was not bound to take any, we do not think that the defendant became liable.”

So the case seems to amount to an argumentative holding that the contract lacked mutuality. Both reason and the very great weight of authority work that the “contract” in review was no contract, because defendant was under no binding obligation.

III.

Three cars of coal were shipped and received. Upon this appellee urges that thereby the so-called contract was completed and made mutual. Part performance was ineffectual in Hoffman v. Maffioli, 104 Wis. 630, 80 N. W. 1032, 47 L. R. A. 427, to found a case as for breach of contract on refusal [421] to ship more. The same is held in Crane v. Crane, 105 Fed. 871, 45 C. C. A. 96, and in Cold Blast Co. v. Bolt Co., 114 Fed. 82, 52 C. C. A. 25, 57 L. R. A. 696,Teipel v. Meyer, 106 Wis. 41, 81 N. W. 982, and in Campbell v. Lambert, 36 La. Ann. 35, 51 Am. Rep. 1,Utica R. Co. v. Brinckerhoff, 21 Wend. (N. Y.) 139, 34 Am. Dec. 220,Missouri Railway v. Bagley, 60 Kan. 424, 56 Pac. 762, and Chicago Railway v. Dane, 43 N. Y. 243.

If there never was a contract to ship anything, that is still the situation when a contract to ship what has not yet been shipped is asserted as the basis of an action. As said in Cold Blast Co. v. Bolt Co., 114 Fed. 80, 52 C. C. A. 25, 57 L. R. A. 696, even though there had been some shipments, there was still no consideration and no mutuality in the contract as to any articles which defendant had not ordered, or which plaintiff had not delivered, and therefore the refusal of plaintiff to honor the orders of defendants was no breach of any valid contract, and formed no legal cause of action whereon to base a counterclaim. It was further said:

“As to all undelivered articles, that defect still inheres in the agreement. The plaintiff is not bound to deliver, nor the defendant to take and pay for, any articles that have not been delivered [that is to say, so much as has not been performed still rests upon an agreement which is not enforceable, and for the refusal to honor which there can be no recovery]. * * * The defendant never agreed to order or to pay for any quantity of these undelivered articles. If it had refused to order and take them, no action could have been maintained for its failure, because no court could have determined what amount it was required to take.”

It is thus stated in 13 Corpus Juris, 341:

“Accepted orders for goods under contracts void within these rules constitute sales of the goods thus ordered at the price named in the contracts, but do not validate the agreements as to articles which the one refuses to purchase or the other refuses to deliver, or to deliver under the void contract. This is so because neither party is bound to take or deliver any amount or quantity of these articles thereunder.”

Defendant alleges further that, by reason of the conduct of plaintiff in furnishing defendant two carloads at $1.50 per ton under the contract terms, plaintiff is now estopped from claiming there was no binding between the parties for furnishing coal to defendant under the contract contended for by defendant. But the claimed estoppel is no broader than the claimed breach of a contract which is no contract.

IV.

Cases relied on by appellee do not, on careful consideration, militate with what we have declared. All that Keller v. Ybarru, 3 Cal. 147, holds is that, when one party offers to sell as much as the other wishes, there is a contract after the other declares what quantity he will take. In Cooper v. Lansing, 94 Mich. 272, 54 N. W. 39, 34 Am. St. Rep. 341, the defendant entered the following order:

“Owosso, Mich., Dec. 16, 1889.

Mess. Lansing Wheel Co., Lansing, Mich.--Gentlemen: Please enter our order for what wheels we may want during the season of 1890, at following prices and terms: B, $6.00; C, $5.00; D, $4.00--per set, f. o. b. Owosso, 30 days. All the wheels to be good stock, and smooth. Should you want a few D wheels, to be extra nice stock, all selected white, they are to be furnished at same price, not to exceed 10 set in a 100.

Very respectfully yours,

Owosso Cart Co.”

Upon receipt of this instrument, defendant indorsed thereon: “Accepted. Lansing Wheel Co.” It is held there was a contract after shipment at the specified prices.

In Steel Co. v. Copeland, 159 N. C. 556, 75 S. E. 1002, it is ruled that an agreement by a manufacturer to furnish a dealer all the wire he needed for his trade constitutes a continuing offer on the part of the company to sell, which, when accepted pro tanto by an order before withdrawal of the offer, becomes effective as a contract. The facts distinguish McCall v. Icks, 107 Wis. 232, 83 N. W. 300. In Furnace Co. v. Keystone Co., 110 Ill. 427, and Smith v. Morse, 20 La. Ann. 220, there was what is indubitably a mutual promise. Of course, we are not concerned with the cases wherein it is plain that the court enforced the agreement by justifiably holding that, while certain things were not expressed, there was an affirmative agreement by necessary implication. See Cold Blast Co. v. Bolt Co., 114 Fed. 77, 52 C. C. A. 25, 57 L. R. A. 696;Shadbolt v. Topliff, 85 Wis. 513, 55 N. W. 854;Minneapolis Co. v. Goodnow, 40 Minn. 497, 42 N. W. 356, 4 L. R. A. 202. If any of these may be said to conflict with our conclusions, they are against the great weight of authority, and we decline to follow them.

The case of Holtz v. Schmidt, 59 N. Y. 253, is not relevant. It merely holds that, where there is an engagement to supply goods at prices represented to be the lowest made to any buyer, then, on proof that the same kind of goods were sold to another at lower prices than to complainant, he may recover, though either might have refused to deal. What is decided is that, having been induced to deal by such representation, the law will imply a promise to restore the money inequitably obtained by having exacted a price beyond said representation, and that the payment is to be held as one made under a mistake of fact, and to have been received by the other with knowledge that it was not entitled to it.

The demurrer should have been sustained.

Reversed.

WEAVER, C. J., and EVANS and PRESTON, JJ., concur.

Appeal from Superior Court, Fairfield County; William M. Maltbie, Judge.

Action by Nathan Gurfein against Abraham Werbelovsky, for damages for breach of a contract to sell and deliver goods, brought to and tried before the superior court on demurrer to complaint. Demurrer sustained, and on plaintiff's refusal to plead further judgment entered for defendant. Plaintiff appeals. Error and cause remanded.

The complaint alleges that on October 20, 1919, the defendant made a contract with the plaintiff, doing business under the name of the Bridgeport Glass Company, in the form following:

"October 29, 1919.

"Bridgeport Glass Co., Bdgpt, Conn.Gentlemen: We have this day accepted and entered your order for 5 cases of plate glass, the following: 1 case 60" wide; 1 case 70" wide; 2 cases SO wide; 1 case 90" widein the following brackets 25 to 50 square feet at 98 cents per sq. ft. and 50/100 at one dollar per sq. ft. f. o. b. N. Y. City.

"The above cases are to be shipped within 3 months from date. You have the option to cancel the above order before shipment.

"Yours truly, J. H. Werbelovsky's Son,

"By Joseph Rosenblum."

That the plaintiff frequently demanded delivery of the goods, but defendant has refused to ship the same, though more than three months has elapsed. Damages based on an increase in the market price over the contract price are demanded.

Defendant demurred to the complaint on the following grounds:

(1) Because it appears from said instrument Exhibit A that the same was of the nature of an option, and that said option was without consideration, and was therefore void and of no effect.

(2) Because it appears from said instrument Exhibit A that the same was of the nature of an option, but it does not appear that the same was ever properly exercised.

(3) Because it appears that said instrument by reason of the uncertainty of the terms and the lack of mutuality in the obligations it purports to create, is unenforceable as a contract, and is wholly invalid, void, and of no effect.

Theodore E. Steiber, of Bridgeport, for appellant.

Philo C. Calhoun, of Bridgeport, for appellee.

BEACH, J. (after stating the facts as above).

The writing sued on is in the form of a letter from the defendant to the plaintiff accepting an antecedent proposal to buy five cases of glass on terms set forth in the acceptance. The final sentence of the letter is as follows: "You have the option to cancel the above order before shipment." It is this phrase which gives rise to the claim that the contract is void for want of mutuality. The defendant's acceptance appears to be unconditional, and the objection is that the plaintiff in making his proposal reserved the right to cancel it at will. If that is so, the demurrer must be sustained.

"To agree to do something and reserve the right to cancel the agreement at will is no agreement at all." Ellis v. Dodge Bros. (D.C.), 237 Fed. 860.

It might be said at the outset that the objection begs the entire question, for it is not clear that the "above order" as originally made contains any reservation at all, but as the case has been briefed and argued on the assumption that the buyer's privilege of cancellation at any time before shipment is one of the terms of the contract, we proceed to treat it as such, and to inquire whether on that understanding an enforceable contract, ever came into existence; that is whether the seller ever had any right, the exercise of which the buyer could not prevent or nullify, to compel the buyer to take the [33] goods and pay for them. If so, there was a promise for a promise and the contract is valid in law, for the question before us is not whether the contract is mutual in the sense in which that adjective is used" to influence the discretion of a court of equity in decreeing specific performance, but whether the seller's promise to sell was with or without a consideration sufficient in law to support it. Of course, the right to enforce the buyer's promise to buy is such a consideration, and if that right existed even for the shortest space of time, it is enough to bring the contract into existence.

On the face of this contract the buyer must exercise his option "before shipment": otherwise he is bound to take and pay for the goods. No time of shipment is specified otherwise than by the words "to be shipped within three months." Hence the seller had a right to ship at any time within the three months, and a shipment made before receiving notice of cancellation would put an end to the buyer's option. The seller's right of shipment accrued at the moment the contract was formed, and as he might have shipped at the same time that he accepted, there was one clear opportunity to enforce the entire contract, which the buyer could not have prevented or nullified by any attempted exercise of his option. This is all that is necessary to constitute a legal consideration and to bring the contract into existence. If the defendant voluntarily limited his absolute opportunity of enforcing the contract to the shortest possible time, the contract may have been. improvident, but it was not void for want of consideration.

Whether it is so improvident that an equitable defense on that ground ought to prevail is a question of fact which cannot be raised by demurrer. It should, however, be said that, in addition to the one clear opportunity to enforce the contract already pointed out, the defendant has had a continuing right to enforce it during its entire term; for it appears from the complaint, not only that the plaintiff never attempted to exercise his option, but that he repeatedly demanded performance. In this connection it is important that the contract is framed on the theory that it remains enforceable by either party unless and until the plaintiff brings home notice of cancellation before shipment.

Referring to the authorities cited, it is of course undoubted that a contract for the sale of goods in which one party retains an unconditional option of cancellation is no contract at all, for the reason that no mutual obligation ever arises. Rehm Zeiher Co. v. Walker, 156 Ky. 6, 160 S. W. 777, 49 L. R. A. (N. S.) 694, cited on the defendant's brief, and American Agricultural Chemical Co. v. Kennedy, 103 Va. 171, 48 S. E. 868, cited in the note to 13 C. J. 337, are cases of this kind.

In Nicolls v. Wetmore, 174 Iowa, 132, 156 N. W. 319; Velie Motor Co. v. Kopmeier Co., 104 Fed. 324, 114 C. C. A. 284, and Ellis v. Dodge Bros. (D.C.), 237 Fed. 860, the contracts in suit presented a double aspect. Regarded as contracts for the purchase and sale of motor cars, they were held void for the want of any promise by the maker to sell, and. regarded as executory contracts of agency, they were held to be terminable at the option of either party. This was correct because the agency was not expressed to continue for a definite time or for the accomplishment of a stated purpose. Willcox & Gibbs Co. v. Ewing, 141 U. S. 627, 12 Sup. Ct. 94, 35 L. Ed. 882.

There is error, the judgment is set aside, and the cause remanded for further proceedings according to law.

All concur.

222 N. Y. 88
OTIS F. WOOD, Appellant,
v.
LUCY, LADY DUFF-GORDON, Respondent.
Appellate Division of the Supreme Court of the State of New York, First Department 

[88] 

Wood v. Duff-Gordon, 177 App. Div. 624, reversed.

(Argued November 14, 1917; decided December 4, 1917.)

APPEAL from a judgment entered April 24, 1917 upon an order of the Appellate Division of the Supreme Court in the first judicial department, which reversed an order of Special Term denying a motion by defendant for judgment in her favor upon the pleadings and granted said motion.

The nature of the action and the facts, so far as material, are stated in the opinion.

[89] John Jerome Rooney for appellant. Assuming that the contract does not contain an express covenant and agreement on the part of the plaintiff to use his best endeavors and efforts to place indorsements, make sales or grant licenses to manufacture, nevertheless such a covenant must necessarily be implied from the terms of the contract itself and all the circumstances. (Booth v. Cleveland Mill Co., 74 N. Y. 15; Wells v. Alexandre, 130 N. Y. 642; Jacquin v. Boutard, 89 Hun, 437; 157 N. Y. 686; Wil- son v. Mechanical Orguinette Co., 170 N. Y. 542; Horton v. Hall & Clarke Mfg. Co., 94 App. Div. 404; Hearn v. Stevens & Bros., Ill App. Div. 101; Baker Transfer Co. v. Merchants' R. I. Mfg. Co., 1 App. Div. 507; Wildman Mfg. Co. v. Adams T. C. M. Co., 149 Fed. Rep. 201.)

Edward E. Hoenig and William M. Sullivan for respondent. The motion for judgment on the pleadings was properly granted and the demurrer properly sustained by the appellate court, as the agreement upon which the action is based is nudum pactum and not binding upon this defendant for lack of mutuality and consideration. (Elliott on Cont. § 231; Grossman v. Schenker, 206 N. Y. 468; Levin v. Dietz, 194 N. Y. 376; Commercial W. & C. Co. v. Northampton P. C. Co., 115 App. Div. 393; 190 N. Y. 1; Wood v. G. F. Ins. Co., 174 App. Div. 834; White v. K. M. C. Co., 69 Misc. Rep. 628; Cook v. Cosier, 87 App. Div. 8; Vogel v. Pekoe, 30 L. R. A. 491; Moran v. Standard Oil Co., 211 N. Y. 189; City of New York v. Poali, 202 N. Y. 18; Barrel S. S. Co. v. Mexican R. R. Co., 134 N. Y. 15; First Presbyterian Church v. Cooper, 112 N. Y. 517; Acker v. Hotchkiss, 97 N. Y. 395; Marie v. Garrison, 43 N. Y. 14; Chicago & G. E. R. Co. v. Dane, 43 N. Y. 240; Jermyn v. Searing, 170 App. Div. 720; Rafolovitz v. Amer. Tobacco Co., 73 Hun, 87; Pollock v. Shubert, 146 App. Div. 628.) The order of the Appellate Division should be affirmed, for under the [90] contract the appellant assumes no obligation and there is no provision therein enforceable as against him. (Commercial W. & C. Co. v. Northampton P. C. Co., 115 App. Div. 393; 190 N. Y. 1; Pollock v. Shubert Theatrical Co., 146 App. Div. 629; Arnot v. P. & E. Coal Co., 68 N. Y. 565; Booth v. Milliken, 127 App. Div. 525; Vogel v. Pekoe, 30 L. R. A. 491.)

CARDOZO, J. The defendant styles herself "a creator of fashions." Her favor helps a sale. Manufacturers of dresses, millinery and like articles are glad to pay for a certificate of her approval. The things which she designs, fabrics, parasols and what not, have a new value in the public mind when issued in her name. She employed the plaintiff to help her to turn this vogue into money. He was to have the exclusive right, subject always to her approval, to place her indorsements on the designs of others. He was also to have the exclusive right to place her own designs on sale, or to license others to market them. In return, she was to have one-half of "all profits and revenues" derived from any contracts he might make. The exclusive right was to last at least one year from April 1, 1915, and thereafter from year to year unless terminated by notice of ninety days. The plaintiff says that he kept the contract on his part, and that the defendant broke it. She placed her indorsement on fabrics, dresses and millinery without his knowledge, and withheld the profits. He sues her for the damages, and the case comes here on demurrer.

The agreement of employment is signed by both parties. It has a wealth of recitals. The defendant insists, however, that it lacks the elements of a contract. She says that the plaintiff does not bind himself to anything. It is true that he does not promise in so many words that he will use reasonable efforts to place the defendant's indorsements and market her designs. [91] We think, however, that such a promise is fairly to be implied. The law has outgrown its primitive stage of formalism when the precise word was the sovereign talisman, and every slip was fatal. It takes a broader view to-day. A promise may be lacking, and yet the whole writing may be "instinct with an obligation," imperfectly expressed (SCOTT, J., in McCall Co. v. Wright, 133 App. Div. 62; Moran v. Standard Oil Co., 211 N. Y. 187, 198). If that is so, there is a contract.

The implication of a promise here finds support in many circumstances. The defendant gave an exclusive privilege. She was to have no right for at least a year to place her own indorsements or market her own designs except through the agency of the plaintiff. The acceptance of the exclusive agency was an assumption of its duties (Phoenix Hermetic Co. v. Filtrine Mfg. Co., 164 App. Div. 424; W. G. Taylor Co. v. Bannerman, 120 Wis. 189; Mueller v. Bethesda Mineral Spring Co., 88 Mich. 390). We are not to suppose that one party was to be placed at the mercy of the other (Hearn v. Stevens & Bro., Ill App. Div. 101, 106; Russell v. Allerton, 108 N. Y. 288). Many other terms of the agreement point the same way. We are told at the outset by way of recital that:

"The said Otis F. Wood possesses a business organization adapted to the placing of such indorsements as the said Lucy, Lady Duff-Gordon has approved."

The implication is that the plaintiff's business organization will be used for the purpose for which it is adapted. But the terms of the defendant's compensation are even more significant. Her sole compensation for the grant of an exclusive agency is to be one-half of all the profits resulting from the plaintiff's efforts. Unless he gave his efforts, she could never get anything. Without an implied promise, the transaction cannot have such business "efficacy, as both parties must have intended that at all events it should have." (BOWEN, L. J., in The Moorcock, 14 P. D. 64, [92] 68). But the contract does not stop there. The plaintiff goes on to promise that he will account monthly for all moneys received by him, and that he will take out all such patents and copyrights and trademarks as may in his judgment be necessary to protect the rights and articles affected by the agreement. It is true, of course, as the Appellate Division has said, that if he was under no duty to try to market designs or to place certificates of indorsement, his promise to account for profits or take out copyrights would be valueless. But in determining the intention of the parties, the promise has a value. It helps to enforce the conclusion that the plaintiff had some duties. His promise to pay the defendant one-half of the profits and revenues resulting from the exclusive agency and to render accounts monthly, was a promise to use reasonable efforts to bring profits and revenues into existence. For this conclusion, the authorities are ample (Wilson v. Mechanical Orguinette Co., 170 N. Y. 542; Phoenix Hermetic Co. v. Filtrine Mfg. Co., supra; Jacquin v. Boutard, 89 Hun, 437; 157 N. Y. 686; Moran v. Standard Oil Co., supra; City of N. Y. v. Paoli, 202 N. Y. 18; McIntyre v. Belcher, 14 C. B. [N. S.] 654; Devonald v. Rosser & Sons, 1906, 2 K. B. 728; W. G. Taylor Co. v. Bannerman, supra; Mueller v. Bethesda Mineral Spring Co., supra; Baker Transfer Co. v. Merchants R. & I. Mfg. Co., 1 App. Div. 507).

The judgment of the Appellate Division should be reversed, and the order of the Special Term affirmed, with costs in the Appellate Division and in this court.

CUDDEBACK, MCLAUGHLIN and ANDREWS, JJ., concur; HISCOCK, Ch. J., CHASE and CRANE, JJ., dissent.

Judgment reversed, etc.

[23] Laurason T. Hunt, for appellant.

David Tewell and C. Frederick Barker, for respondent.

[As amended by order of the Court of Appeals June 24, 1982.]

JAMES, J.

Plaintiff Omni Group, Inc. (Omni), a real estate development corporation, appeals entry of a judgment in favor of John B. Clark, individually, and as executor of the estate of his late wife, in Omni's action to enforce an earnest money agreement for the purchase of realty owned by the Clarks.^[1] We reverse.

In December 1977, Mr. and Mrs. Clark executed an exclusive agency listing agreement with the Royal Realty Company of Bellevue (Royal) for the sale of approximately 59 acres of property. The list price was $3,000 per acre.

In early May, Royal offered the Clark property to Omni. On May 17, following conversations with a Royal broker, Omni signed an earnest money agreement offering $2,000 per acre. Two Royal brokers delivered the earnest money agreement to the Clarks. The Clarks signed the agreement dated May 19, but directed the brokers to obtain further consideration in the nature of Omni's agreement to make certain improvements on adjacent land not being offered for sale. Neither broker communicated these additional [24] terms to Omni.

In pertinent part, the earnest money agreement provides:

This transaction is subject to purchaser receiving an engineer's and architect's feasibility report prepared by an engineer and architect of the purchaser's choice. Purchaser agrees to pay all costs of said report. If said report is satisfactory to purchaser, purchaser shall so notify seller in writing within fifteen (15) days of seller's acceptance of this offer. If no such notice is sent to seller, this transaction shall be considered null and void.

Exhibit A, ¶ 6. Omni's purpose was to determine, prior to actual purchase, if the property was suitable for development.

On June 2, an Omni employee personally delivered to the Clarks a letter advising that Omni had decided to forgo a feasibility study. They were further advised that a survey had revealed that the property consisted of only 50.3 acres. The Clarks agreed that if such were the case, they would accept Omni's offer of $2,000 per acre but with a minimum of 52 acres ($104,000). At this meeting, the Clarks' other terms (which had not been disclosed by Royal nor included in the earnest money agreement signed by the Clarks) were discussed. By a letter of June 8, Omni agreed to accept each of the Clarks' additional terms. The Clarks, however, refused to proceed with the sale after consulting an attorney.

The Clarks argued and the trial judge agreed, that by making its obligations subject to a satisfactory "engineer's and architect's feasibility report" in paragraph 6, Omni rendered its promise to buy the property illusory. Omni responds that paragraph 6 created only a condition precedent to Omni's duty to buy, and because the condition was for its benefit, Omni could waive the condition and enforce the agreement as written. We conclude Omni's promise was not illusory.

[1] A promise for a promise is sufficient consideration to support a contract. E.g., Cook v. Johnson, 37 Wn.2d 19, 221 P.2d 525 (1950). If, however, a promise is illusory, there is [25] no consideration and therefore no enforceable contract between the parties. Interchange Assocs. v. Interchange, Inc., 16 Wn. App. 359, 557 P.2d 357 (1976). Consequently, a party cannot create an enforceable contract by waiving the condition which renders his promise illusory. But that a promise given for a promise is dependent upon a condition does not necessarily render it illusory or affect its validity as consideration. In re Estate of Tveekrem, 169 Wash. 468, 14 P.2d 3 (1932); 1 A. Corbin, Contracts § 149 (1963); 3A A. Corbin, Contracts § 644 (1960). Furthermore,

a contractor can, by the use of clear and appropriate words, make his own duty expressly conditional upon his own personal satisfaction with the quality of the performance for which he has bargained and in return for which his promise is given. Such a limitation on his own duty does not invalidate the contract as long as the limitation is not so great as to make his own promise illusory.

3A A. Corbin, Contracts § 644, at 78-79 (1960).

Paragraph 6 may be analyzed as creating two conditions precedent to Omni's duty to buy the Clarks' property. First, Omni must receive an "engineer's and architect's feasibility report." Undisputed evidence was presented to show that such "feasibility reports" are common in the real estate development field and pertain to the physical suitability of the property for development purposes. Such a condition is analogous to a requirement that a purchaser of real property obtain financing, which imposes upon the purchaser a duty to make a good faith effort to secure financing. See Highlands Plaza, Inc. v. Viking Inv. Corp., 2 Wn. App. 192, 467 P.2d 378 (1970). In essence, this initial language requires Omni to attempt, in good faith, to obtain an "engineer's and architect's feasibility report" of a type recognized in the real estate trade.

The second condition precedent to Omni's duty to buy the Clarks' property is that the feasibility report must be "satisfactory" to Omni. A condition precedent to the promisor's duty that the promisor be "satisfied" may require performance personally satisfactory to the promisor [26] or it may require performance acceptable to a reasonable person. Whether the promisor was actually satisfied or should reasonably have been satisfied is a question of fact. In neither case is the promisor's promise rendered illusory. 3A A. Corbin, Contracts § 644 (1960).

In Mattei v. Hopper, 51 Cal.2d 119, 121, 330 P.2d 625 (1958), plaintiff real estate developer contracted to buy property for a shopping center "`[s]ubject to Coldwell Banker & Company obtaining leases satisfactory to the purchaser.'" Plaintiff had 120 days to consummate the purchase, including arrangement of satisfactory leases for shopping center buildings, before he was committed to purchase the property. The trial judge found the agreement "illusory." The California Supreme Court reversed. The court's language is apposite:

[I]t would seem that the factors involved in determining whether a lease is satisfactory to the lessor are too numerous and varied to permit the application of a reasonable man standard as envisioned by this line of cases. Illustrative of some of the factors which would have to be considered in this case are the duration of the leases, their provisions for renewal options, if any, their covenants and restrictions, the amounts of the rentals, the financial responsibility of the lessees, and the character of the lessees' businesses.

Comparable factors doubtless determine whether an "engineer's and architect's feasibility report" is satisfactory. But

This multiplicity of factors which must be considered in evaluating a lease shows that this case more appropriately falls within the second line of authorities dealing with "satisfaction" clauses, being those involving fancy, taste, or judgment. Where the question is one of judgment, the promisor's determination that he is not satisfied, when made in good faith, has been held to be a defense to an action on the contract.... Although these decisions do not expressly discuss the issues of mutuality of obligation or illusory promises, they necessarily imply that the promisor's duty to exercise his judgment in good faith is an adequate consideration to support the contract. None of these cases voided the contracts on the ground that they were illusory or lacking in mutuality of [27] obligation. Defendant's attempts to distinguish these cases are unavailing, since they are predicated upon the assumption that the deposit receipt was not a contract making plaintiff's performance conditional on his satisfaction. As seen above, this was the precise nature of the agreement.

Further,

Even though the "satisfaction" clauses discussed in the above-cited cases dealt with performances to be received as parts of the agreed exchanges, the fact that the leases here which determined plaintiff's satisfaction were not part of the performance to be rendered is not material. The standard of evaluating plaintiff's satisfaction — good faith — applies with equal vigor to this type of condition and prevents it from nullifying the consideration otherwise present in the promises exchanged.

Mattei v. Hopper, supra at 123-24. Thus, even the fact that "[i]t was satisfaction with the leases that [the purchaser] was himself to obtain" was immaterial. 3A A. Corbin, Contracts § 644, at 84. Accord, Western Hills, Or., Ltd. v. Pfau, 265 Or. 137, 508 P.2d 201, 203 (1973) (purchaser was to obtain necessary permits for a development "`satisfactory' to the parties"); Hendrix v. Sidney M. Thom & Co., 271 Ark. 378, 382, 609 S.W.2d 98, 101 (Ct. App. 1980) (loan commitment contract requiring lender's "`satisfaction" with site upon which borrower's project was to be constructed). We conclude that the condition precedent to Omni's duty to buy requiring receipt of a "satisfactory" feasibility report does not render Omni's promise to buy the property illusory.

Paragraph 6 further provides, "If said report is satisfactory to purchaser, purchaser shall so notify seller in writing within fifteen (15) days of seller's acceptance of this offer"; otherwise, the transaction "shall be considered null and void." We read this language to mean that Omni is required ("shall") to notify the Clarks of its acceptance if the feasibility report was "satisfactory." As we have stated, this determination is not a matter within Omni's unfettered discretion.

[28] [2] Omni has, by the quoted language, reserved to itself a power to cancel or terminate the contract. See generally 1A A. Corbin, Contracts § 265 (1963). Such provisions are valid and do not render the promisor's promise illusory, where the option can be exercised upon the occurrence of specified conditions. 1A A. Corbin, Contracts § 265 (1963); Benard v. Walkup, 272 Cal. App.2d 595, 77 Cal. Rptr. 544, 550 (1969) (fee agreement permitting counsel to withdraw "if `in his opinion'" investigation of the client's claim indicated no liability of the defendant or contributory negligence of the plaintiff); Wroten v. Mobil Oil Corp., 315 A.2d 728, 730 (Del. 1973) (lease permitting prospective tenant to terminate if licenses and permits "in manner and form acceptable to tenant" were not obtained). Here, Omni can cancel by failing to give notice only if the feasibility report is not "satisfactory." Otherwise, Omni is bound to give notice and purchase the property. Accordingly, we conclude paragraph 6 does not render Omni's promise illusory. The earnest money agreement was supported by consideration.

Clark contends an alternative theory upon which the judgment may be affirmed is that Omni constituted Royal its agent for negotiating the earnest money agreement and that the Clarks' additional terms constituted a counteroffer and rejection of Omni's terms, of which Omni had notice through "its" agent. We do not agree.

[3, 4] The party who asserts the existence of an agency relationship bears the burden of proof. Moss v. Vadman, 77 Wn.2d 396, 463 P.2d 159 (1969); Seattle-First Nat'l Bank v. Pacific Nat'l Bank, 22 Wn. App. 46, 587 P.2d 617 (1978). If no finding of fact is entered as to a material issue, it is deemed to have been found against the party having the burden of proof. Manufacturers Acceptance Corp. v. Irving Gelb Wholesale Jewelers, Inc., 17 Wn. App. 886, 565 P.2d 1235 (1977). The record discloses only that Royal delivered the earnest money agreement to the Clarks after a discussion of possible terms with Omni. No finding was entered which would permit us to conclude that an additional agency relationship existed between Omni and Royal, who [29] were the Clarks' agents in this transaction. Any cause of action arising because the Clarks' agents failed to convey their additional terms does not affect the validity of the earnest money agreement signed by the Clarks.

The judgment is reversed and remanded with instructions to enter a decree ordering specific performance of the earnest money agreement.

DURHAM, A.C.J., and CALLOW, J., concur.

Reconsideration denied June 24, 1982.

Review denied by Supreme Court October 8, 1982.

[1] Following Mr. Clark's death, Seattle-First National Bank, as executor of his estate, was substituted as respondent in this appeal.

[130] Charles M. Lanier, New Orleans, La., John R. Carpenter, Stephen J. Holtman, Cedar Rapids, Iowa, for defendant-appellant in both cases.

[131] Robert E. Barkley, Jr., New Orleans, La., Bernard D. Craig, Jr., Michael B. Shteamer, Kansas City, Mo., for plaintiff-appellee in both cases.

Rutledge C. Clement, Jr., New Orleans, La., for defendant-appellant in 77-3474.

Sessions, Fishman, Rosenson, Snellings & Boisfontaine, New Orleans, La., Levy & Craig, Kansas City, Mo., for plaintiff-appellee in 77-3474.

Before WISDOM, AINSWORTH, and CLARK, Circuit Judges.

Rehearing and Rehearing En Banc Denied May 30, 1979.

WISDOM, Circuit Judge:

Consolidated appeals in this diversity litigation^[1] arise from the termination of a distributorship. Corenswet, Inc.^[2], headquartered in New Orleans, has been an authorized, exclusive distributor of certain home appliances manufactured by Amana Refrigeration, Inc. ("Amana"). Corenswet sued to prevent Amana from terminating the relationship, on the ground that Amana's attempted termination was arbitrary and capricious. The district court found that the termination was arbitrary and was therefore in breach of the distributorship agreement as well as of the Uniform Commercial Code's general "good faith" principle. Amana challenges the district court's finding that the termination was arbitrary and without cause. We hold that the finding is not clearly erroneous. That is far from settling the dispute. The court issued a preliminary injunction forbidding the termination. No. 77-1538 is Amana's appeal from that ruling.

While that appeal was pending, Amana drew up a new standard form distributorship agreement, which limited the term of distributorships to one year. Corenswet, alone among Amana's distributors, refused to execute the new agreement, which it viewed as an attempt to circumvent the injunction. Amana responded with the contention that Corenswet's refusal to sign constituted just cause for terminating the distributorship. The district court agreed with Amana that Corenswet's refusal to sign the new contract would constitute cause for termination, but ruled that if Corenswet signed Amana could not refuse to renew the agreement at the end of any one-year term without good reason. Amana's appeal from that ruling is No. 77-3474.

The basic question at the heart of these appeals is whether Amana was entitled to terminate the distributorship arbitrarily. Amana assails the district court's interpretation of the contract to forbid an arbitrary termination, as well as the court's alternative rationale that the attempted termination is barred by the Iowa U.C.C.'s "good faith" principle. We hold that an arbitrary termination is permissible under both the contract and the law of Iowa. We reverse the district court's judgments.

I.

The primary facts are not disputed.

The plaintiff, Corenswet, Inc., is an independent wholesale distributor of appliances, dishware, and similar products. Since 1969 Corenswet has been the exclusive distributor of Amana refrigerators, freezers, room air conditioners, and other merchandise in southern Louisiana. Amana is a Delaware corporation domiciled in Iowa. Under the Amana system, products manufactured by Amana are sold to wholesale distributors such as Corenswet and to Amana's factory wholesale branches. The independent distributors and the factory branches then resell the merchandise to retail dealers who, in turn, sell to the public. The first distributorship agreement executed between Amana and Corenswet was of indefinite duration, but terminable by either party at any time "with or without cause" on ten days' notice to the other party. According [132] to the record, the agreement was modified twice, in 1971 and again in July 1975, before the institution of this lawsuit. The 1975 agreement modified the termination provision to allow termination by either party "at any time for any reason" on ten days' notice.

As is so often the case with franchise and distributorship relationships, the termination clause in the standard form contract was of little interest or concern to the parties so long as things were going well between them. At the hearing before the district court, Corenswet introduced testimony that it understood, in the early 1970's, that the relationship would be a lasting one, a relationship that would continue so long as Corenswet performed satisfactorily. According to Corenswet, it developed an organization for wholesale distribution of Amana merchandise: it hired a manager and salesmen for the line, as well as specially trained repairmen. Corenswet also expanded its physical plant. In all, Corenswet contended, it invested over $1.5 million over the period of 1969 to 1976 in developing the market for Amana products in the southern Louisiana area. The parties stipulated in district court that the annual sales of Amana products in the distributorship area increased from $200,000 in 1969 to over $2.5 million in 1976. The number of retail outlets selling Amana products in the area increased from six in 1969 to seventy-two in 1976. Corenswet, in short, developed an important new market for Amana products. And Amana became as important to Corenswet as Corenswet became to Amana: sales of Amana products as a percentage of Corenswet's total sales of all products swelled from six percent in 1969 to nearly twenty-six percent in 1976. Over the seven and one-half-year period, Amana representatives repeatedly praised Corenswet for its performance.

At the 1976 mid-year meeting of Amana distributors, however, George Foerstner, Amana's president, informed Corenswet that Amana would soon terminate its relationship with Corenswet because Corenswet was underfinanced. The parties agree that in early 1976 Corenswet had exceeded its credit limit with Amana, and that Amana at that time indicated that it might have to take a security interest in Corenswet's Amana inventory. According to a January communication from Amana, however, the "problem" was viewed by Amana as "a good kind of problem", reflecting, as it did, the growth of Corenswet's sales and hence purchases of Amana products. It is Corenswet's contention that the problem was not a serious one. Amana executives, the record reflects, assured Corenswet at the 1976 mid-year meeting that "satisfactory arrangements would be made" and that, Foerstner's statement notwithstanding, Corenswet would retain its distributorship.

There followed a complicated sequence of negotiations concerning Amana's security for credit extended. Amana sought a security interest in Corenswet's Amana inventory, to which Corenswet agreed. Amana asked also that Corenswet obtain more working capital from its parent corporation, Select Brands, Inc., as well as a bank letter of credit or line of credit. There is ample evidence in the record that Corenswet responded adequately to each Amana request, but that Amana persisted in changing its requirements as quickly as Corenswet could respond to its requests. In September, 1976, Corenswet met in New Orleans with Amana's representative, George Tolbert. Sam Corenswet, the company's president, informed Tolbert that Corenswet was ready and able to meet Amana's latest request: a $500,000 bank letter of credit. Tolbert relayed the information to Foerstner. Within a week Corenswet received a letter, prepared by Tolbert at Foerstner's direction, notifying Corenswet of its decision to terminate the distributorship because Corenswet was "unable to provide us with what we felt to be the minimum guarantees and/or security to sustain a continuing pattern of growth with Amana".

In October 1976 Corenswet filed suit for damages and injunctive relief in state court alleging that Amana had breached the distributorship agreement by terminating it arbitrarily. The reasons given by Amana for the termination, it contended, were pretextual. [133] The state court issued a temporary restraining order barring termination. The TRO was retained in force after Amana removed the case to federal district court.

The district court conducted a three-day hearing on Corenswet's prayer for a preliminary injunction. The court concluded that Amana had indeed acted arbitrarily in deciding to terminate Corenswet. The record reflects that in early 1976, well before the mid-year distributor meeting, Amana began negotiating with another New Orleans concern, George H. Lehleitner & Co., about transferring its area distributorship to Lehleitner. The beginning of Amana's alleged concern over Corenswet's finances corresponded neatly with its Lehleitner negotiations. There was ample evidence in the record, moreover, to support the district court's conclusion that the real factor motivating Foerstner's decision was animosity towards Fred Schoenfeld, the president of Corenswet's parent corporation, Select Brands, Inc. That animosity dated back to 1972, when Schoenfeld's action in protesting to Raytheon Corporation, Amana's parent, aborted Amana's attempt to transfer the distributorship from Corenswet to Corenswet's then Amana sales manager.

The district court ruled that the arbitrary termination was a breach of the distributorship agreement. The court rejected Amana's argument that the termination clause, which permitted either party to terminate the contract "for any reason", permitted termination for any reason—be that reason good, bad, or indifferent. Although unwilling to accept Corenswet's position that the term "for any reason" imported a good or just cause limitation, the court ruled that the term means "for some reason, not for no reason . . . for something that appeals to the reason, to the mind, to the judgment, not for something that is arbitrary, capricious or wanton". In the alternative, the court ruled that the U.C.C.'s "good faith" principle, Iowa Code Ann. § 554.2103, forbids the bad faith termination of exclusive distributorships and found Amana's actions to have been in bad faith. The court issued the preliminary injunction prohibiting Amana from terminating or attempting to terminate the relationship in November 1976.

In late 1977, Corenswet filed a declaratory judgment action in response to Amana's request that Corenswet sign the new standard form distributorship agreement. That civil action was transferred by the district judge to his section of the court. In September of 1977, Amana filed a motion requesting the court to modify or vacate the preliminary injunction to permit Amana to terminate the distributorship. Amana urged that Corenswet's refusal to execute the new distributorship agreement was sufficient cause or reason under the existing agreement and the injunction to justify termination of Corenswet's distributorship. The court denied Amana's motion, but amended the injunction to require Corenswet to execute the agreement within five days or suffer termination of the agreement, and to place restrictions on Amana's rights to refuse to renew the one-year term of the new agreement. The modification of the injunction, entered in November 1977, forbade Amana to refuse to renew the distributorship term "without reason" and enjoined Amana to accord Corenswet equal treatment with Amana's other distributors.

II.

Amana appeals both the entry and the modification of the preliminary injunction. It contests the district court's interpretation of the contract and its view of applicable Iowa law and urges that even "bad faith" or "arbitrary" terminations are permitted by the contract and applicable law. Amana also argues that Corenswet failed to satisfy another requisite for issuance of a preliminary injunction: a showing that it would suffer irreparable harm in the absence of injunctive relief pendente lite. It further contends that the district court abused its discretion in issuing a preliminary injunction that requires specific performance of the contract because the injunction has the effect of requiring continuous court supervision of the parties' relationship.

[134] In No. 77-3474 Amana urges that the court erred in failing to rule that Corenswet's post-injunction behavior was good cause for terminating the distributorship. Amana also contends that the court abused its discretion in granting Corenswet an extension of time for executing the agreement and by imposing restrictions on Amana's rights under the new agreement in advance of any conduct on its part giving reason to believe that it would arbitrarily refuse to renew the new agreement at the expiration of its one-year term.

With the exception of the point that the injunction has the effect of forcing these antagonistic parties to maintain their relationship indefinitely and requiring the continuous supervision of the district court,^[3] we find little merit in the appellant's attacks on the district court's exercise of its discretion in modifying the injunction. If the district court's view of the contract and the law were correct, we would lack any basis for disturbing the court's modification of the injunction. In general, an appeals court's deference to the trial court's discretion is at its height when litigants challenge that court's administration of its own decrees in equity. Following the entry of the original injunction, the district court, faced with what could justifiably be viewed as an attempt by Amana to circumvent the court's command that it not terminate Corenswet without cause, did Amana a good turn, it seems to us, by permitting Amana, subject to a good cause limitation on its non-renewal rights, to put Corenswet, like all its other distributors, under the new distributorship agreement. Under the court's original ruling Amana had no right to terminate the old contract unilaterally, a contract which was of indefinite duration and terminable, in the district court's view, only for reason. It was no abuse of discretion of the court to accommodate Amana's interest in keeping all of its distributors under a single form of contract in such a way as to preserve Corenswet's rights, as the court viewed them, under the first contract.

Because there was nothing improper in the court's modification of the preliminary injunction (assuming that the injunction was properly issued in the first place) we turn to the issues raised in No. 77-1538.

Amana asserts that the district court erred in construing the contract's termination clause to prohibit unilateral termination of the distributorship except for some "reason" that appeals to the mind. The contractual language "for any reason", it argues, was intended to remove all limitations upon the exercise of the termination power. Because the district court looked to extrinsic evidence in construing the contract its interpretation is, under Iowa law, treated as a factual one. Allen v. Highway Equipt. Co., Iowa, 1976, 239 N.W.2d 135, 139. Amana, therefore, has the burden of persuading us that the court's interpretation was clearly erroneous. E. g., Griffin v. Missouri Pacific R.R. Co., 5 Cir. 1969, 413 F.2d 9; United States for Use and Benefit of Citizens Nat. Bank v. Stringfellow, 5 Cir. 1969, 414 F.2d 696; Fed.R.Civ.P. 52(a).

In assessing the district court's interpretation of the contract we must look to the appropriate rules of construction found in applicable state law—in this case, as the parties have stipulated, the law of Iowa. Although most distributorship agreements, like franchise agreements, are more than sales contracts, the courts have not hesitated to apply the Uniform Commercial Code to cases involving such agreements. E. g., Rockwell Engineering Co. v. Automatic Timing & Controls Co., 7 Cir. 1977, 559 F.2d 460; Aaron E. Levine & Co. v. Calkraft Paper Co., 1976, E.D.Mich., 429 F.Supp. 1039; Baker v. Ratzlaff, 1976, 1 Kan.App.2d 285, 564 P.2d 153. We therefore look to the constructional rules of the Code, as adopted by Iowa, chapter 554 of the Iowa Code.

[135] The starting point under the Code is the express terms of the agreement. U.C.C. §§ 1-205, 2-208(2); Iowa Code Ann. §§ 554.1205, 554.2208(2). Under the contract, Amana was free to terminate the relationship "at any time and for any reason". The district court did not expressly rely on record evidence concerning the parties' understanding or the common understanding of the term "any reason" in concluding that the term means "something that appeals to the reason, to the mind". In the common understanding, it seems to us, the phrase "for any reason" means "for any reason that the actor deems sufficient". The phrase, that is, is ordinarily used not to limit a power, but to free it from implied limitations of "cause". That this is the intendment of the phrase becomes all the more clear when it is read in conjunction with the immediately preceding phrase "at any time". That phrase plainly frees the termination power from limitations as to timing. The exact parallelism of the two phrases reinforces the interpretation of the "any reason" language as negating any limitations whatsoever. In Webster's New International Dictionary (2d Ed.1939) the first definition of reason is "An expression or statement offered as an explanation of a belief or an assertion or as a justification of an act or procedure." The second of nine definitions given for the word is "a ground or a cause; that in the reality which makes any fact intelligible". Id. We consider that this is the usual sense of the word when used in the phrase "for any reason".^[4]

The district court's interpretation is understandable in view of Amana's vacillation about the meaning of the contract term. When pressed by the district court to explain Amana's position, one of Amana's attorneys stated: "I think it's Amana's position that `For any reason' means some reason." He went on to add, however, that he thought the term meant the same thing as "with or without cause". When the judge then commented that he thought the attorney was taking a contradictory position, the attorney explained that "any reason" would include a bad reason. When the judge observed that in his opinion a fictitious reason would be no reason at all, the attorney agreed. Later, another Amana attorney stated that it was Amana's position that it did not need a "good reason" or a "legitimate reason" for terminating the contract. To the court's query whether he then disagreed that Amana needed "some reason" the attorney replied that he did not.

We think that these joustings with the bench over semantics, at the conclusion of the hearing and after the evidence had been received, form too slim a reed to support the court's interpretation of the contract term. Amana never conceded that it needed a justification, in the sense of a reason grounded in Corenswet's conduct, for ending the relationship. Even if it is assumed that Amana needed "some reason" to terminate the contract, that reason is supplied by its evident desire to give the New Orleans distributorship to the Lehleitner company, just as we think that Corenswet would, under the contract, be entitled to terminate the relationship by reason, to take an example, of its wish to handle Kelvinator, rather than Amana, products.

There is no evidence in the record that the parties understood the phrase otherwise. There is testimony that Corenswet officials "understood" that the contract [136] would not be terminated arbitrarily. That, however, is evidence not of Corenswet's understanding of the termination clause as written, but of its expectations about Amana's behavior—that is, its belief that Amana would never use the termination language to Corenswet's detriment. Corenswet has made much of certain testimony given by Amana's president, George Foerstner. Foerstner testified that Amana does "not cancel a distributor without a reason, without a good reason". When asked whether Amana then needed a reason to cancel Corenswet, Foerstner replied: "We needed a reason, yes, but we do not cancel distributors without a reason". This, too, we take not to be evidence of an understanding of the written contractual provision at issue, but as evidence of Amana's usual practice or, at best, of Amana's understanding of how it ought to treat its distributors. The questions posed to Foerstner did not direct his attention to the written contract, much less to the disputed clause. The district court, significantly, did not in its opinion advert to the Foerstner testimony.^[5]

We take Corenswet to be arguing that the contractual language must be interpreted in light of Amana's historical treatment of Corenswet and its other distributors. Although Amana's past dealing with Corenswet does not fit the Code categories of sources relevant to contract interpretation—usage of trade, course of dealing, and course of performance^[6]—we may assume that it is a source sufficiently similar to the Code categories to be relevant in construing the contract. Courses of commercial conduct "may not only supplement or qualify express [contract] terms, but in appropriate circumstances may even override express terms". J. White & R. Summers, Handbook of the Law under the Uniform Commercial Code § 3-3 at 84 (1972). The Code commands that express contract terms and "an applicable course of dealing or usage of trade shall be construed wherever reasonable as consistent with each other". U.C.C. § 1-205, Iowa Code Ann. § 554.1205; see also U.C.C. § 2-208(2), Iowa Code Ann. § 554.2208(2). In this case, however, no reasonable construction can reconcile the contract's express terms with the interpretation Corenswet seeks to glean from the conduct of the parties. The conflict could not be more complete: Amana's past conduct, with regard both to Corenswet and to its other distributors, may have created a reasonable expectation that Amana would not terminate a distributor arbitrarily, yet the contract expressly gives Amana the right to do so. We can find no justification, except in cases of conduct of the sort giving rise to promissory estoppel, for holding that a contractually reserved power, however distasteful, may be lost through nonuse. The express contract term cannot be construed as Corenswet would constitute it, and it therefore controls over any allegedly conflicting usage or course of dealing. U.C.C. §§ 1-205, 2-208(2), Iowa Code Ann. §§ 554.1205, 554.2208(2).^[7]

The district court's alternative rationale was that arbitrary termination of a distributorship agreement contravenes the Code's general obligation of good faith dealing. Section 1-203 states: "Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement". Iowa Code Ann. § 554.1203. The good faith obligation is one of those obligations [137] that section 1-102 of the Code says "may not be disclaimed by agreement". Iowa Code Ann. § 554.1102(3). As courts and scholars have become increasingly aware of the special problems faced by distributors and franchisees, and of the inadequacy of traditional contract and sales law doctrines to the task of protecting the reasonable expectations of distributors and franchisees, commentators have debated the utility of the Code's general good faith obligation as a tool for curbing abuse of the termination power. See, e. g., E. Gellhorn, Limitations on Contract Termination Rights—Franchise Cancellations, 1967 Duke L.J. 465; Hewitt, Good Faith or Unconscionability—Franchise Remedies for Termination, 29 Bus.Law 227 (1973).

The courts of late have begun to read a good faith limitation into termination clauses of distributorship contracts that permit termination without cause. E. g., Randolph v. New England Mutual Life Ins. Co., 6 Cir. 1975, 526 F.2d 1383 (Ohio law); de Treville v. Outboard Marine Corp., 4 Cir. 1971, 439 F.2d 1099 (South Carolina law); Tele-Controls, Inc. v. Ford Industries, Inc., 7 Cir. 1967, 388 F.2d 48 (Oregon law); Baker v. Ratzlaff, 1976, 1 Kan.App.2d 285, 564 P.2d 153. Of the cited cases, however, only the Baker case relies squarely on the Code. The Randolph, de Treville, and Tele-Controls cases rested chiefly on state law doctrines that antedated the adoption of the Code.^[8]

In similar cases other courts have held that agency or distributorship contracts of indefinite duration are terminable by either party with or without cause. E. g., Rockwell Engineering Co. v. Automatic Timing & Controls Co., 7 Cir. 1977, 559 F.2d 460 (Indiana law); Aaron E. Levine & Co. v. Calkraft Paper Co., 1976, E.D.Mich., 429 F.Supp. 1039 (Michigan law). Those courts have relied on section 2-309(2) of the Code, which states:

Where the contract provides for successive performances but is indefinite in duration it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party.

Iowa Code Ann. § 554.2309(2). The division in the authorities, then, is between those courts that hold that the Code's general good faith obligation overrides the specific rule of section 2-309(2) as applied to distributorship or franchise agreements, and those that give precedence to section 2-309.

The parties have not cited and we have not found Iowa cases on the issue decided under the Uniform Commercial Code. The Iowa case law on this question is pre-Code and follows the common law rule, which is essentially the rule of section 2-309 as applied to distributorship contracts. In Des Moines Blue Ribbon Distributors, Inc. v. Drewrys Limited, U. S. A., Inc., 1964, 256 Iowa 899, 129 N.W.2d 731, the Iowa Supreme Court held that an exclusive distributorship contract of indefinite duration may be terminated without cause only upon reasonable notice. Although the plaintiff in that case did not, so far as appears from the opinion, claim the right not to be terminated without cause, the court's treatment of the issues raised makes it clear that the requirement of reasonable notice was thought by the court to be the only restriction on the manufacturer's right to cancel the agreement.^[9]

[138] Because the Drewrys case preceded Iowa's adoption of the Uniform Commercial Code, Erie does not strictly bind us to that decision. The Code added to Iowa commercial law a statutory good faith obligation. The Iowa law reflected in the Drewrys decision has been criticized for treating "what are essentially franchise agreements" as "a series of executory contracts enforceable only if performance has commenced". E. Gellhorn, at 469, n.15. On the other hand, in an area such as this, where considerations of stare decisis are of importance, we should hesitate to depart from established case authority absent fair assurance that the state's courts would interpret the Uniform Commercial Code to forbid "bad faith" or "arbitrary" terminations of distributorship contracts. Unlike the federal courts in the Randolph, de Treville, and Tele-Controls cases, we are not facing the termination issue against the backdrop of existing state law doctrine that forbids arbitrary terminations.

We are not persuaded that the adoption of the Code has effected any change in Iowa law with regard to distributorship terminations. We do not agree with Corenswet that the section 1-203 good faith obligation, like the Code's unconscionability provision, can properly be used to override or strike express contract terms. According to Professor Farnsworth, "[T]he chief utility of the concept of good faith performance has always been as a rationale in a process . . . of implying contract terms . .." Farnsworth, Good Faith Performance and Commercial Reasonableness under the Uniform Commercial Code, 30 U.Chi.L.Rev. 666, 672 (1963). He defines the Code's good faith obligation as "an implied term of the contract requiring cooperation on the part of one party to the contract so that another party will not be deprived of his reasonable expectations". Id. at 666. When a contract contains a provision expressly sanctioning termination without cause there is no room for implying a term that bars such a termination. In the face of such a term there can be, at best, an expectation that a party will decline to exercise his rights.^[10]

As a tool for policing distributorship terminations, moreover, the good faith test is erratic at best. It has been observed that the good faith approach

is analytically unsound because there is no necessary correlation between bad motives and unfair terminations . . .. The terminated dealer seeks relief against the harsh effects of termination which may be unfairly placed on him, not against the manufacturer's ill will.

E. Gellhorn, supra, at 521. The better approach, endorsed by Professor Gellhorn, is to test the disputed contract clause for unconscionability under section 2-302 of the Code. The question these cases present is whether public policy forbids enforcement of a contract clause permitting unilateral termination without cause. Since a termination without cause will almost always be characterizable as a "bad faith" termination, focus on the terminating party's state of mind will always result in the invalidation of unrestricted termination clauses. We seriously doubt, however, that public policy frowns on any and all contract clauses permitting termination without cause. Such clauses can have the salutary effect of permitting parties to end a soured relationship without consequent litigation. Indeed [139] when, as here, the power of unilateral termination without cause is granted to both parties, the clause gives the distributor an easy way to cut the knot should he be presented with an opportunity to secure a better distributorship from another manufacturer. What public policy does abhor is economic overreaching—the use of superior bargaining power to secure grossly unfair advantage. That is the precise focus of the Code's unconscionability doctrine; it is not at all the concern of the Code's good faith performance provision. It is the office of the unconscionability concept, and not of the good faith concept, to strike down "unfair" contract terms.^[11]

We conclude that, under the better view, the Code does not ipso facto bar unilateral arbitrary terminations of distributorship agreements, and that Iowa's adoption of the Code therefore left undisturbed the law reflected in the Drewrys decision.

III.

It follows from what we have said that the preliminary injunction was erroneously entered. The evidence brought out at the hearing in the district court did not demonstrate that Corenswet was likely to succeed on the merits of its claim. The contract expressly permitted Amana to terminate Corenswet's distributorship without cause. Iowa law, we have held, does not prohibit or bar the enforcement of contract clauses permitting termination without cause, except in cases of unconscionability. Although Corenswet alleged in its complaint that the contract term was unconscionable, it never pressed that issue, and the district court made no finding in that regard, as indeed it could not on the state of the record.^[12]

Corenswet's rights with respect to termination extend only to a right to notice. The Amana contract permits termination on ten days' notice. Under the Code, section 2-309(3), and under the Drewrys case, however, a distributor is entitled to reasonable notice. Section 2-309(3) of the Code states that "an agreement dispensing with notification is invalid if its operation would be unconscionable." But any claim that Corenswet might have based on inadequate notice would not entitle Corenswet to injunctive relief, for it appears from the Drewrys case and from C. C. Hauff Hardware, Inc. v. Long Mfg. Co., 1965, 257 Iowa 1127, 136 N.W.2d 276, that the manufacturer's failure to give proper notice is adequately remediable at law.

The district court's decisions are REVERSED, and the preliminary injunction is VACATED.

[1] Under the contract and by stipulation of the parties the substantive law of Iowa controls.

[2] In 1972 Select Brands Industries, Inc., a Missouri corporation, acquired Corenswet. Sam Corenswet remained as president and chief executive officer.

[3] of enforcement is, in itself, often a sufficient reason for denying injunctive relief. [citations omitted]. The Court should not be called upon to weld together two business entities which have shown a propensity for disagreement, friction, and even adverse litigation.

Refrigeration Engineering Corp. v. Frick Co., 1974, W.D.Tex., 370 F.Supp. 702, 715.

[4]Indeed, Corenswet uses the word in this sense in its brief when it urges that "the real reason [for the termination] was because Mr. Foerstner wanted it."

Corenswet cites, in support of the district court's construction, the case of Dubois v. Gentry, 1945, 182 Tenn. 103, 184 S.W.2d 369, in which the Tennessee Supreme Court ruled that the term "for any reason" in a termination clause "should be construed to mean `any good reason or just reason'." Id. 184 S.W.2d at 371. The court, however, was not making a factual determination. Rather, it was ruling that the law of the state implies a "just reason" limitation. The question that we are addressing at this point in the opinion is a question of fact. If judicial authority is of aid on this point, we note that the Iowa Supreme Court has used the term "for any reason" to mean the same thing as "at will". Harper v. Cedar Rapids Television Co., Inc., Iowa, 1976, 244 N.W.2d 782, 791 ("The contract being terminable at will, plaintiff could have been discharged for virtually any reason.").

[5] At the hearing Foerstner, as he did throughout the period just prior to the termination, attempted to put a reasonable face on an act that was arbitrary in the sense that it was largely motivated by personal reasons.

[6] See U.C.C. § 1-205(2) (defining usage of trade); § 1-205(1) (defining course of dealing), § 2-208(2) (defining course of performance).

[7] Corenswet's complaint also alleged the existence of an oral agreement or an oral modification of the existing agreement. The district court did not address this point in the preliminary injunction opinion. The injunction cannot be sustained on the ground that Corenswet is likely to prevail on the merits of this claim. The hearing produced little evidence to support this allegation and produced no proof of the validating "writing" evidencing such an agreement that is required by sections 2-201 and 2-209 of the Code for maintaining a claim or defense based on an oral contract or modification.

[8] The Pennsylvania Supreme Court has recently held that the Code's good faith provision bars termination without cause of a gasoline dealership even after the dealer service station lease has expired. Atlantic Richfield Co. v. Razumic, 1978, 480 Pa. 366, 390 A.2d 736; Kowatch v. Atlantic Richfield Co., 1978, 480 Pa. 388, 390 A.2d 747. The court emphasized, however, that Arco's contract with the dealers contained no provision giving Arco the right to terminate the relationship at will. Atlantic Richfield Co. v. Razumic, 390 A.2d at 741.

[9] At one point in its opinion the Drewrys court seemed to add another limitation: that the agreement must continue in force for a reasonable time. 129 N.W.2d at 736. This is the so-called "Missouri doctrine", a hardship rule of agency law designed to give an agent a reasonable time in which to recoup his original investment in the agency. See generally E. Gellhorn, supra, at 479-483. The Drewrys court did not face a claim based on insufficient duration, so its "adoption" of the Missouri doctrine is dictum. Even assuming that the doctrine is indeed law in Iowa, it has no application to this case. The reasonable duration envisioned by the doctrine is quite short, see E. Gellhorn, supra, at 482; Bushwick-Decatur Motors, Inc. v. Ford Motor Co., 2 Cir. 1940, 116 F.2d 675; and the minimum duration requirement may be eliminated contractually. E. Gellhorn, supra, at 482, and authorities cited in 482 nn.62 & 63.

[10] Furthermore, the proposition that the Code's good faith obligation cannot be disclaimed must be qualified. Section 1-102(3) of the Code, which provides that the obligation of good faith is not disclaimable, goes on to state that "the parties may by agreement determine the standards by which the performance of such obligation is to be measured if such standards are not manifestly unreasonable." It could be argued that even if arbitrary termination of a distributorship under an agreement silent as to grounds for termination would be in "bad faith", section 1-102(3) nevertheless permits the parties to the contract to stipulate that termination "without cause" or "for any reason" is not in bad faith.

[11] The leading case applying the unconscionability doctrine to bar arbitrary termination of a dealership is Shell Oil Co. v. Marinello, 1973, 63 N.J. 402, 307 A.2d 598.

[12] Sometime between Corenswet's filing of the lawsuit and the hearing on whether to issue a preliminary injunction the unconscionability issue dropped from the case. The issues for the hearing were narrowed to include only the meaning of the contract and the reasons for Amana's termination of Corenswet. To prevail on a theory of unconscionability Corenswet would have to demonstrate (1) that it had no "meaningful choice" but to deal with Amana and accept the contract as offered, and (2) that the termination clause was "unreasonably favorable" to Amana. Williams v. Walker-Thomas Furniture Co., 1965, 121 U.S.App.D.C. 315, 319, 350 F.2d 445, 449; see also E. Gellhorn, supra, at 510-513. The record evidence relevant to these questions is scanty. Sam Corenswet testified that Amana in 1969 aggressively sought Corenswet as a distributor and that he only reluctantly decided to commit his company to Amana. Another Corenswet witness, at one point in his testimony, said of the 1975 amended contract that, in view of Corenswet's heavy investment in the Amana line, "we had to take it." The court interrupted that testimony and expressed its view that it was irrelevant to the hearing issues. There was no other evidence regarding the parties' relative bargaining power at the time the relationship began, nor any evidence as to the relative usefulness of the termination clause to the two sides.

Law Offices of John F. Muller (by David C. Myers), for plaintiff.

Cholette, Perkins & Buchanan (by J. Clarke Nims), for defendant.

Before: D.F. WALSH, P.J., and HOOD and K.N. HANSEN,^[1] JJ.

PER CURIAM.

Defendant appeals from a Kent Circuit Court order granting plaintiff a judgment for $27,290 in this dispute concerning certain commercial transactions between plaintiff, a New York manufacturer and distributor of women's clothing, and defendant, a clothing retailer headquartered in Grand Rapids. Plaintiff cross-appeals from the trial court's rejection of its claim to additional damages.

[600] The issue raised by defendant's appeal is the correctness of the trial judge's determination that the following clause, printed on the back of defendant's purchase orders, is unconscionable under the Uniform Commercial Code:

Buyer reserves the right to terminate by notice to Seller all or any part of this Purchase Order with respect to Goods that have not actually been shipped by Seller or as to Goods which are not timely delivered for any reason whatsoever.

On June 10, 1980, defendant submitted to plaintiff a purchase order, containing the above clause, for women's holiday clothing to be delivered on October 10, 1980. Defendant cancelled this order late in September, 1980. The trial court found that plaintiff subsequently agreed to a fifty percent price reduction if defendant would accept the goods anyway, but the court held this agreement invalid because it found that the cancellation clause, which made the agreement necessary, was unconscionable.

The UCC, in authorizing a court to refuse to enforce an unconscionable clause or contract, requires the court to afford the parties an opportunity to present evidence as to the agreement's commercial setting, purpose and effect to aid the court in making the determination as to unconscionability. MCL 440.2302; MSA 19.2302. The Official UCC Comment to this section describes the basic test as whether, in the light of the general commercial background and commercial needs of the particular trade, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract. "The principle is one of prevention of oppression and unfair surprise and not of disturbance [601] of allocation of risks because of superior bargaining power." The Practice Commentary states that unconscionability is a question of law for the court to decide. We will uphold a trial court's finding of unconscionability if it is not clearly erroneous. Mallory v Conida Warehouses, Inc, 134 Mich App 28, 32; 350 NW2d 825 (1984), lv den 422 Mich 958 (1985).

Michigan case law applying this provision to a clause in a contract between merchants is sparse. Although not decided under the UCC, the inquiries used in Allen v Michigan Bell Telephone Co, 18 Mich App 632, 637; 171 NW2d 689 (1969), lv den 383 Mich 804 (1970), to determine unconscionability are instructive: (1) What is the relative bargaining power of the parties, their relative economic strength, the alternative sources of supply? (2) Is the challenged term substantively reasonable? The Court went on to say that, even if the parties had other options or unequal bargaining power, if the term is substantively reasonable, it will be enforced. Id., p 638. Reasonableness is thus the primary consideration. St Paul Fire & Marine Ins Co v Guardian Alarm Co of Mich, 115 Mich App 278, 284; 320 NW2d 244 (1982). If a termination clause appears reasonable to this Court, disparity in bargaining power between the parties will not make the clause unenforceable. Michigan Ass'n of Psychotherapy Clinics v Blue Cross & Blue Shield of Michigan, 101 Mich App 559, 574-575; 301 NW2d 33 (1980), modified 411 Mich 869 (1981).

The trial court in this case determined that the parties did not have equal bargaining power. The "holiday order" comprised twenty to twenty two percent of plaintiff's business in 1980, and defendant's sales total in 1980 was some twenty times that of plaintiff's.

[602] But the court, relying on Allen's focus on the reasonableness of the clause, also determined that the cancellation clause was not reasonable. The court questioned whether a clause entitling one party to cancel at any time even allowed for a contract to exist. The court pointed out that plaintiff made the goods in question especially for defendant pursuant to this order. Noting the fast-changing character of the women's fashion industry, the court distinguished this case from situations where cancellation means the seller merely replaces the goods back on the shelf to await another order. Here, a last-minute cancellation places the seller in the untenable position of absorbing the loss or negotiating with the buyer to accept the goods at a reduced price. The trial court found this unconscionable.

Defendant argues that the parties, who had been doing business together for over two years prior to this incident, were both experienced in the ways of the fashion industry and that this clause merely allocated risks. Mr. Gianni testified that he never read the clause, but if he had, he never would have done business with defendant. There was no evidence that the clause was negotiable, although Mr. Gantos admitted that some manufacturers want to negotiate that clause. The trial court found most accurate the testimony of Mr. Steinberg, Gantos' buyer, who testified that these clauses were standard practice because "the buyer in our industry is in the driver's seat." The trial court found that the "big sharks" in the garment industry were able to impose these clauses because small, independent manufacturers such as plaintiff had no clout to demand otherwise.

This case is thus distinguishable from Cardinal Stone Co, Inc v Rival Mfg Co, 669 F2d 395 (CA 6, 1982), where the court, without analyzing the [603] substantive reasonableness of the terminate-at-any-time clause, found that the manufacturer knowingly accepted this risk as part of the agreement. In Rival the court described the parties as "experienced businessmen," and there was no hint of unequal bargaining power or lack of alternatives for the manufacturer.

Although both parties and the lower court discuss Johnson v Mobil Oil Corp, 415 F Supp 264 (ED Mich, 1976), we do not find it applicable to the case before us. The Johnson court found unconscionable under Michigan law a clause excluding consequential damages in a contract for a gas station dealership. Plaintiff Johnson was illiterate, and the court held that a contracting party with the immense bargaining power of the Mobil Oil Corporation had an affirmative duty to obtain the voluntary knowing assent of an uncounseled layman to a clause limiting liability. That case did not involve the UCC, did not concern a cancellation-at-will clause, and involved parties with bargaining power much more disproportionate than in the case before us.

We cannot say that the trial court's ruling that this clause was unconscionable was clearly erroneous.

The cross-appeal asks us to review the trial court's findings that plaintiff agreed to a price reduction on another shipment of clothing which arrived two weeks late, and agreed to a $2,000 advertising allowance. Plaintiff concedes there was testimony to support these findings, but argues that the findings are contradicted by the preponderance of the evidence.

We will not set aside findings of fact by the trial court unless we find them to be clearly erroneous. MCR 2.613(C). We must give regard to the trial court's special opportunity to judge the credibility [604] of the witnesses who testified. Id. Resolution of these issues depended on which party's witnesses were more credible. The trial court believed defendant, and made no clear error in doing so.

Affirmed in all respects.

[1] Circuit judge, sitting on the Court of Appeals by assignment.

COTTER, C. J., LOISELLE, BOGDANSKI, PETERS and HEALEY, JS.

[472] Robert F. McWeeny, for the appellant (plaintiff).

Neil P. Coughlan, for the appellee (defendant).

PETERS, J.

The issue in this case is whether an employer has a completely unlimited right to terminate the services of an employee whom it has hired for an indefinite term. The plaintiff, Emard H. Sheets, filed a complaint that as amended alleged that he had been wrongfully discharged from his employment as quality control director and operations manager of the defendant, Teddy's Frosted Foods, Inc. The defendant responded with a motion to strike the complaint as legally insufficient. The plaintiff declined to plead further when that motion was granted. From the consequent rendering of judgment for the defendant, the plaintiff has appealed to this court.

Since this appeal is before us pursuant to a motion to strike,^[1] we must take the facts to be those alleged in the plaintiff's complaint as amended, and must construe the complaint in the manner most favorable to the pleader. Stradmore Development Corporation v. Commissioners, 164 Conn. 548, 550-51, 324 A.2d 919 (1973); Senior v. Hope, 156 Conn. 92, 97, 239 A.2d 486 (1968); Rossignol v. Danbury School of Aeronautics, Inc., 154 Conn. 549, 557, 227 A.2d 418 (1967). The complaint alleges that for a four-year period, from November, 1973, to November, 1977, the plaintiff was employed [473] by the defendant, a producer of frozen food products, as its quality control director and subsequently also as operations manager. In the course of his employment, the plaintiff received periodic raises and bonuses. In his capacity as quality control director and operations manager, the plaintiff began to notice deviations from the specifications contained in the defendant's standards and labels, in that some vegetables were substandard and some meat components underweight. These deviations meant that the defendant's products violated the express representations contained in the defendant's labeling; false or misleading labels in turn violate the provisions of General Statutes § 19-222,^[2] the Connecticut Uniform Food, Drug and Cosmetic Act. In May of 1977, the plaintiff communicated in writing to the defendant concerning the use of substandard raw materials and underweight components in the defendant's finished products. His recommendations for more selective purchasing and conforming components were ignored. On November 3, 1977, his employment with the defendant was terminated. Although the stated reason for his discharge was unsatisfactory performance of his duties, he was actually dismissed in retaliation for his efforts to ensure that the defendant's products would comply with the applicable law relating to labeling and licensing.

The plaintiff's complaint alleges that his dismissal by his employer was wrongful in three respects. He claims that there was a violation of an implied contract of employment, a violation of [474] public policy, and a malicious discharge. On this appeal, the claim of malice has not been separately pursued, and we are asked to consider only whether he has stated a cause of action for breach of contract or for intentionally tortious conduct. On oral argument, it was the tort claim that was most vigorously pressed, and it is upon the basis of tort that we have concluded that the motion to strike was granted in error.

The issue before us is whether to recognize an exception to the traditional rules governing employment at will so as to permit a cause of action for wrongful discharge where the discharge contravenes a clear mandate of public policy. In addressing that claim, we must clarify what is not at stake in this litigation. The plaintiff does not challenge the general proposition that contracts of permanent employment, or for an indefinite term, are terminable at will. See Somers v. Cooley Chevrolet Co., 146 Conn. 627, 629, 153 A.2d 426 (1959); Fisher v. Jackson, 142 Conn. 734, 736, 118 A.2d 316 (1955). Nor does he argue that contracts terminable at will permit termination only upon a showing of just cause for dismissal. Some statutes, such as the Connecticut Franchise Act, General Statutes § 42-133e through 42-133h, do impose limitations of just cause upon the power to terminate some contracts ; see § 42-133f; but the legislature has recently refused to interpolate such a requirement into contracts of employment. See H.B. No. 5179, 1974 Sess.^[3] There is a significant distinction [475] between a criterion of just cause and what the plaintiff is seeking. "Just cause" substantially limits employer discretion to terminate, by requiring the employer, in all instances, to proffer a proper reason for dismissal, by forbidding the employer to act arbitrarily or capriciously. See Pierce v. Ortho Pharmaceutical Corporation, 166 N.J. Super. 335, 341, 399 A.2d 1023 (1979). By contrast, the plaintiff asks only that the employer be responsible in damages if the former employee can prove a demonstrably improper reason for dismissal, a reason whose impropriety is derived from some important violation of public policy.

The argument that contract rights which are inherently legitimate may yet give rise to liability in tort if they are exercised improperly is not a novel one. Although private persons have the right not to enter into contracts, failure to contract under circumstances in which others are seriously misled gives rise to a variety of claims sounding in tort. See Kessler & Fine, "Culpa in Contrahendo," 77 Harv. L. Rev. 401 (1964). The development of liability in contract for action induced by reliance upon a promise, despite the absence of common-law consideration normally required to bind a promisor; see Restatement (Second), Contracts § 90 (1973); rests upon principles derived at least in part from the law of tort. See Gilmore, The Death of Contract 8-90 (1974). By way of analogy, we have long recognized abuse of process as a cause of action in tort whose gravamen is the misuse or misapplication of process, its use "in an improper manner or to accomplish a purpose for which it was not designed." Varga v. Pareles, 137 Conn. 663, 667, 81 A.2d 112 (1951); Schaefer v. O.K. Tool Co., 110 Conn. 528, 532-33, 148 A. 330 (1930); Restatement [476] (Second), Torts § 682 (1977); Wright & Fitzgerald, Connecticut Law of Torts § 163 (1968); Prosser, Torts § 121 (1971).

It would be difficult to maintain that the right to discharge an employee hired at will is so fundamentally different from other contract rights that its exercise is never subject to judicial scrutiny regardless of how outrageous, how violative of public policy, the employer's conduct may be. Cf. General Statutes § 31-126 (unfair employment practices). The defendant does not seriously contest the propriety of cases in other jurisdictions that have found wrongful and actionable a discharge in retaliation for the exercise of an employee's right to: (1) refuse to commit perjury; Petermann v. International Brotherhood of Teamsters, 174 Cal. App. 2d 184, 189, 344 P.2d 25 (1959); (2) file a workmen's compensation claim; Frampton v. Central Indiana Gas Co., 260 Ind. 249, 252, 297 N.E.2d 425 (1973); Sventko v. Kroger Co., 69 Mich. App. 644, 648-49, 245 N.W.2d 151 (1976); Brown v. Transcon Lines, 284 Ore. 597, 603, 588 P.2d 1087 (1978); (3) engage in union activity; Glenn v. Clearman's Golden Cock Inn, Inc., 192 Cal. App. 2d 793, 798, 13 Cal. Rptr. 769 (1961); (4) perform jury duty; Nees v. Hocks, 272 Ore. 210, 216-19, 536 P.2d 512 (1975); Reuther v. Fowler & Williams, Inc., 255 Pa. Super. 28, 31-32, 386 A.2d 119 (1978). While it may be true that these cases are supported by mandates of public policy derived directly from the applicable state statutes and constitutions, it is equally true that they serve at a minimum to establish the principle that public policy imposes some limits on unbridled discretion to terminate the employment of someone hired at will. See Blades, "Employment at Will vs. Individual Freedom: [477] On Limiting the Abusive Exercise of Employer Power," 67 Colum. L. Rev. 1404 (1967); Blumberg, "Corporate Responsibility and the Employee's Duty of Loyalty and Obedience: A Preliminary Inquiry," 24 Okla. L. Rev. 279, 307-318 (1971). No case has been called to our attention in which, despite egregiously outrageous circumstances, the employer's contract rights have been permitted to override competing claims of public policy, although there are numerous cases in which the facts were found not to support the employee's claim. See Larsen v. Motor Supply Co., 117 Ariz. 507, 508, 573 P.2d 907 (1978); Scroghan v. Kraftco Corporation, 551 S.W.2d 811, 812 (Ky. 1977); Jackson v. Minidoka Irrigation District, 98 Idaho 330, 333-34, 563 P.2d 54 (1977); Geary v. United States Steel Corporation, 456 Pa. 171, 183, 319 A.2d 174 (1974); Roberts v. Atlantic Richfield Co., 88 Wash. 2d 887, 896, 568 P.2d 764 (1977); but cf. Hinrichs v. Tranquilaire Hospital, 352 So. 2d 1130, 1131 (Ala. 1977).

The issue then becomes the familiar common-law problem of deciding where and how to draw the line between claims that genuinely involve the mandates of public policy and are actionable, and ordinary disputes between employee and employer that are not. We are mindful that courts should not lightly intervene to impair the exercise of managerial discretion or to foment unwarranted litigation. We are, however, equally mindful that the myriad of employees without the bargaining power to command employment contracts for a definite term are entitled to a modicum of judicial protection when their conduct as good citizens is punished by their employers.

[478] The central allegation of the plaintiff's complaint is that he was discharged because of his conduct in calling to his employer's attention repeated violations of the Connecticut Uniform Food, Drug and Cosmetic Act. This act prohibits the sale of mislabeled food. General Statutes §§ 19-213,^[4] 19-222.^[5] The act, in § 19-215,^[6] imposes criminal penalties upon anyone who violates § 19-213; subsection (b) of § 19-215 makes it clear that criminal sanctions do not depend upon proof of intent to defraud or mislead, since special sanctions are imposed for intentional misconduct. The plaintiff's position as quality control director and operations manager might have exposed him to the possibility of criminal prosecution under this act. The act was intended to "safeguard the public health and promote the public welfare by protecting the consuming public from injury by product use and the purchasing public from injury by merchandising deceit...." General Statutes § 19-211.

It is useful to compare the factual allegations of this complaint with those of other recent cases in which recovery was sought for retaliatory discharge. [479] In Geary v. United States Steel Corporation, supra, in which the plaintiff had disputed the safety of tubular steel casings, he was denied recovery because, as a company salesman, he had neither the expertise nor the corporate responsibility to "exercise independent, expert judgment in matters of product safety." Id., 181. By contrast, this plaintiff, unless his title is meaningless, did have responsibility for product quality control. Three other recent cases in which the plaintiff's claim survived demurrer closely approximate the claim before us. In Trombetta v. Detroit, Toledo & Ironton R. Co., 81 Mich. App. 489, 496, 265 N.W.2d 385 (1978), a cause of action was stated when an employee alleged that he had been discharged in retaliation for his refusal to manipulate and alter sampling results for pollution control reports required by Michigan law. There, as here, falsified reports would have violated state law. In Harless v. First National Bank in Fairmont, 246 S.E.2d 270, 276 (W. Va. 1978), an employee stated a cause of action when he alleged that he had been discharged in retaliation for his efforts to ensure his employer's compliance with state and federal consumer credit protection laws. There, as here, the legislature had established a public policy of consumer protection. In Pierce v. Ortho Pharmaceutical Corporation, 166 N.J. Super. 335, 342, 399 A.2d 1023 (1979), the plaintiff was entitled to a trial to determine whether she had been wrongfully discharged for refusing to pursue clinical testing of a new drug containing a high level of saccharin; the court noted that the plaintiff's status as a physician entitled her to invoke the Hippocratic Oath as well as state statutory provisions governing the licensing and the conduct of physicians. There, as here, the case might have been dismissed as a conflict in judgment.

[480] In the light of these recent cases, which evidence a growing judicial receptivity to the recognition of a tort claim for wrongful discharge, the trial court was in error in granting the defendant's motion to strike. The plaintiff alleged that he had been dismissed in retaliation for his insistence that the defendant comply with the requirements of a state statute, the Food, Drug and Cosmetic Act. We need not decide whether violation of a state statute is invariably a prerequisite to the conclusion that a challenged discharge violates public policy. Certainly when there is a relevant state statute we should not ignore the statement of public policy that it represents. For today, it is enough to decide that an employee should not be put to an election whether to risk criminal sanction or to jeopardize his continued employment.

There is error and the case is remanded for further proceedings.

In this opinion BOGDANSKI and HEALEY, JS., concurred.

COTTER, C. J. (dissenting).

I cannot agree that, on the factual situation presented to us, we should abandon the well-established principle that an indefinite general hiring may be terminated at the will of either party without liability to the other. Somers v. Cooley Chevrolet Co., 146 Conn. 627, 629, 153 A.2d 426; Fisher v. Jackson, 142 Conn. 734, 736, 118 A.2d 316; Carter v. Bartek, 142 Conn. 448, 450, 114 A.2d 923; Boucher v. Godfrey, 119 Conn. 622, 627, 178 A. 655. The majority by seeking to extend a "modicum" of judicial protection to shield employees from retaliatory discharges instead offers them a sword with which to coerce employers [481] to retain them in their employ. In recognizing an exception to the traditional rules governing employment at will and basing a new cause of action for retaliatory discharge on the facts of this case, the majority is necessarily led to the creation of an overly broad new cause of action whose nuisance value alone may impair employers' ability to hire and retain employees who are best suited to their requirements. Other jurisdictions which have recognized a cause of action for retaliatory discharge have done so on the basis of a much clearer and more direct contravention of a mandate of public policy.

The majority seeks to minimize the fact that in Petermann v. International Brotherhood of Teamsters, 174 Cal. App. 2d 184, 344 P.2d 25 (refusing to commit perjury); Frampton v. Central Indiana Gas Co., 260 Ind. 249, 297 N.E.2d 425 (filing workmen's compensation claim); Sventko v. Kroger Co., 69 Mich. App. 644, 245 N.W.2d 151 (same); Brown v. Transcon Lines, 284 Ore. 597, 588 P.2d 1087 (same); Glenn v. Clearman's Golden Cock Inn, Inc., 192 Cal. App. 2d 793, 13 Cal. Rptr. 769 (engaging in union activity); Nees v. Hocks, 272 Ore. 210, 536 P.2d 512 (performing jury duty); Reuther v. Fowler & Williams, Inc., 255 Pa. Super. 28, 386 A.2d 119 (same); the retaliatory discharges directly contravened a clear statutory or constitutional mandate by viewing these cases as having a least common denominator of establishing "the principle that public policy imposes some limits on unbridled discretion to terminate the employment of someone hired at will." Nevertheless, the thrust of these cases is that a retaliatory discharge in the particular circumstances at issue would be within certain statutory prohibitions; Frampton v. Central Indiana [482] Gas Co., supra, 252; defeat the purpose of the legislative scheme; Sventko v. Kroger Co., supra, 648; or undermine the state's declared policy; Petermann v. International Brotherhood of Teamsters, supra, 189.

In contrast, the purposes of the statute the majority would rely on, the Connecticut Uniform Food, Drug and Cosmetic Act, General Statutes §§ 19-211 through 19-239, can only be considered as, at most, marginally affected by an allegedly retaliatory discharge of an employee who observed the supposed sale of shortweight frozen entrees and the use of U. S. Government Certified "Grade B" rather than "Grade A" vegetables. A retaliatory discharge in the present case would not necessarily thwart or inhibit the Connecticut Uniform Food, Drug and Cosmetic Act's purpose of protecting the consumer. The plaintiff, if he desired to protect the consumer, could have communicated, even anonymously, to the commissioner of consumer affairs his concerns that his employer was violating the Food, Drug and Cosmetic Act so as to invoke the statute's enforcement mechanisms. See General Statutes §§ 19-214 through 19-217. To further and comply with the public policy expressed in Connecticut's Uniform Food, Drug and Cosmetic Act and to avoid the exceedingly remote possibility of criminal sanctions,^[7] the plaintiff need not have jeopardized his continued employment. There is no indication that the plaintiff has either, before or after his discharge, [483] informed or even attempted to inform the commissioner of consumer protection of violations the plaintiff claims to have first noted in his fourth year as the defendant's quality control director and fourth month as its operations manager. Unlike those cases where an employer allegedly discharged employees for engaging in union activities or filing workmen's compensation claims and the discharge itself contravened a statutory mandate, in the present case the discharge itself at most only indirectly impinged on the statutory mandate.

Consequently, the majority seemingly invites the unrestricted use of an allegation of almost any statutory or even regulatory violation by an employer as the basis for a cause of action by a discharged employee hired for an indefinite term. By establishing a cause of action, grounded upon "intentionally tortious conduct," for retaliatory discharges which do not necessarily in and of themselves directly contravene statutory mandates, the majority is creating an open-ended arena for judicial policy making and the usurpation of legislative functions. To base this new cause of action on a decision as to whether an alleged reason for discharge "is derived from some important violation of public policy" is not to create adequate and carefully circumscribed standards for this new cause of action but is to invite the opening of a Pandora's box of unwarranted litigation arising from the hope that the judicial estimate of derivation, importance, and public policy matches that of the plaintiff.

Moreover, this is policy making that the Connecticut legislature recently declined to undertake. In 1974, the Connecticut General Assembly considered and rejected a bill which would have provided that "[a]ny employee [including private [484] sector employees] hired for an indefinite term, may be dismissed only for just cause or because of the employer's reduction in work force for business reasons." H.B. No. 5179, 1974 Sess. Representative Francis J. Mahoney, the bill's sponsor, gave examples of the kind of discharges he intended the bill to cover: discharges for overlooking violations of building codes or for campaigning for the wrong political party. 17 H.R. Proc., Pt. 5, 1974 Sess., pp. 2689, 2694-95.^[8] Thus, "just cause" in the overwhelmingly rejected 1974 bill was meant to encompass the kinds of retaliatory discharge that the majority approves as a new cause of action. Furthermore, the most recent legislature enacted a statute protecting "whistle blowing" state employees; Public Acts 1979, No. 79-599; and in Public Acts 1979, No. 153, addressed the problem of retaliatory dismissals of building officials. The legislature is thus adopting appropriate remedies for certain types of retaliatory discharges at its own considered pace and there appears to be no urgency for this court to violate that measured momentum by creating a broadly based new cause of action. In these circumstances, this court should consider itself precluded from substituting its own ideas of what might be wise policy in place of a clear expression of legislative will. See Penfield v. Jarvis, 175 Conn. 463, 475, 399 A.2d 1280; United Aircraft Corporation v. Fusari, 163 Conn. 401, 415, 311 A.2d 65.

Finally, it should be reiterated that the minority of jurisdictions which have created a cause of action [485] for retaliatory discharges have done so with caution and when the employee termination contravenes a clear mandate of public policy.^[9] It is because the majority abandons that caution and for the reason that the factual situation before us does not demonstrate a "wrongful discharge where the discharge contravenes a clear mandate of public policy" that I feel compelled to dissent.

In this opinion LOISELLE, J., concurred.

[1] The motion to strike, Practice Book, 1978, § 151, is the modern equivalent of the former demurrer.

[2] Section 19-222 provides in relevant part: "MISBRANDED FOOD. A food shall be deemed to be misbranded: (a) If its labeling is false or misleading in any particular."

[3] Some statutes of course expressly forbid retaliatory discharge. See, e.g., Public Acts 1979, No. 79-599, and 29 U.S.C. § 660 (c) (1) (1976), which is discussed in Marshall v. Whirlpool Corporation, 593 F.2d 715 (6th Cir. 1979), cert. granted, 444 U.S. 1009, 100 S. Ct. 43, 62 L. Ed. 2d 29 (1979) (on other grounds).

[4] "[General Statutes] See. 19-213. PROHIBITED ACTS. The following acts and the causing thereof shall be prohibited: (a) The sale in intrastate commerce of any food, drug, device or cosmetic that is adulterated or misbranded; (b) the adulteration or misbranding of any food, drug, device or cosmetic in intrastate commerce...."

[5] Section 19-222 provides in relevant part: "MISBRANDED FOOD. A food shall be deemed to be misbranded: (a) If its labeling is false or misleading in any particular."

[6] Section 19-215 provides in relevant part: "PENALTIES. (a) Any person who violates any provision of section 19-213 shall, on conviction thereof, be imprisoned not more than six months or fined not more than five hundred dollars or both .... (b) Notwithstanding the provisions of subsection (a) of this section, any person who violates any provision of section 19-213, with intent to defraud or mislead, shall be imprisoned not more than one year or fined not more than one thousand dollars or both."

[7] There is no allegation in the plaintiff's amended complaint that he was exposed to criminal liability by the defendant's alleged violations and it should be noted that those presumed violations could well fall within the Uniform Food, Drug and Cosmetic Act's provision for minor violations which the commissioner of consumer protection is not required to report to the state's attorney for possible institution of criminal proceedings. General Statutes § 19-218.

[8] As the trial court points out in its memorandum of decision, the 1974 bill was just one of four bills introduced in recent years that the General Assembly has failed to pass which were aimed at providing a remedy for employees who claimed unjust discharges. The other three bills were No. 5151, 1975 Sess.; No. 5299, 1976 Sess.; No. 7568, 1977 Sess.

[9] Even the examples the majority cites of recent cases from other jurisdictions which acknowledge a cause of action for retaliatory discharge are distinguishable from the present case and exhibit considerable circumspection. In Pierce v. Ortho Pharmaceutical Corporation,166 N.J. Super. 335, 399 A.2d 1023, the court, upon declaring that there should be a trial to determine whether the plaintiff's alleged retaliatory discharge was in fact and in law wrongful, stated (p. 1026), inter alia: "[I]f there is to be such an exception to the at-will employment rule, it must be tightly circumscribed so as to apply only in cases involving truly significant matters of clear and well-defined public policy and substantial violations thereof.... [T]he adoption of any such new doctrine must be grounded in a specific factual and legal context resulting from a plenary hearing, at which the proofs and public policy considerations involved will be fully developed and taken into account in the final determination. As indicated, we express no views on this issue. The matter should be decided in the first instance by the trial court after a hearing."

In Trombetta v. Detroit, Toledo & Ironton R. Co., 81 Mich. App. 489, 498, 265 N.W.2d 385, the court ruled that although a cause of action was stated because the defendant's actions clearly violated the law of the state, the trial court's granting of the defendants' motion for summary judgment was not error because the plaintiff failed to submit any admissible evidence at trial to contradict the sworn statements made by the defendants' agents. In Harless v. First National Bank in Fairmont, 246 S.E.2d 270 (W. Va.), the court was confronted with outrageous circumstances: initial firing, rehiring, demotion, harassment, destruction of incriminating files, collusion between bank officers and bank directors, false promises of confidentiality by bank officers and auditors, an acknowledgment of illegality by a bank director, and finally discharge. In Harless, the plaintiff informed outside regulatory authorities of his employer's violations and those violations of a statute were clearly substantial and intentional. Id., 275.

[66] Glenn A. Stanko, of Reno, O'Byrne & Kepley, P.C., of Champaign, for appellant.

Bruce Meachum, of Meachum & Meachum, of Danville, for appellee.

Judgment affirmed.

JUSTICE WARD delivered the opinion of the court:

The question here is whether the complaint of David N. Price stated a cause of action for retaliatory discharge. The circuit court of Vermilion County held that it did, and the defendant, Carmack Datsun, Inc. (Carmack), appealed to the appellate court. That court reversed (124 Ill. App.3d 979), and we granted the plaintiff's petition for leave to appeal under our Rule 315 (94 Ill.2d R. 315).

The plaintiff's complaint against Carmack, filed January 5, 1982, contained these allegations: The defendant Carmack was in the business of selling new and used automobiles in Danville. Price was a sales representative for Carmack from December 1977 until May 1978, when he left to establish a locksmith business. In July 1980, Price returned to Carmack as a full-time sales representative. On August 18, 1980, Price was in an automobile accident and suffered two fractured ribs, a fractured pelvis and a fractured coccyx. He was hospitalized for three weeks and used crutches for two months thereafter. As an employee of Carmack, the plaintiff was covered under [67] Carmack's group health insurance plan with Massachusetts Life Insurance Company. The plaintiff's medical expenses were more than $7,000. When Price returned to work on November 26, 1980, Donald Carmack, the president of Carmack, asked him whether he was going to submit a claim under the health insurance plan and sought to discourage him from filing a claim. Three days later, the plaintiff informed Carmack that he intended to file a claim. Carmack informed the plaintiff at that time that he was discharged. The plaintiff alleged that his filing the claim was the ground for his discharge.

The jury found in favor of the plaintiff and awarded him $5,525 in compensatory damages and $2,762 in punitive damages. The appellate court, in reversing, held that the plaintiff had not stated a cause of action for retaliatory discharge.

The plaintiff contends that the health insurance provisions of the Illinois Insurance Code (Ill. Rev. Stat. 1981, ch. 73, par. 613 et seq.) show that there is a public policy against the discharge of employees for filing health insurance claims. The defendant's position is that the filing of a health insurance claim is founded on a private contractual right and is not a matter supported by public policy.

The accepted general rule is that in an employment at will there is no limitation on the right of an employer to discharge an employee. An exception to this, however, arises where there has been a retaliatory discharge of the employee. A cause of action for retaliatory discharge is recognized by this court only when the employee's discharge is in violation of a "clearly mandated public policy." (Barr v. Kelso-Burnett Co. (1985), 106 Ill.2d 520, 525; Palmateer v. International Harvester Co. (1981), 85 Ill.2d 124, 128-30.) In Palmateer, this court discussed the meaning of "clearly mandated public policy":

[68] "There is no precise definition of the term. In general, it can be said that public policy concerns what is right and just and what affects the citizens of the State collectively. It is to be found in the State's constitution and statutes and, when they are silent, in its judicial decisions. [Citation.] Although there is no precise line of demarcation dividing matters that are the subject of public policies from matters purely personal, a survey of cases in other States involving retaliatory discharges shows that a matter must strike at the heart of a citizen's social rights, duties, and responsibilities before the tort will be allowed." 85 Ill.2d 124, 130.

The tort of retaliatory discharge was first recognized and applied by this court in Kelsay v. Motorola, Inc. (1978), 74 Ill.2d 172, where it was alleged that the employee had been discharged in retaliation for having filed a workers' compensation claim. This court determined that the Workers' Compensation Act showed a strong public policy in favor of the exercise of an employee's rights under the statute. This policy would be frustrated if employers would be permitted to discharge employees for filing claims for injuries with impunity. Public policy required that the employer be made additionally liable for the wrongful discharge. In Palmateer, this court held there was a cause of action for an employee's discharge in retaliation for furnishing police with information regarding possible criminal conduct of a fellow employee. We considered that "[t]here is no public policy more important or more fundamental than the one favoring the effective protection of the lives and property of citizens. * * * Public policy favors [the employee's] conduct in volunteering information to the law-enforcement agency." 85 Ill.2d 124, 132-33.

The question here is whether there is a clearly mandated public policy regarding the plaintiff's health insurance coverage to support a cause of action for retaliatory discharge. The plaintiff notes that employers [69] commonly provide group health insurance for employees and thus a great many workers in this State have this coverage. To demonstrate a clearly mandated public policy to prohibit the discharge of an employee for the filing of a health insurance claim, the plaintiff cites the sections of the Insurance Code that regulate health insurance. (See Ill. Rev. Stat. 1981, ch. 73, pars. 964, 982d.) The entire insurance industry, however, is a regulated industry. The Insurance Code regulates all types of insurance and all policies issued are required to have State approval. It should be noted, too, that the Code was designed to govern operations of insurance companies, not insureds, such as the defendant. The filing of a claim under a policy of insurance is pursuant to an individual contract between the insurer and the insured. We consider that the discharge of an employee for filing a claim under a policy in which he is a beneficiary does not violate a clearly mandated public policy. This court in Palmateer said that for a matter to be a matter of "clearly mandated public policy" it "must strike at the heart of a citizen's social rights, duties, and responsibilities * * *." (85 Ill.2d 124, 130.) The matter here is one of private and individual grievance rather than one affecting our society.

For the reasons given, the judgment of the appellate court, reversing the circuit court, is affirmed.

Judgment affirmed.

JUSTICE SIMON, dissenting:

I respectfully differ from the conclusion reached by my colleagues. In my opinion, this matter affects our society. As part of our public policy we encourage employers to provide health insurance plans for their employees so that in case of illness or injury they will not become destitute or public charges. Federal tax law provides employers with a deduction if their group health policies coordinate [70] with Federal medical assistance. (26 U.S.C.A. sec. 162(i) (Supp. 1985); S. Rep. No. 139, 97th Cong., 1st Sess. 496 (1981).) Our General Assembly has allowed an employer deduction under identical circumstances. (Ill. Rev. Stat. 1981, ch. 120, par. 2-203(e)(1).) This State and Federal policy of dovetailing public and private health coverage is frustrated by allowing employers to take the group health deduction while "dissuading" employees from filing group health claims.

Today, most employees regard the health coverage which their employers provide as a necessary and important part of their compensation. The government encourages employees to seek this form of compensation. (26 U.S.C.A. sec. 106 (1984) (premiums paid to employer-provided health plans excluded from employees' gross income).) Discharging an employee for filing a claim under employer-provided health coverage is similar to discharging an employee because he refuses to work for less than the minimum wage. This strikes at the heart of an employee's social rights; it affects all employees if an employer is permitted to provide health insurance and yet prevent covered employees from filing claims in order to advance the interests of the employer.

Additionally, the public policy of this State dictates that insured individuals should receive, without delay or harassment, the benefits for which they have contracted and upon which they rely. To promote this policy, the General Assembly has provided in section 11 of the Illinois Insurance Code for the recovery of legal fees and specified punitive damages where an insurer has delayed payment through "vexatious and unreasonable" means. (Ill. Rev. Stat. 1983, ch. 73, par. 767.) In some cases the appellate court has punctuated this policy by recognizing a tort cause of action through which an insured may recover compensatory damages for actions taken by an insurance company in bad faith. E.g., Hoffman v. Allstate [71] Insurance Co. (1980), 85 Ill. App.3d 631; see Lueck v. Aetna Life Insurance Co. (1984), 116 Wis.2d 559, 342 N.W.2d 699, rev'd on other grounds (1985), 471 U.S. ___, 85 L.Ed.2d 206, 105 S.Ct. 1904 (the State has an interest in protecting an insured from oppressive treatment by the insurance company); 3 Dooley, Modern Tort Law sec. 38.10 (1984).

In this case, Carmack Datsun stands in a similar relationship toward the plaintiff as does plaintiff's health insurer. Not only has the employer provided plaintiff with an insurance policy and been paid by plaintiff's services for that protection, but the employer is also in a position to dictate terms by which an employee can receive the emergency assistance for which that employee has paid. The rationale of section 11 and Hoffman v. Allstate Insurance Co. (1980), 85 Ill. App.3d 631, cannot be explained solely by reference to the often superior economic position of the insurance company. What distinguishes an insurer from other economically powerful concerns is that the insurer exploits its superior position at the same time disaster has struck the insured and the latter can least afford delay and litigation. This policy is frustrated by allowing the employer to intervene and occupy the position of leverage from which the legislature has dislodged insurers. What our General Assembly and the appellate court have given with one hand, this court is taking with the other. Harless v. First National Bank (W. Va. 1978), 246 S.E.2d 270.

The public policy of this State is to encourage employers to provide health coverage to their employees and to insure that those entitled to insurance proceeds shall enjoy those proceeds without harassment from parties temporarily promoted to unconscionable bargaining positions by the inherent necessity of the insured's situation. The court should recognize plaintiff's complaint, not to expand the exception to the employment-at-will [72] doctrine, but as a cause of action based upon an unconscionable abuse of economic power in derogation of public policy. That is the real essence and basis of the tort of retaliatory discharge. Since the plaintiff has not alleged a breach of his at-will employment contract, I do not reach the merits of such a claim.

Because I believe the court's decision authorizes abusive exercise of the power to discharge employees, without affording any protection to the public policy of this State, I dissent.

Harold J. Cassidy and Alan J. Karcher argued the cause for appellants, Mary Beth and Richard Whitehead (Cassidy, Foss & San Filippo, attorneys; Harold J. Cassidy, Alan J. Karcher, Robert W. Ruggieri, Randolph H. Wolf, and Louis N. Rainone, on the briefs).

Gary N. Skoloff argued the cause for respondents, William and Elizabeth Stern (Skoloff & Wolfe, attorneys; Gary N. Skoloff, Francis W. Donahue, and Edward J. O'Donnell, on the brief).

Lorraine A. Abraham, Guardian ad litem, argued the cause pro se (Lorraine A. Abraham, attorney; Lorraine A. Abraham and Steven T. Kearns, on the brief).

Annette M. Tobia submitted a brief on behalf of amicus curiae Dr. Betsy P. Aigen, (Spivak & Tobia, attorneys).

George B. Gelman submitted a brief on behalf of amicus curiae American Adoption Congress (Gelman & McNish, attorneys).

Steven N. Taieb and Steven F. McDowell, a member of the Wisconsin bar, submitted a brief on behalf of amicus curiae Catholic League for Religious and Civil Rights.

Steven P. Weissman submitted a brief on behalf of amicus curiae Communications Workers of America, AFL-CIO.

John R. Holsinger, Merrill O'Brien, Mary Sue Henifin, and John H. Hall, and Terry E. Thornton, members of the New York bar, submitted a brief on behalf of amicus curiae Concerned United Birthparents, Inc. (Ellenport & Holsinger, attorneys).

David H. Dugan, III, and Joy R. Jowdy, a member of the Texas bar, submitted a brief on behalf of amici curiae Concerned Women for America, Eagle Forum, National Legal Foundation, Family Research Council of America, United Families Foundation, and Judicial Reform Project.

Alfred F. Russo and Andrew C. Kimbrell, a member of the Pennsylvania bar, and Edward Lee Rogers, a member of the District of Columbia bar, submitted a brief on behalf of amici curiae The Foundation on Economic Trends, Jeremy Rifkin, Betty Friedan, Gloria Steinem, Gena Corea, Barbara Katz-Rothman, Lois Gould, Marilyn French, Hazel Henderson, Grace Paley, Evelyn Fox Keller, Shelly Mindin, Rita Arditti, Dr. Janice Raymond, Dr. Michelle Harrison, Dr. W.D. White, Sybil Shainwald, Mary Daly, Cathleen Lahay, Karen Malpede, Phylis Chesler, Kristen Golden, Letty Cottin Pogrebin, and Ynestra King (Russo & Casey, attorneys).

Louis E. Della Torre, Jr., submitted a brief on behalf of amicus curiae The Gruter Institute for Law and Behavioral Research, Inc. (Schumann, Hession, Kennelly & Dorment, attorneys).

Kathleen E. Kitson, Sharon F. Liebhaber, and Myra Sun, a member of the Washington bar, submitted a brief on behalf of amici curiae Hudson County Legal Services Corporation and National Center on Women and Family Law, Inc. (Timothy K. Madden, Director, Hudson County Legal Services Corporation, attorney).

Priscilla Read Chenoweth submitted a brief on behalf of amici curiae Committee for Mother and Child Rights, Inc. and Origins.

Herbert D. Hinkle submitted a brief on behalf of amicus curiae National Association of Surrogate Mothers.

Joseph M. Nardi, Jr., and Edward F. Canfield, a member of the District of Columbia bar, submitted a brief on behalf of amicus curiae The National Committee for Adoption, Inc. (Lario, Nardi & Gleaner, attorneys).

Charlotte Rosin, pro se, submitted a letter in lieu of brief on behalf of amicus curiae National Infertility Network Exchange.

William F. Bolan, Jr., submitted a brief on behalf of amicus curiae New Jersey Catholic Conference.

Paul J. McCurrie and Cyril C. Means, Jr., a member of the Michigan bar, with whom Priscilla Read Chenoweth and Cathleen M. Halko were on the brief, submitted a brief on behalf of amici curiae Odyssey Institute International, Inc., Odyssey Institute of Connecticut, Inc., Florence Fisher, Judianne Densen-Gerber, Senator Connie Binsfeld, and Angela Holder.

Merrilee A. Scilla, pro se, submitted a letter in lieu of brief on behalf of amicus curiae RESOLVE of Central New Jersey.

Jerrold N. Kaminsky submitted a brief on behalf of amicus curiae RESOLVE, Inc.

Richard J. Traynor and John W. Whitehead, a member of the Virginia bar, and David A. French, a member of the Michigan bar, submitted a brief on behalf of amicus curiae The Rutherford Institute (Traynor and Hogan, attorneys).

Nadine Taub submitted a brief on behalf of amici curiae Women's Rights Litigation Clinic at Rutgers Law School, The New York State Coalition on Women's Legislative Issues, and the National Emergency Civil Liberties Committee.

Table of Contents     

Introduction 410

I.Facts 411

II.Invalidity and Unenforceability of Surrogacy Contract 421

A. Conflict with Statutory Provisions 423

B. Public Policy Considerations 434

III. Termination 444

IV. Constitutional Issues 447

V. Custody 452

VI. Visitation 463

Conclusion 468

The opinion of the Court was delivered by WILENTZ, C.J.

In this matter the Court is asked to determine the validity of a contract that purports to provide a new way of bringing children into a family. For a fee of $10,000, a woman agrees to be artificially inseminated with the semen of another woman's husband; she is to conceive a child, carry it to term, and after its birth surrender it to the natural father and his wife. The intent of the contract is that the child's natural mother will thereafter be forever separated from her child. The wife is to adopt the child, and she and the natural father are to be [411] regarded as its parents for all purposes. The contract providing for this is called a "surrogacy contract," the natural mother inappropriately called the "surrogate mother."

We invalidate the surrogacy contract because it conflicts with the law and public policy of this State. While we recognize the depth of the yearning of infertile couples to have their own children, we find the payment of money to a "surrogate" mother illegal, perhaps criminal, and potentially degrading to women. Although in this case we grant custody to the natural father, the evidence having clearly proved such custody to be in the best interests of the infant, we void both the termination of the surrogate mother's parental rights and the adoption of the child by the wife/stepparent. We thus restore the "surrogate" as the mother of the child. We remand the issue of the natural mother's visitation rights to the trial court, since that issue was not reached below and the record before us is not sufficient to permit us to decide it de novo.

We find no offense to our present laws where a woman voluntarily and without payment agrees to act as a "surrogate" mother, provided that she is not subject to a binding agreement to surrender her child. Moreover, our holding today does not preclude the Legislature from altering the current statutory scheme, within constitutional limits, so as to permit surrogacy contracts. Under current law, however, the surrogacy agreement before us is illegal and invalid.

I.

FACTS

In February 1985, William Stern and Mary Beth Whitehead entered into a surrogacy contract. It recited that Stern's wife, Elizabeth, was infertile, that they wanted a child, and that Mrs. Whitehead was willing to provide that child as the mother with Mr. Stern as the father.

The contract provided that through artificial insemination using Mr. Stern's sperm, Mrs. Whitehead would become pregnant, carry the child to term, bear it, deliver it to the Sterns, and thereafter do whatever was necessary to terminate her maternal rights so that Mrs. Stern could thereafter adopt the child. Mrs. Whitehead's husband, Richard,^[1] was also a party to the contract; Mrs. Stern was not. Mr. Whitehead promised to do all acts necessary to rebut the presumption of paternity under the Parentage Act. N.J.S.A. 9:17-43a(1), -44a. Although Mrs. Stern was not a party to the surrogacy agreement, the contract gave her sole custody of the child in the event of Mr. Stern's death. Mrs. Stern's status as a nonparty to the surrogate parenting agreement presumably was to avoid the application of the baby-selling statute to this arrangement. N.J.S.A. 9:3-54.

Mr. Stern, on his part, agreed to attempt the artificial insemination and to pay Mrs. Whitehead $10,000 after the child's birth, on its delivery to him. In a separate contract, Mr. Stern agreed to pay $7,500 to the Infertility Center of New York ("ICNY"). The Center's advertising campaigns solicit surrogate mothers and encourage infertile couples to consider surrogacy. ICNY arranged for the surrogacy contract by bringing the parties together, explaining the process to them, furnishing the contractual form,^[2] and providing legal counsel.

The history of the parties' involvement in this arrangement suggests their good faith. William and Elizabeth Stern were married in July 1974, having met at the University of Michigan, where both were Ph.D. candidates. Due to financial considerations and Mrs. Stern's pursuit of a medical degree and residency, they decided to defer starting a family until 1981. Before then, however, Mrs. Stern learned that she might have multiple sclerosis and that the disease in some cases renders pregnancy a serious health risk. Her anxiety appears to have exceeded the actual risk, which current medical authorities assess as minimal. Nonetheless that anxiety was evidently quite real, Mrs. Stern fearing that pregnancy might precipitate blindness, paraplegia, or other forms of debilitation. Based on the perceived risk, the Sterns decided to forego having their own children. The decision had special significance for Mr. Stern. Most of his family had been destroyed in the Holocaust. As the family's only survivor, he very much wanted to continue his bloodline.

Initially the Sterns considered adoption, but were discouraged by the substantial delay apparently involved and by the potential problem they saw arising from their age and their differing religious backgrounds. They were most eager for some other means to start a family.

The paths of Mrs. Whitehead and the Sterns to surrogacy were similar. Both responded to advertising by ICNY. The Sterns' response, following their inquiries into adoption, was the result of their long-standing decision to have a child. Mrs. Whitehead's response apparently resulted from her sympathy with family members and others who could have no children (she stated that she wanted to give another couple the "gift of life"); she also wanted the $10,000 to help her family.

Both parties, undoubtedly because of their own self-interest, were less sensitive to the implications of the transaction than they might otherwise have been. Mrs. Whitehead, for instance, appears not to have been concerned about whether the Sterns would make good parents for her child; the Sterns, on their part, while conscious of the obvious possibility that surrendering the child might cause grief to Mrs. Whitehead, overcame their qualms because of their desire for a child. At any rate, both the Sterns and Mrs. Whitehead were committed to the arrangement; both thought it right and constructive.

Mrs. Whitehead had reached her decision concerning surrogacy before the Sterns, and had actually been involved as a potential surrogate mother with another couple. After numerous unsuccessful artificial inseminations, that effort was abandoned. Thereafter, the Sterns learned of the Infertility Center, the possibilities of surrogacy, and of Mary Beth Whitehead. The two couples met to discuss the surrogacy arrangement and decided to go forward. On February 6, 1985, Mr. Stern and Mr. and Mrs. Whitehead executed the surrogate parenting agreement. After several artificial inseminations over a period of months, Mrs. Whitehead became pregnant. The pregnancy was uneventful and on March 27, 1986, Baby M was born.

Not wishing anyone at the hospital to be aware of the surrogacy arrangement, Mr. and Mrs. Whitehead appeared to all as the proud parents of a healthy female child. Her birth certificate indicated her name to be Sara Elizabeth Whitehead and her father to be Richard Whitehead. In accordance with Mrs. Whitehead's request, the Sterns visited the hospital unobtrusively to see the newborn child.

Mrs. Whitehead realized, almost from the moment of birth, that she could not part with this child. She had felt a bond with it even during pregnancy. Some indication of the attachment was conveyed to the Sterns at the hospital when they told Mrs. Whitehead what they were going to name the baby. She apparently broke into tears and indicated that she did not know if she could give up the child. She talked about how the baby looked like her other daughter, and made it clear that she was experiencing great difficulty with the decision.

Nonetheless, Mrs. Whitehead was, for the moment, true to her word. Despite powerful inclinations to the contrary, she turned her child over to the Sterns on March 30 at the Whiteheads' home.

The Sterns were thrilled with their new child. They had planned extensively for its arrival, far beyond the practical furnishing of a room for her. It was a time of joyful celebration — not just for them but for their friends as well. The Sterns looked forward to raising their daughter, whom they named Melissa. While aware by then that Mrs. Whitehead was undergoing an emotional crisis, they were as yet not cognizant of the depth of that crisis and its implications for their newly-enlarged family.

Later in the evening of March 30, Mrs. Whitehead became deeply disturbed, disconsolate, stricken with unbearable sadness. She had to have her child. She could not eat, sleep, or concentrate on anything other than her need for her baby. The next day she went to the Sterns' home and told them how much she was suffering.

The depth of Mrs. Whitehead's despair surprised and frightened the Sterns. She told them that she could not live without her baby, that she must have her, even if only for one week, that thereafter she would surrender her child. The Sterns, concerned that Mrs. Whitehead might indeed commit suicide, not wanting under any circumstances to risk that, and in any event believing that Mrs. Whitehead would keep her word, turned the child over to her. It was not until four months later, after a series of attempts to regain possession of the child, that Melissa was returned to the Sterns, having been forcibly removed from the home where she was then living with Mr. and Mrs. Whitehead, the home in Florida owned by Mary Beth Whitehead's parents.

The struggle over Baby M began when it became apparent that Mrs. Whitehead could not return the child to Mr. Stern. Due to Mrs. Whitehead's refusal to relinquish the baby, Mr. Stern filed a complaint seeking enforcement of the surrogacy contract. He alleged, accurately, that Mrs. Whitehead had not only refused to comply with the surrogacy contract but had threatened to flee from New Jersey with the child in order to avoid even the possibility of his obtaining custody. The court papers asserted that if Mrs. Whitehead were to be given notice of the application for an order requiring her to relinquish custody, she would, prior to the hearing, leave the state with the baby. And that is precisely what she did. After the order was entered, ex parte, the process server, aided by the police, in the presence of the Sterns, entered Mrs. Whitehead's home to execute the order. Mr. Whitehead fled with the child, who had been handed to him through a window while those who came to enforce the order were thrown off balance by a dispute over the child's current name.

The Whiteheads immediately fled to Florida with Baby M. They stayed initially with Mrs. Whitehead's parents, where one of Mrs. Whitehead's children had been living. For the next three months, the Whiteheads and Melissa lived at roughly twenty different hotels, motels, and homes in order to avoid apprehension. From time to time Mrs. Whitehead would call Mr. Stern to discuss the matter; the conversations, recorded by Mr. Stern on advice of counsel, show an escalating dispute about rights, morality, and power, accompanied by threats of Mrs. Whitehead to kill herself, to kill the child, and falsely to accuse Mr. Stern of sexually molesting Mrs. Whitehead's other daughter.

Eventually the Sterns discovered where the Whiteheads were staying, commenced supplementary proceedings in Florida, and obtained an order requiring the Whiteheads to turn over the child. Police in Florida enforced the order, forcibly removing the child from her grandparents' home. She was soon thereafter brought to New Jersey and turned over to the Sterns. The prior order of the court, issued ex parte, awarding custody of the child to the Sterns pendente lite, was reaffirmed by the trial court after consideration of the certified representations of the parties (both represented by counsel) concerning the unusual sequence of events that had unfolded. Pending final judgment, Mrs. Whitehead was awarded limited visitation with Baby M.

The Sterns' complaint, in addition to seeking possession and ultimately custody of the child, sought enforcement of the surrogacy contract. Pursuant to the contract, it asked that the child be permanently placed in their custody, that Mrs. Whitehead's parental rights be terminated, and that Mrs. Stern be allowed to adopt the child, i.e., that, for all purposes, Melissa become the Sterns' child.

The trial took thirty-two days over a period of more than two months. It included numerous interlocutory appeals and attempted interlocutory appeals. There were twenty-three witnesses to the facts recited above and fifteen expert witnesses, eleven testifying on the issue of custody and four on the subject of Mrs. Stern's multiple sclerosis; the bulk of the testimony was devoted to determining the parenting arrangement most compatible with the child's best interests. Soon after the conclusion of the trial, the trial court announced its opinion from the bench. 217 N.J. Super. 313 (1987). It held that the surrogacy contract was valid; ordered that Mrs. Whitehead's parental rights be terminated and that sole custody of the child be granted to Mr. Stern; and, after hearing brief testimony from Mrs. Stern, immediately entered an order allowing the adoption of Melissa by Mrs. Stern, all in accordance with the surrogacy contract. Pending the outcome of the appeal, we granted a continuation of visitation to Mrs. Whitehead, although slightly more limited than the visitation allowed during the trial.

Although clearly expressing its view that the surrogacy contract was valid, the trial court devoted the major portion of its opinion to the question of the baby's best interests. The inconsistency is apparent. The surrogacy contract calls for the surrender of the child to the Sterns, permanent and sole custody in the Sterns, and termination of Mrs. Whitehead's parental rights, all without qualification, all regardless of any evaluation of the best interests of the child. As a matter of fact the contract recites (even before the child was conceived) that it is in the best interests of the child to be placed with Mr. Stern. In effect, the trial court awarded custody to Mr. Stern, the natural father, based on the same kind of evidence and analysis as might be expected had no surrogacy contract existed. Its rationalization, however, was that while the surrogacy contract was valid, specific performance would not be granted unless that remedy was in the best interests of the child. The factual issues confronted and decided by the trial court were the same as if Mr. Stern and Mrs. Whitehead had had the child out of wedlock, intended or unintended, and then disagreed about custody. The trial court's awareness of the irrelevance of the contract in the court's determination of custody is suggested by its remark that beyond the question of the child's best interests, "[a]ll other concerns raised by counsel constitute commentary." 217 N.J. Super. at 323.

On the question of best interests — and we agree, but for different reasons, that custody was the critical issue — the court's analysis of the testimony was perceptive, demonstrating both its understanding of the case and its considerable experience in these matters. We agree substantially with both its analysis and conclusions on the matter of custody.

The court's review and analysis of the surrogacy contract, however, is not at all in accord with ours. The trial court concluded that the various statutes governing this matter, including those concerning adoption, termination of parental rights, and payment of money in connection with adoptions, do not apply to surrogacy contracts. Id. at 372-73. It reasoned that because the Legislature did not have surrogacy contracts in mind when it passed those laws, those laws were therefore irrelevant. Ibid. Thus, assuming it was writing on a clean slate, the trial court analyzed the interests involved and the power of the court to accommodate them. It then held that surrogacy contracts are valid and should be enforced, id. at 388, and furthermore that Mr. Stern's rights under the surrogacy contract were constitutionally protected. Id. at 385-88.

Mrs. Whitehead appealed. This Court granted direct certification. 107 N.J. 140 (1987). The briefs of the parties on appeal were joined by numerous briefs filed by amici expressing various interests and views on surrogacy and on this case. We have found many of them helpful in resolving the issues before us.

Mrs. Whitehead contends that the surrogacy contract, for a variety of reasons, is invalid. She contends that it conflicts with public policy since it guarantees that the child will not have the nurturing of both natural parents — presumably New Jersey's goal for families. She further argues that it deprives the mother of her constitutional right to the companionship of her child, and that it conflicts with statutes concerning termination of parental rights and adoption. With the contract thus void, Mrs. Whitehead claims primary custody (with visitation rights in Mr. Stern) both on a best interests basis (stressing the "tender years" doctrine) as well as on the policy basis of discouraging surrogacy contracts. She maintains that even if custody would ordinarily go to Mr. Stern, here it should be awarded to Mrs. Whitehead to deter future surrogacy arrangements.

In a brief filed after oral argument, counsel for Mrs. Whitehead suggests that the standard for determining best interests where the infant resulted from a surrogacy contract is that the child should be placed with the mother absent a showing of unfitness. All parties agree that no expert testified that Mary Beth Whitehead was unfit as a mother; the trial court expressly found that she was not "unfit," that, on the contrary, "she is a good mother for and to her older children," 217 N.J. Super. at 397; and no one now claims anything to the contrary.

One of the repeated themes put forth by Mrs. Whitehead is that the court's initial ex parte order granting custody to the Sterns during the trial was a substantial factor in the ultimate "best interests" determination. That initial order, claimed to be erroneous by Mrs. Whitehead, not only established Melissa as part of the Stern family, but brought enormous pressure on Mrs. Whitehead. The order brought the weight of the state behind the Sterns' attempt, ultimately successful, to gain possession of the child. The resulting pressure, Mrs. Whitehead contends, caused her to act in ways that were atypical of her ordinary behavior when not under stress, and to act in ways that were thought to be inimical to the child's best interests in that they demonstrated a failure of character, maturity, and consistency. She claims that any mother who truly loved her child might so respond and that it is doubly unfair to judge her on the basis of her reaction to an extreme situation rarely faced by any mother, where that situation was itself caused by an erroneous order of the court. Therefore, according to Mrs. Whitehead, the erroneous ex parte order precipitated a series of events that proved instrumental in the final result.^[3]

The Sterns claim that the surrogacy contract is valid and should be enforced, largely for the reasons given by the trial court. They claim a constitutional right of privacy, which includes the right of procreation, and the right of consenting adults to deal with matters of reproduction as they see fit. As for the child's best interests, their position is factual: given all of the circumstances, the child is better off in their custody with no residual parental rights reserved for Mrs. Whitehead.

Of considerable interest in this clash of views is the position of the child's guardian ad litem, wisely appointed by the court at the outset of the litigation. As the child's representative, her role in the litigation, as she viewed it, was solely to protect the child's best interests. She therefore took no position on the validity of the surrogacy contract, and instead devoted her energies to obtaining expert testimony uninfluenced by any interest other than the child's. We agree with the guardian's perception of her role in this litigation. She appropriately refrained from taking any position that might have appeared to compromise her role as the child's advocate. She first took the position, based on her experts' testimony, that the Sterns should have primary custody, and that while Mrs. Whitehead's parental rights should not be terminated, no visitation should be allowed for five years. As a result of subsequent developments, mentioned infra, her view has changed. She now recommends that no visitation be allowed at least until Baby M reaches maturity.

Although some of the experts' opinions touched on visitation, the major issue they addressed was whether custody should be reposed in the Sterns or in the Whiteheads. The trial court, consistent in this respect with its view that the surrogacy contract was valid, did not deal at all with the question of visitation. Having concluded that the best interests of the child called for custody in the Sterns, the trial court enforced the operative provisions of the surrogacy contract, terminated Mrs. Whitehead's parental rights, and granted an adoption to Mrs. Stern. Explicit in the ruling was the conclusion that the best interests determination removed whatever impediment might have existed in enforcing the surrogacy contract. This Court, therefore, is without guidance from the trial court on the visitation issue, an issue of considerable importance in any event, and especially important in view of our determination that the surrogacy contract is invalid.

II.

INVALIDITY AND UNENFORCEABILITY OF SURROGACY CONTRACT

We have concluded that this surrogacy contract is invalid. Our conclusion has two bases: direct conflict with existing statutes and conflict with the public policies of this State, as expressed in its statutory and decisional law.

One of the surrogacy contract's basic purposes, to achieve the adoption of a child through private placement, though permitted in New Jersey "is very much disfavored." Sees v. Baber, 74 N.J. 201, 217 (1977). Its use of money for this purpose — and we have no doubt whatsoever that the money is being paid to obtain an adoption and not, as the Sterns argue, for the personal services of Mary Beth Whitehead — is illegal and perhaps criminal. N.J.S.A. 9:3-54. In addition to the inducement of money, there is the coercion of contract: the natural mother's irrevocable agreement, prior to birth, even prior to conception, to surrender the child to the adoptive couple. Such an agreement is totally unenforceable in private placement adoption. Sees, 74 N.J. at 212-14. Even where the adoption is through an approved agency, the formal agreement to surrender occurs only after birth (as we read N.J.S.A. 9:2-16 and -17, and similar statutes), and then, by regulation, only after the birth mother has been offered counseling. N.J.A.C. 10:121A-5.4(c). Integral to these invalid provisions of the surrogacy contract is the related agreement, equally invalid, on the part of the natural mother to cooperate with, and not to contest, proceedings to terminate her parental rights, as well as her contractual concession, in aid of the adoption, that the child's best interests would be served by awarding custody to the natural father and his wife — all of this before she has even conceived, and, in some cases, before she has the slightest idea of what the natural father and adoptive mother are like.

The foregoing provisions not only directly conflict with New Jersey statutes, but also offend long-established State policies. These critical terms, which are at the heart of the contract, are invalid and unenforceable; the conclusion therefore follows, without more, that the entire contract is unenforceable.

A. Conflict with Statutory Provisions

The surrogacy contract conflicts with: (1) laws prohibiting the use of money in connection with adoptions; (2) laws requiring proof of parental unfitness or abandonment before termination of parental rights is ordered or an adoption is granted; and (3) laws that make surrender of custody and consent to adoption revocable in private placement adoptions.

(1) Our law prohibits paying or accepting money in connection with any placement of a child for adoption. N.J.S.A. 9:3-54a. Violation is a high misdemeanor. N.J.S.A. 9:3-54c. Excepted are fees of an approved agency (which must be a non-profit entity, N.J.S.A. 9:3-38a) and certain expenses in connection with childbirth. N.J.S.A. 9:3-54b.^[4]

Considerable care was taken in this case to structure the surrogacy arrangement so as not to violate this prohibition. The arrangement was structured as follows: the adopting parent, Mrs. Stern, was not a party to the surrogacy contract; the money paid to Mrs. Whitehead was stated to be for her services — not for the adoption; the sole purpose of the contract was stated as being that "of giving a child to William Stern, its natural and biological father"; the money was purported to be [424] "compensation for services and expenses and in no way ... a fee for termination of parental rights or a payment in exchange for consent to surrender a child for adoption"; the fee to the Infertility Center ($7,500) was stated to be for legal representation, advice, administrative work, and other "services." Nevertheless, it seems clear that the money was paid and accepted in connection with an adoption.

The Infertility Center's major role was first as a "finder" of the surrogate mother whose child was to be adopted, and second as the arranger of all proceedings that led to the adoption. Its role as adoption finder is demonstrated by the provision requiring Mr. Stern to pay another $7,500 if he uses Mary Beth Whitehead again as a surrogate, and by ICNY's agreement to "coordinate arrangements for the adoption of the child by the wife." The surrogacy agreement requires Mrs. Whitehead to surrender Baby M for the purposes of adoption. The agreement notes that Mr. and Mrs. Stern wanted to have a child, and provides that the child be "placed" with Mrs. Stern in the event Mr. Stern dies before the child is born. The payment of the $10,000 occurs only on surrender of custody of the child and "completion of the duties and obligations" of Mrs. Whitehead, including termination of her parental rights to facilitate adoption by Mrs. Stern. As for the contention that the Sterns are paying only for services and not for an adoption, we need note only that they would pay nothing in the event the child died before the fourth month of pregnancy, and only $1,000 if the child were stillborn, even though the "services" had been fully rendered. Additionally, one of Mrs. Whitehead's estimated costs, to be assumed by Mr. Stern, was an "Adoption Fee," presumably for Mrs. Whitehead's incidental costs in connection with the adoption.

Mr. Stern knew he was paying for the adoption of a child; Mrs. Whitehead knew she was accepting money so that a child might be adopted; the Infertility Center knew that it was being paid for assisting in the adoption of a child. The actions of all three worked to frustrate the goals of the statute. It strains credulity to claim that these arrangements, touted by those in the surrogacy business as an attractive alternative to the usual route leading to an adoption, really amount to something other than a private placement adoption for money.

The prohibition of our statute is strong. Violation constitutes a high misdemeanor, N.J.S.A. 9:3-54c, a third-degree crime, N.J.S.A. 2C:43-1b, carrying a penalty of three to five years imprisonment. N.J.S.A. 2C:43-6a(3). The evils inherent in baby-bartering are loathsome for a myriad of reasons. The child is sold without regard for whether the purchasers will be suitable parents. N. Baker, Baby Selling: The Scandal of Black Market Adoption 7 (1978). The natural mother does not receive the benefit of counseling and guidance to assist her in making a decision that may affect her for a lifetime. In fact, the monetary incentive to sell her child may, depending on her financial circumstances, make her decision less voluntary. Id. at 44. Furthermore, the adoptive parents^[5] may not be fully informed of the natural parents' medical history.

Baby-selling potentially results in the exploitation of all parties involved. Ibid. Conversely, adoption statutes seek to further humanitarian goals, foremost among them the best interests of the child. H. Witmer, E. Herzog, E. Weinstein, & M. Sullivan, Independent Adoptions: A Follow-Up Study 32 (1967). The negative consequences of baby-buying are potentially present in the surrogacy context, especially the potential for placing and adopting a child without regard to the interest of the child or the natural mother.

(2) The termination of Mrs. Whitehead's parental rights, called for by the surrogacy contract and actually ordered by the court, 217 N.J. Super. at 399-400, fails to comply with the stringent requirements of New Jersey law. Our law, recognizing the finality of any termination of parental rights, provides for such termination only where there has been a voluntary surrender of a child to an approved agency or to the Division of Youth and Family Services ("DYFS"), accompanied by a formal document acknowledging termination of parental rights, N.J.S.A. 9:2-16, -17; N.J.S.A. 9:3-41; N.J.S.A. 30:4C-23, or where there has been a showing of parental abandonment or unfitness. A termination may ordinarily take one of three forms: an action by an approved agency, an action by DYFS, or an action in connection with a private placement adoption. The three are governed by separate statutes, but the standards for termination are substantially the same, except that whereas a written surrender is effective when made to an approved agency or to DYFS, there is no provision for it in the private placement context. See N.J.S.A. 9:2-14; N.J.S.A. 30:4C-23.

N.J.S.A. 9:2-18 to -20 governs an action by an approved agency to terminate parental rights. Such an action, whether or not in conjunction with a pending adoption, may proceed on proof of written surrender, N.J.S.A. 9:2-16, -17, "forsaken parental obligation," or other specific grounds such as death or insanity, N.J.S.A. 9:2-19. Where the parent has not executed a formal consent, termination requires a showing of "forsaken parental obligation," i.e., "willful and continuous neglect or failure to perform the natural and regular obligations of care and support of a child." N.J.S.A. 9:2-13(d). See also N.J.S.A. 9:3-46a, -47c.

Where DYFS is the agency seeking termination, the requirements are similarly stringent, although at first glance they do not appear to be so. DYFS can, as can any approved agency, accept a formal voluntary surrender or writing having the effect of termination and giving DYFS the right to place the child for adoption. N.J.S.A. 30:4C-23. Absent such formal written surrender and consent, similar to that given to approved agencies, DYFS can terminate parental rights in an action for guardianship by proving that "the best interests of such child require that he be placed under proper guardianship." N.J.S.A. 30:4C-20. Despite this "best interests" language, however, this Court has recently held in New Jersey Div. of Youth & Family Servs. v. A.W., 103 N.J. 591 (1986), that in order for DYFS to terminate parental rights it must prove, by clear and convincing evidence, that "[t]he child's health and development have been or will be seriously impaired by the parental relationship," id. at 604, that "[t]he parents are unable or unwilling to eliminate the harm and delaying permanent placement will add to the harm," id. at 605, that "[t]he court has considered alternatives to termination," id. at 608, and that "[t]he termination of parental rights will not do more harm than good," id. at 610. This interpretation of the statutory language requires a most substantial showing of harm to the child if the parental relationship were to continue, far exceeding anything that a "best interests" test connotes.

In order to terminate parental rights under the private placement adoption statute, there must be a finding of "intentional abandonment or a very substantial neglect of parental duties without a reasonable expectation of a reversal of that conduct in the future." N.J.S.A. 9:3-48c(1). This requirement is similar to that of the prior law (i.e., "forsaken parental obligations," L. 1953, c. 264, § 2(d) (codified at N.J.S.A. 9:3-18(d) (repealed))), and to that of the law providing for termination through actions by approved agencies, N.J.S.A. 9:2-13(d). See also In re Adoption by J.J.P., 175 N.J. Super. 420, 427 (App. Div. 1980) (noting that the language of the termination provision in the present statute, N.J.S.A. 9:3-48c(1), derives from this Court's construction of the prior statute in In re Adoption of Children by D., 61 N.J. 89, 94-95 (1972)).

In Sees v. Baber, 74 N.J. 201 (1977) we distinguished the requirements for terminating parental rights in a private placement adoption from those required in an approved agency adoption. We stated that in an unregulated private placement, "neither consent nor voluntary surrender is singled out as a statutory factor in terminating parental rights." Id. at 213. Sees established that without proof that parental obligations had been forsaken, there would be no termination in a private placement setting.

As the trial court recognized, without a valid termination there can be no adoption. In re Adoption of Children by D., supra, 61 N.J. at 95. This requirement applies to all adoptions, whether they be private placements, ibid., or agency adoptions, N.J.S.A. 9:3-46a, -47c.

Our statutes, and the cases interpreting them, leave no doubt that where there has been no written surrender to an approved agency or to DYFS, termination of parental rights will not be granted in this state absent a very strong showing of abandonment or neglect. See, e.g., Sorentino v. Family & Children's Soc'y of Elizabeth, 74 N.J. 313 (1977) (Sorentino II); Sees v. Baber, 74 N.J. 201 (1977); Sorentino v. Family & Children's Soc'y of Elizabeth, 72 N.J. 127 (1976) (Sorentino I); In re Adoption of Children by D., supra, 61 N.J. 89. That showing is required in every context in which termination of parental rights is sought, be it an action by an approved agency, an action by DYFS, or a private placement adoption proceeding, even where the petitioning adoptive parent is, as here, a stepparent. While the statutes make certain procedural allowances when stepparents are involved, N.J.S.A. 9:3-48a(2), -48a(4), -48c(4), the substantive requirement for terminating the natural parents' rights is not relaxed one iota. N.J.S.A. 9:3-48c(1); In re Adoption of Children by D., supra, 61 N.J. at 94-95; In re Adoption by J.J.P., supra, 175 N.J. Super. at 426-28; In re N., 96 N.J. Super. 415, 423-27 (App.Div. 1967). It is clear that a "best interests" determination is never sufficient to terminate parental rights; the statutory criteria must be proved.^[6]

In this case a termination of parental rights was obtained not by proving the statutory prerequisites but by claiming the benefit of contractual provisions. From all that has been stated above, it is clear that a contractual agreement to abandon one's parental rights, or not to contest a termination action, will not be enforced in our courts. The Legislature would not have so carefully, so consistently, and so substantially restricted termination of parental rights if it had intended to allow termination to be achieved by one short sentence in a contract.

Since the termination was invalid,^[7] it follows, as noted above, that adoption of Melissa by Mrs. Stern could not properly be granted.

(3) The provision in the surrogacy contract stating that Mary Beth Whitehead agrees to "surrender custody ... and terminate all parental rights" contains no clause giving her a right to rescind. It is intended to be an irrevocable consent to surrender the child for adoption — in other words, an irrevocable commitment by Mrs. Whitehead to turn Baby M over to the Sterns and thereafter to allow termination of her parental rights. The trial court required a "best interests" showing as a condition to granting specific performance of the surrogacy contract. 217 N.J. Super. at 399-400. Having decided the "best interests" issue in favor of the Sterns, that court's order included, among other things, specific performance of this agreement to surrender custody and terminate all parental rights.

Mrs. Whitehead, shortly after the child's birth, had attempted to revoke her consent and surrender by refusing, after the Sterns had allowed her to have the child "just for one week," to return Baby M to them. The trial court's award of specific performance therefore reflects its view that the consent to surrender the child was irrevocable. We accept the trial court's construction of the contract; indeed it appears quite clear that this was the parties' intent. Such a provision, however, making irrevocable the natural mother's consent to surrender custody of her child in a private placement adoption, clearly conflicts with New Jersey law.

Our analysis commences with the statute providing for surrender of custody to an approved agency and termination of parental rights on the suit of that agency. The two basic provisions of the statute are N.J.S.A. 9:2-14 and 9:2-16. The former provides explicitly that

[e]xcept as otherwise provided by law or by order or judgment of a court of competent jurisdiction or by testamentary disposition, no surrender of the custody of a child shall be valid in this state unless made to an approved agency pursuant to the provisions of this act....

There is no exception "provided by law," and it is not clear that there could be any "order or judgment of a court of competent jurisdiction" validating a surrender of custody as a basis for adoption when that surrender was not in conformance with the statute. Requirements for a voluntary surrender to an approved agency are set forth in N.J.S.A. 9:2-16. This section allows an approved agency to take a voluntary surrender of custody from the parent of a child but provides stringent requirements as a condition to its validity. The surrender must be in writing, must be in such form as is required for the recording of a deed, and, pursuant to N.J.S.A. 9:2-17, must be such as to declare that the person executing the same desires to relinquish the custody of the child, acknowledge the termination of parental rights as to such custody in favor of the approved agency, and acknowledge full understanding of the effect of such surrender as provided by this act.

If the foregoing requirements are met, the consent, the voluntary surrender of custody

shall be valid whether or not the person giving same is a minor and shall be irrevocable except at the discretion of the approved agency taking such surrender or upon order or judgment of a court of competent jurisdiction, setting aside such surrender upon proof of fraud, duress, or misrepresentation. [N.J.S.A. 9:2-16.]

The importance of that irrevocability is that the surrender itself gives the agency the power to obtain termination of parental rights — in other words, permanent separation of the parent from the child, leading in the ordinary case to an adoption. N.J.S.A. 9:2-18 to -20.

This statutory pattern, providing for a surrender in writing and for termination of parental rights by an approved agency, is generally followed in connection with adoption proceedings and proceedings by DYFS to obtain permanent custody of a child. Our adoption statute repeats the requirements necessary to accomplish an irrevocable surrender to an approved agency in both form and substance. N.J.S.A. 9:3-41a. It provides that the surrender "shall be valid and binding without regard to the age of the person executing the surrender," ibid.; and although the word "irrevocable" is not used, that seems clearly to be the intent of the provision. The statute speaks of such surrender as constituting "relinquishment of such person's parental rights in or guardianship or custody of the child named therein and consent by such person to adoption of the child." Ibid. (emphasis supplied). We emphasize "named therein," for we construe the statute to allow a surrender only after the birth of the child. The formal consent to surrender enables the approved agency to terminate parental rights.

Similarly, DYFS is empowered to "take voluntary surrenders and releases of custody and consents to adoption[s]" from parents, which surrenders, releases, or consents "when properly acknowledged ... shall be valid and binding irrespective of the age of the person giving the same, and shall be irrevocable except at the discretion of the Bureau of Childrens Services [currently DYFS] or upon order of a court of competent jurisdiction." N.J.S.A. 30:4C-23. Such consent to surrender of the custody of the child would presumably lead to an adoption placement by DYFS. See N.J.S.A. 30:4C-20.

It is clear that the Legislature so carefully circumscribed all aspects of a consent to surrender custody — its form and substance, its manner of execution, and the agency or agencies to which it may be made — in order to provide the basis for irrevocability. It seems most unlikely that the Legislature intended that a consent not complying with these requirements would also be irrevocable, especially where, as here, that consent falls radically short of compliance. Not only do the form and substance of the consent in the surrogacy contract fail to meet statutory requirements, but the surrender of custody is made to a private party. It is not made, as the statute requires, either to an approved agency or to DYFS.

These strict prerequisites to irrevocability constitute a recognition of the most serious consequences that flow from such consents: termination of parental rights, the permanent separation of parent from child, and the ultimate adoption of the child. See Sees v. Baber, supra, 74 N.J. at 217. Because of those consequences, the Legislature severely limited the circumstances under which such consent would be irrevocable. The legislative goal is furthered by regulations requiring approved agencies, prior to accepting irrevocable consents, to provide advice and counseling to women, making it more likely that they fully understand and appreciate the consequences of their acts. N.J.A.C. 10:121A-5.4(c).

Contractual surrender of parental rights is not provided for in our statutes as now written. Indeed, in the Parentage Act, N.J.S.A. 9:17-38 to -59, there is a specific provision invalidating any agreement "between an alleged or presumed father and the mother of the child" to bar an action brought for the purpose of determining paternity "[r]egardless of [the contract's] terms." N.J.S.A. 9:17-45. Even a settlement agreement concerning parentage reached in a judicially-mandated consent conference is not valid unless the proposed settlement is approved beforehand by the court. N.J.S.A. 9:17-48c and d. There is no doubt that a contractual provision purporting to constitute an irrevocable agreement to surrender custody of a child for adoption is invalid.

In Sees v. Baber, supra, 74 N.J. 201, we noted that a natural mother's consent to surrender her child and to its subsequent adoption was no longer required by the statute in private placement adoptions. After tracing the statutory history from the time when such a consent had been an essential prerequisite to adoption, we concluded that such a consent was now neither necessary nor sufficient for the purpose of terminating parental rights. Id. at 213. The consent to surrender custody in that case was in writing, had been executed prior to physical surrender of the infant, and had been explained to the mother by an attorney. The trial court found that the consent to surrender of custody in that private placement adoption was knowing, voluntary, and deliberate. Id. at 216. The physical surrender of the child took place four days after its birth. Two days thereafter the natural mother changed her mind, and asked that the adoptive couple give her baby back to her. We held that she was entitled to the baby's return. The effect of our holding in that case necessarily encompassed our conclusion that "in an unsupervised private placement, since there is no statutory obligation to consent, there can be no legal barrier to its retraction." Id. at 215. The only possible relevance of consent in these matters, we noted, was that it might bear on whether there had been an abandonment of the child, or a forsaking of parental obligations. Id. at 216. Otherwise, consent in a private placement adoption is not only revocable but, when revoked early enough, irrelevant. Id. at 213-15.

The provision in the surrogacy contract whereby the mother irrevocably agrees to surrender custody of her child and to terminate her parental rights conflicts with the settled interpretation of New Jersey statutory law.^[8] There is only one irrevocable consent, and that is the one explicitly provided for by statute: a consent to surrender of custody and a placement with an approved agency or with DYFS. The provision in the surrogacy contract, agreed to before conception, requiring the natural mother to surrender custody of the child without any right of revocation is one more indication of the essential nature of this transaction: the creation of a contractual system of termination and adoption designed to circumvent our statutes.

B. Public Policy Considerations

The surrogacy contract's invalidity, resulting from its direct conflict with the above statutory provisions, is further underlined when its goals and means are measured against New Jersey's public policy. The contract's basic premise, that the natural parents can decide in advance of birth which one is to have custody of the child, bears no relationship to the settled law that the child's best interests shall determine custody. See Fantony v. Fantony, 21 N.J. 525, 536-37 (1956); see also Sheehan v. Sheehan, 38 N.J. Super. 120, 125 (App.Div. 1955) [435] ("Whatever the agreement of the parents, the ultimate determination of custody lies with the court in the exercise of its supervisory jurisdiction as parens patriae."). The fact that the trial court remedied that aspect of the contract through the "best interests" phase does not make the contractual provision any less offensive to the public policy of this State.

The surrogacy contract guarantees permanent separation of the child from one of its natural parents. Our policy, however, has long been that to the extent possible, children should remain with and be brought up by both of their natural parents. That was the first stated purpose of the previous adoption act, L. 1953, c. 264, § 1, codified at N.J.S.A. 9:3-17 (repealed): "it is necessary and desirable (a) to protect the child from unnecessary separation from his natural parents...." While not so stated in the present adoption law, this purpose remains part of the public policy of this State. See, e.g., Wilke v. Culp, 196 N.J. Super. 487, 496 (App.Div. 1984), certif. den., 99 N.J. 243 (1985); In re Adoption by J.J.P., supra, 175 N.J. Super. at 426. This is not simply some theoretical ideal that in practice has no meaning. The impact of failure to follow that policy is nowhere better shown than in the results of this surrogacy contract. A child, instead of starting off its life with as much peace and security as possible, finds itself immediately in a tug-of-war between contending mother and father.^[9]

The surrogacy contract violates the policy of this State that the rights of natural parents are equal concerning their child, the father's right no greater than the mother's. "The parent and child relationship extends equally to every child and to every parent, regardless of the marital status of the parents." N.J.S.A. 9:17-40. As the Assembly Judiciary Committee noted in its statement to the bill, this section establishes "the principle that regardless of the marital status of the parents, all children and all parents have equal rights with respect to each other." Statement to Senate No. 888, Assembly Judiciary, Law, Public Safety and Defense Committee (1983) (emphasis supplied). The whole purpose and effect of the surrogacy contract was to give the father the exclusive right to the child by destroying the rights of the mother.

The policies expressed in our comprehensive laws governing consent to the surrender of a child, discussed supra at 429-434, stand in stark contrast to the surrogacy contract and what it implies. Here there is no counseling, independent or otherwise, of the natural mother, no evaluation, no warning.

The only legal advice Mary Beth Whitehead received regarding the surrogacy contract was provided in connection with the contract that she previously entered into with another couple. Mrs. Whitehead's lawyer was referred to her by the Infertility Center, with which he had an agreement to act as counsel for surrogate candidates. His services consisted of spending one hour going through the contract with the Whiteheads, section by section, and answering their questions. Mrs. Whitehead received no further legal advice prior to signing the contract with the Sterns.

Mrs. Whitehead was examined and psychologically evaluated, but if it was for her benefit, the record does not disclose that fact. The Sterns regarded the evaluation as important, particularly in connection with the question of whether she would change her mind. Yet they never asked to see it, and were content with the assumption that the Infertility Center had made an evaluation and had concluded that there was no danger that the surrogate mother would change her mind. From Mrs. Whitehead's point of view, all that she learned from the evaluation was that "she had passed." It is apparent that the profit motive got the better of the Infertility Center. Although the evaluation was made, it was not put to any use, and understandably so, for the psychologist warned that Mrs. Whitehead demonstrated certain traits that might make surrender of the child difficult and that there should be further inquiry into this issue in connection with her surrogacy. To inquire further, however, might have jeopardized the Infertility Center's fee. The record indicates that neither Mrs. Whitehead nor the Sterns were ever told of this fact, a fact that might have ended their surrogacy arrangement.

Under the contract, the natural mother is irrevocably committed before she knows the strength of her bond with her child. She never makes a totally voluntary, informed decision, for quite clearly any decision prior to the baby's birth is, in the most important sense, uninformed, and any decision after that, compelled by a pre-existing contractual commitment, the threat of a lawsuit, and the inducement of a $10,000 payment, is less than totally voluntary. Her interests are of little concern to those who controlled this transaction.

Although the interest of the natural father and adoptive mother is certainly the predominant interest, realistically the only interest served, even they are left with less than what public policy requires. They know little about the natural mother, her genetic makeup, and her psychological and medical history. Moreover, not even a superficial attempt is made to determine their awareness of their responsibilities as parents.

Worst of all, however, is the contract's total disregard of the best interests of the child. There is not the slightest suggestion that any inquiry will be made at any time to determine the fitness of the Sterns as custodial parents, of Mrs. Stern as an adoptive parent, their superiority to Mrs. Whitehead, or the effect on the child of not living with her natural mother.

This is the sale of a child, or, at the very least, the sale of a mother's right to her child, the only mitigating factor being that one of the purchasers is the father. Almost every evil that prompted the prohibition on the payment of money in connection with adoptions exists here.

The differences between an adoption and a surrogacy contract should be noted, since it is asserted that the use of money in connection with surrogacy does not pose the risks found where money buys an adoption. Katz, "Surrogate Motherhood and the Baby-Selling Laws," 20 Colum.J.L. & Soc.Probs. 1 (1986).

First, and perhaps most important, all parties concede that it is unlikely that surrogacy will survive without money. Despite the alleged selfless motivation of surrogate mothers, if there is no payment, there will be no surrogates, or very few. That conclusion contrasts with adoption; for obvious reasons, there remains a steady supply, albeit insufficient, despite the prohibitions against payment. The adoption itself, relieving the natural mother of the financial burden of supporting an infant, is in some sense the equivalent of payment.

Second, the use of money in adoptions does not produce the problem — conception occurs, and usually the birth itself, before illicit funds are offered. With surrogacy, the "problem," if one views it as such, consisting of the purchase of a woman's procreative capacity, at the risk of her life, is caused by and originates with the offer of money.

Third, with the law prohibiting the use of money in connection with adoptions, the built-in financial pressure of the unwanted pregnancy and the consequent support obligation do not lead the mother to the highest paying, ill-suited, adoptive parents. She is just as well-off surrendering the child to an approved agency. In surrogacy, the highest bidders will presumably become the adoptive parents regardless of suitability, so long as payment of money is permitted.

Fourth, the mother's consent to surrender her child in adoptions is revocable, even after surrender of the child, unless it be to an approved agency, where by regulation there are protections against an ill-advised surrender. In surrogacy, consent occurs so early that no amount of advice would satisfy the potential mother's need, yet the consent is irrevocable.

The main difference, that the unwanted pregnancy is unintended while the situation of the surrogate mother is voluntary and intended, is really not significant. Initially, it produces stronger reactions of sympathy for the mother whose pregnancy was unwanted than for the surrogate mother, who "went into this with her eyes wide open." On reflection, however, it appears that the essential evil is the same, taking advantage of a woman's circumstances (the unwanted pregnancy or the need for money) in order to take away her child, the difference being one of degree.

In the scheme contemplated by the surrogacy contract in this case, a middle man, propelled by profit, promotes the sale. Whatever idealism may have motivated any of the participants, the profit motive predominates, permeates, and ultimately governs the transaction. The demand for children is great and the supply small. The availability of contraception, abortion, and the greater willingness of single mothers to bring up their children has led to a shortage of babies offered for adoption. See N. Baker, Baby Selling: The Scandal of Black Market Adoption, supra; Adoption and Foster Care, 1975: Hearings on Baby Selling Before the Subcomm. On Children and Youth of the Senate Comm. on Labor and Public Welfare, 94th Cong.1st Sess. 6 (1975) (Statement of Joseph H. Reid, Executive Director, Child Welfare League of America, Inc.). The situation is ripe for the entry of the middleman who will bring some equilibrium into the market by increasing the supply through the use of money.

Intimated, but disputed, is the assertion that surrogacy will be used for the benefit of the rich at the expense of the poor. See, e.g., Radin, "Market Inalienability," 100 Harv.L.Rev. 1849, 1930 (1987). In response it is noted that the Sterns are not rich and the Whiteheads not poor. Nevertheless, it is clear to us that it is unlikely that surrogate mothers will be as proportionately numerous among those women in the top twenty percent income bracket as among those in the bottom twenty percent. Ibid. Put differently, we doubt that infertile couples in the low-income bracket will find upper income surrogates.

In any event, even in this case one should not pretend that disparate wealth does not play a part simply because the contrast is not the dramatic "rich versus poor." At the time of trial, the Whiteheads' net assets were probably negative — Mrs. Whitehead's own sister was foreclosing on a second mortgage. Their income derived from Mr. Whitehead's labors. Mrs. Whitehead is a homemaker, having previously held part-time jobs. The Sterns are both professionals, she a medical doctor, he a biochemist. Their combined income when both were working was about $89,500 a year and their assets sufficient to pay for the surrogacy contract arrangements.

The point is made that Mrs. Whitehead agreed to the surrogacy arrangement, supposedly fully understanding the consequences. Putting aside the issue of how compelling her need for money may have been, and how significant her understanding of the consequences, we suggest that her consent is irrelevant. There are, in a civilized society, some things that money cannot buy. In America, we decided long ago that merely because conduct purchased by money was "voluntary" did not mean that it was good or beyond regulation and prohibition. West Coast Hotel Co. v. Parrish, 300 U.S. 379, 57 S.Ct. 578, 81 L.Ed. 703 (1937). Employers can no longer buy labor at the lowest price they can bargain for, even though that labor is "voluntary," 29 U.S.C. § 206 (1982), or buy women's labor for less money than paid to men for the same job, 29 U.S.C. § 206(d), or purchase the agreement of children to perform oppressive labor, 29 U.S.C. § 212, or purchase the agreement of workers to subject themselves to unsafe or unhealthful working conditions, 29 U.S.C. §§ 651 to 678. (Occupational Safety and Health Act of 1970). There are, in short, values that society deems more important than granting to wealth whatever it can buy, be it labor, love, or life. Whether this principle recommends prohibition of surrogacy, which presumably sometimes results in great satisfaction to all of the parties, is not for us to say. We note here only that, under existing law, the fact that Mrs. Whitehead "agreed" to the arrangement is not dispositive.

The long-term effects of surrogacy contracts are not known, but feared — the impact on the child who learns her life was bought, that she is the offspring of someone who gave birth to her only to obtain money; the impact on the natural mother as the full weight of her isolation is felt along with the full reality of the sale of her body and her child; the impact on the natural father and adoptive mother once they realize the consequences of their conduct. Literature in related areas suggests these are substantial considerations, although, given the newness of surrogacy, there is little information. See N. Baker, Baby Selling: The Scandal of Black Market Adoption, supra; Adoption and Foster Care, 1975: Hearings on Baby Selling Before the Subcomm. on Children and Youth of the Senate Comm. on Labor and Public Welfare, 94th Cong. 1st Sess. (1975).

The surrogacy contract is based on, principles that are directly contrary to the objectives of our laws.^[10] It guarantees the separation of a child from its mother; it looks to adoption regardless of suitability; it totally ignores the child; it takes the child from the mother regardless of her wishes and her maternal fitness; and it does all of this, it accomplishes all of its goals, through the use of money.

Beyond that is the potential degradation of some women that may result from this arrangement. In many cases, of course, surrogacy may bring satisfaction, not only to the infertile couple, but to the surrogate mother herself. The fact, however, that many women may not perceive surrogacy negatively but rather see it as an opportunity does not diminish its potential for devastation to other women.

In sum, the harmful consequences of this surrogacy arrangement appear to us all too palpable. In New Jersey the surrogate mother's agreement to sell her child is void.^[11] Its irrevocability infects the entire contract, as does the money that purports to buy it.

III.

TERMINATION

We have already noted that under our laws termination of parental rights cannot be based on contract, but may be granted only on proof of the statutory requirements. That conclusion was one of the bases for invalidating the surrogacy contract. Although excluding the contract as a basis for parental termination, we did not explicitly deal with the question of whether the statutory bases for termination existed. We do so here.

As noted before, if termination of Mrs. Whitehead's parental rights is justified, Mrs. Whitehead will have no further claim either to custody or to visitation, and adoption by Mrs. Stern may proceed pursuant to the private placement adoption statute, N.J.S.A. 9:3-48. If termination is not justified, Mrs. Whitehead remains the legal mother, and even if not entitled to custody, she would ordinarily be expected to have some rights of visitation. Wilke v. Culp, supra, 196 N.J. Super. at 496.

As was discussed, supra at 425-429, the proper bases for termination are found in the statute relating to proceedings by approved agencies for a termination of parental rights, N.J.S.A. 9:2-18, the statute allowing for termination leading to a private placement adoption, N.J.S.A. 9:3-48c(1), and the statute authorizing a termination pursuant to an action by DYFS, N.J.S.A. 30:4C-20. The statutory descriptions of the conditions required to terminate parental rights differ; their interpretation in case law, however, tends to equate them. Compare New Jersey Div. of Youth and Family Servs. v. A.W., supra, 103 N.J. at 601-11 (attempted termination by DYFS) with In re Adoption by J.J.P., supra, 175 N.J. Super. at 426-28 (attempted termination in connection with private placement adoption).

Nothing in this record justifies a finding that would allow a court to terminate Mary Beth Whitehead's parental rights under the statutory standard. It is not simply that obviously there was no "intentional abandonment or very substantial neglect of parental duties without a reasonable expectation of reversal of that conduct in the future," N.J.S.A. 9:3-48c(1), quite the contrary, but furthermore that the trial court never found Mrs. Whitehead an unfit mother and indeed affirmatively stated that Mary Beth Whitehead had been a good mother to her other children. 217 N.J. Super. at 397.

Although the question of best interests of the child is dispositive of the custody issue in a dispute between natural parents, it does not govern the question of termination. It has long been decided that the mere fact that a child would be better off with one set of parents than with another is an insufficient basis for terminating the natural parent's rights. See New Jersey Div. of Youth and Family Servs. v. A.W., supra, 103 N.J. at 603; In re Adoption of Children by D., supra, 61 N.J. at 97-98; In re Adoption by J.J.P., supra, 175 N.J. Super. at 428. Furthermore, it is equally well settled that surrender of a child and a consent to adoption through private placement do not alone warrant termination. See Sees v. Baber, supra, 74 N.J. 201. It must be noted, despite some language to the contrary, that the interests of the child are not the only interests involved when termination issues are raised. The parent's rights, both constitutional and statutory, have their own independent vitality. See New Jersey Div. of Youth and Family Servs. v. A.W., supra, 103 N.J. at 601.

Although the statutes are clear, they are not applied rigidly on all occasions. The statutory standard, strictly construed, appears harsh where the natural parents, having surrendered [446] their child for adoption through private placement, change their minds and seek the return of their child and where the issue comes before the court with the adoptive parents having had custody for years, and having assumed it quite innocently.

These added dimensions in Sees v. Baber, supra, 74 N.J. 201, failed to persuade this Court to vary the termination requirements. The natural parent in that case changed her mind two days after surrendering the child, sought his return unequivocally, and so advised the adoptive parents. Since she was clearly fit, and clearly had not abandoned the child in the statutory sense, termination was denied, despite the fact that the adoptive parents had had custody of the child for about a year, and the mother had never had custody at all.

A significant variation on these facts, however, occurred in Sorentino II, supra, 74 N.J. 313. The surrender there was not through private placement but through an approved agency. Although the consent to surrender was held invalid due to coercion by the agency, the natural parents failed to initiate the lawsuit to reclaim the child for over a year after relinquishment. By the time this Court reached the issue of whether the natural parents' rights could be terminated, the adoptive parents had had custody for three years. These circumstances ultimately persuaded this Court to permit termination of the natural parents' rights and to allow a subsequent adoption. The unique facts of Sorentino II were found to amount to a forsaking of parental obligations. Id. at 322.

The present case is distinguishable from Sorentino II. Mary Beth Whitehead had custody of Baby M for four months before the child was taken away. Her initial surrender of Baby M was pursuant to a contract that we have declared illegal and unenforceable. The Sterns knew almost from the very day that they took Baby M that their rights were being challenged by the natural mother. In short, the factors that persuaded this Court to terminate the parental rights in Sorentino II are not found here.

There is simply no basis, either in the statute or in the peculiar facts of that limited class of case typified by Sorentino II, to warrant termination of Mrs. Whitehead's parental rights. We therefore conclude that the natural mother is entitled to retain her rights as a mother.

IV.

CONSTITUTIONAL ISSUES

Both parties argue that the Constitutions — state and federal — mandate approval of their basic claims. The source of their constitutional arguments is essentially the same: the right of privacy, the right to procreate, the right to the companionship of one's child, those rights flowing either directly from the fourteenth amendment or by its incorporation of the Bill of Rights, or from the ninth amendment, or through the penumbra surrounding all of the Bill of Rights. They are the rights of personal intimacy, of marriage, of sex, of family, of procreation. Whatever their source, it is clear that they are fundamental rights protected by both the federal and state Constitutions. Lehr v. Robertson, 463 U.S. 248, 103 S.Ct. 2985, 77 L.Ed.2d 614 (1983); Santosky v. Kramer, 455 U.S. 745, 102 S.Ct. 1388, 71 L.Ed.2d 599 (1982); Zablocki v. Redhail, 434 U.S. 374, 98 S.Ct. 673, 54 L.Ed.2d 618 (1978); Quilloin v. Walcott, 434 U.S. 246, 98 S.Ct. 549, 54 L.Ed.2d 511 (1978); Carey v. Population Servs. Int'l, 431 U.S. 678, 97 S.Ct. 2010, 52 L.Ed.2d 675 (1977); Roe v. Wade, 410 U.S. 113, 93 S.Ct. 705, 35 L.Ed.2d 147 (1973); Stanley v. Illinois, 405 U.S. 645, 92 S.Ct. 1208, 31 L.Ed.2d 551 (1972); Griswold v. Connecticut, 381 U.S. 479, 85 S.Ct. 1678, 14 L.Ed.2d 510 (1965); Skinner v. Oklahoma, 316 U.S. 535, 62 S.Ct. 1110, 86 L.Ed. 1655 (1942); Meyer v. Nebraska, 262 U.S. 390, 43 S.Ct. 625, 67 L.Ed. 1042 (1923). The right asserted by the Sterns is the right of procreation; that asserted by Mary Beth Whitehead is the right to the companionship of her child. We find that the right of procreation does not extend as far as claimed by the Sterns. As for the right asserted by Mrs. Whitehead,^[12] since we uphold it on other grounds (i.e., we have restored her as mother and recognized her right, limited by the child's best interests, to her companionship), we need not decide that constitutional issue, and for reasons set forth below, we should not.

The right to procreate, as protected by the Constitution, has been ruled on directly only once by the United States Supreme Court. See Skinner v. Oklahoma, supra, 316 U.S. 535, 62 S.Ct. 1110, 86 L.Ed. 1655 (forced sterilization of habitual criminals violates equal protection clause of fourteenth amendment). Although Griswold v. Connecticut, supra, 381 U.S. 479, 85 S.Ct. 1678, 14 L.Ed.2d 510, is obviously of a similar class, strictly speaking it involves the right not to procreate. The right to procreate very simply is the right to have natural children, whether through sexual intercourse or artificial insemination. It is no more than that. Mr. Stern has not been deprived of that right. Through artificial insemination of Mrs. Whitehead, Baby M is his child. The custody, care, companionship, and nurturing that follow birth are not parts of the right to procreation; they are rights that may also be constitutionally protected, but that involve many considerations other than the right of procreation. To assert that Mr. Stern's right of procreation gives him the right to the custody of Baby M would be to assert that Mrs. Whitehead's right of procreation does not give her the right to the custody of Baby M; it would be to assert that the constitutional right of procreation includes within it a constitutionally protected contractual right to destroy someone else's right of procreation.

We conclude that the right of procreation is best understood and protected if confined to its essentials, and that when dealing with rights concerning the resulting child, different interests come into play. There is nothing in our culture or society that even begins to suggest a fundamental right on the part of the father to the custody of the child as part of his right to procreate when opposed by the claim of the mother to the same child. We therefore disagree with the trial court: there is no constitutional basis whatsoever requiring that Mr. Stern's claim to the custody of Baby M be sustained. Our conclusion may thus be understood as illustrating that a person's rights of privacy and self-determination are qualified by the effect on innocent third persons of the exercise of those rights.^[13]

Mr. Stern also contends that he has been denied equal protection of the laws by the State's statute granting full parental rights to a husband in relation to the child produced, with his consent, by the union of his wife with a sperm donor. N.J.S.A. 9:17-44. The claim really is that of Mrs. Stern. It is that she is in precisely the same position as the husband in the statute: she is presumably infertile, as is the husband in the statute; her spouse by agreement with a third party procreates with the understanding that the child will be the couple's child. The alleged unequal protection is that the understanding is honored in the statute when the husband is the infertile party, but no similar understanding is honored when it is the wife who is infertile.

It is quite obvious that the situations are not parallel. A sperm donor simply cannot be equated with a surrogate mother. The State has more than a sufficient basis to distinguish the two situations — even if the only difference is between the time it takes to provide sperm for artificial insemination and the time invested in a nine-month pregnancy — so as to justify automatically divesting the sperm donor of his parental rights without automatically divesting a surrogate mother. Some basis for an equal protection argument might exist if Mary Beth Whitehead had contributed her egg to be implanted, fertilized or otherwise, in Mrs. Stern, resulting in the latter's pregnancy. That is not the case here, however.

Mrs. Whitehead, on the other hand, asserts a claim that falls within the scope of a recognized fundamental interest protected by the Constitution. As a mother, she claims the right to the companionship of her child. This is a fundamental interest, constitutionally protected. Furthermore, it was taken away from her by the action of the court below. Whether that action under these circumstances would constitute a constitutional deprivation, however, we need not and do not decide. By virtue of our decision Mrs. Whitehead's constitutional complaint — that her parental rights have been unconstitutionally terminated — is moot. We have decided that both the statutes and public policy of this state require that that termination be voided and that her parental rights be restored. It therefore becomes unnecessary to decide whether that same result would be required by virtue of the federal or state Constitutions. See Ashwander v. Tennessee Valley Auth., 297 U.S. 288, 341, 346-48, 56 S.Ct. 466, 482-83, 80 L.Ed. 688, 707, 710-12 (1936) (Brandeis, J., concurring). Refraining from deciding such constitutional issues avoids further complexities involving the full extent of a parent's right of companionship,^[14] or questions involving the fourteenth amendment.^[15]

Having held the contract invalid and having found no other grounds for the termination of Mrs. Whitehead's parental rights, we find that nothing remains of her constitutional claim. It seems obvious to us that since custody and visitation encompass practically all of what we call "parental rights," a total denial of both would be the equivalent of termination of parental rights. Franz v. United States, 707 F.2d 582, 602 (D.C. Cir.1983). That, however, as will be seen below, has not occurred here. We express no opinion on whether a prolonged suspension of visitation would constitute a termination of parental rights, or whether, assuming it would, a showing of unfitness would be required.^[16]

V.

CUSTODY

Having decided that the surrogacy contract is illegal and unenforceable, we now must decide the custody question without regard to the provisions of the surrogacy contract that would give Mr. Stern sole and permanent custody. (That does not mean that the existence of the contract and the circumstances under which it was entered may not be considered to the extent deemed relevant to the child's best interests.) With the surrogacy contract disposed of, the legal framework becomes a dispute between two couples over the custody of a child produced by the artificial insemination of one couple's wife by the other's husband. Under the Parentage Act the claims of the natural father and the natural mother are entitled to equal weight, i.e., one is not preferred over the other solely because he or she is the father or the mother. N.J.S.A. 9:17-40.^[17] The applicable rule given these circumstances is clear: the child's best interests determine custody.

We note again that the trial court's reasons for determining what were the child's best interests were somewhat different from ours. It concluded that the surrogacy contract was valid, but that it could not grant specific performance unless to do so was in the child's best interests. The approach was that of a Chancery judge, unwilling to give extraordinary remedies unless they well served the most important interests, in this case, the interests of the child. While substantively indistinguishable from our approach to the question of best interests, the purpose of the inquiry was not the usual purpose of determining custody, but of determining a contractual remedy.

We are not concerned at this point with the question of termination of parental rights, either those of Mrs. Whitehead or of Mr. Stern. As noted in various places in this opinion, such termination, in the absence of abandonment or a valid surrender, generally depends on a showing that the particular parent is unfit. The question of custody in this case, as in practically all cases, assumes the fitness of both parents, and no serious contention is made in this case that either is unfit. The issue here is which life would be better for Baby M, one with primary custody in the Whiteheads or one with primary custody in the Sterns.

The circumstances of this custody dispute are unusual and they have provoked some unusual contentions. The Whiteheads claim that even if the child's best interests would be served by our awarding custody to the Sterns, we should not do so, since that will encourage surrogacy contracts — contracts claimed by the Whiteheads, and we agree, to be violative of important legislatively-stated public policies. Their position is that in order that surrogacy contracts be deterred, custody should remain in the surrogate mother unless she is unfit, regardless of the best interests of the child. We disagree. Our declaration that this surrogacy contract is unenforceable and illegal is sufficient to deter similar agreements. We need not sacrifice the child's interests in order to make that point sharper. Cf. In re Adoption of Child by I.T. and K.T., 164 N.J. Super. 476, 484-86 (App.Div. 1978) (adoptive parents' participation in illegal placement does not mandate denial of adoption); In the Matter of the Adoption of Child by N.P. and F.P., 165 N.J. Super. 591 (Law Div. 1979) (use of unapproved intermediaries and the payment of money in connection with adoption is insufficient to establish that the would-be adoptive parents are unfit or that adoption would not be in child's best interests).

The Whiteheads also contend that the award of custody to the Sterns pendente lite was erroneous and that the error should not be allowed to affect the final custody decision. As noted above, at the very commencement of this action the court issued an ex parte order requiring Mrs. Whitehead to turn over the baby to the Sterns; Mrs. Whitehead did not comply but rather took the child to Florida. Thereafter, a similar order was enforced by the Florida authorities resulting in the transfer of possession of Baby M to the Sterns. The Sterns retained custody of the child throughout the litigation. The Whiteheads' point, assuming the pendente award of custody was erroneous, is that most of the factors arguing for awarding permanent custody to the Sterns resulted from that initial pendente lite order. Some of Mrs. Whitehead's alleged character failings, as testified to by experts and concurred in by the trial court, were demonstrated by her actions brought on by the custody crisis. For instance, in order to demonstrate her impulsiveness, those experts stressed the Whiteheads' flight to Florida with Baby M; to show her willingness to use her children for her own aims, they noted the telephone threats to kill Baby M and to accuse Mr. Stern of sexual abuse of her daughter; in order to show Mrs. Whitehead's manipulativeness, they pointed to her threat to kill herself; and in order to show her unsettled family life, they noted the innumerable moves from one hotel or motel to another in Florida. Furthermore, the argument continues, one of the most important factors, whether mentioned or not, in favor of custody in the Sterns is their continuing custody during the litigation, now having lasted for one-and-a-half [456] years. The Whiteheads' conclusion is that had the trial court not given initial custody to the Sterns during the litigation, Mrs. Whitehead not only would have demonstrated her perfectly acceptable personality — the general tenor of the opinion of experts was that her personality problems surfaced primarily in crises — but would also have been able to prove better her parental skills along with an even stronger bond than may now exist between her and Baby M. Had she not been limited to custody for four months, she could have proved all of these things much more persuasively through almost two years of custody.

The argument has considerable force. It is of course possible that the trial court was wrong in its initial award of custody. It is also possible that such error, if that is what it was, may have affected the outcome. We disagree with the premise, however, that in determining custody a court should decide what the child's best interests would be if some hypothetical state of facts had existed. Rather, we must look to what those best interests are, today, even if some of the facts may have resulted in part from legal error. The child's interests come first: we will not punish it for judicial errors, assuming any were made. See Wist v. Wist, 101 N.J. 509, 513-14 (1986); see also In re J.R. Guardianship, 174 N.J. Super. 211 (App.Div.), certif. den., 85 N.J. 102 (1980) (although not explicitly mentioned, natural mother's loss of parental rights based substantially on failures of DYFS to arrange visitation with her child). The custody decision must be based on all circumstances, on everything that actually has occurred, on everything that is relevant to the child's best interests. Those circumstances include the trip to Florida, the telephone calls and threats, the substantial period of successful custody with the Sterns, and all other relevant circumstances. We will discuss the question of the correctness of the trial court's initial orders below, but for purposes of determining Baby M's best interests, the correctness of those initial orders has lost relevance.

There were eleven experts who testified concerning the child's best interests, either directly or in connection with matters related to that issue. Our reading of the record persuades us that the trial court's decision awarding custody to the Sterns (technically to Mr. Stern) should be affirmed since "its findings... could reasonably have been reached on sufficient credible evidence present in the record." Beck v. Beck, 86 N.J. 480, 496 (1981) (quoting State v. Johnson, 42 N.J. 146, 161 (1964)); see Palermo v. Palermo, 164 N.J. Super. 492, 498 (App.Div. 1978) (noting that family court judge was experienced in dealing with such matters and had opportunity to observe parties and become immersed in details of case). More than that, on this record we find little room for any different conclusion. The trial court's treatment of this issue, 217 N.J. Super. at 391-400, is both comprehensive and, in most respects, perceptive. We agree substantially with its analysis with but few exceptions that, although important, do not change our ultimate views.

Our custody conclusion is based on strongly persuasive testimony contrasting both the family life of the Whiteheads and the Sterns and the personalities and characters of the individuals. The stability of the Whitehead family life was doubtful at the time of trial. Their finances were in serious trouble (foreclosure by Mrs. Whitehead's sister on a second mortgage was in process). Mr. Whitehead's employment, though relatively steady, was always at risk because of his alcoholism, a condition that he seems not to have been able to confront effectively. Mrs. Whitehead had not worked for quite some time, her last two employments having been part-time. One of the Whiteheads' positive attributes was their ability to bring up two children, and apparently well, even in so vulnerable a household. Yet substantial question was raised even about that aspect of their home life. The expert testimony contained criticism of Mrs. Whitehead's handling of her son's educational difficulties. Certain of the experts noted that Mrs. Whitehead perceived herself as omnipotent and omniscient concerning her children. She knew what they were thinking, what they wanted, and she spoke for them. As to Melissa, Mrs. Whitehead expressed the view that she alone knew what that child's cries and sounds meant. Her inconsistent stories about various things engendered grave doubts about her ability to explain honestly and sensitively to Baby M — and at the right time — the nature of her origin. Although faith in professional counseling is not a sine qua non of parenting, several experts believed that Mrs. Whitehead's contempt for professional help, especially professional psychological help, coincided with her feelings of omnipotence in a way that could be devastating to a child who most likely will need such help. In short, while love and affection there would be, Baby M's life with the Whiteheads promised to be too closely controlled by Mrs. Whitehead. The prospects for wholesome, independent psychological growth and development would be at serious risk.

The Sterns have no other children, but all indications are that their household and their personalities promise a much more likely foundation for Melissa to grow and thrive. There is a track record of sorts — during the one-and-a-half years of custody Baby M has done very well, and the relationship between both Mr. and Mrs. Stern and the baby has become very strong. The household is stable, and likely to remain so. Their finances are more than adequate, their circle of friends supportive, and their marriage happy. Most important, they are loving, giving, nurturing, and open-minded people. They have demonstrated the wish and ability to nurture and protect Melissa, yet at the same time to encourage her independence. Their lack of experience is more than made up for by a willingness to learn and to listen, a willingness that is enhanced by their professional training, especially Mrs. Stern's experience as a pediatrician. They are honest; they can recognize error, deal with it, and learn from it. They will try to determine rationally the best way to cope with problems in their relationship with Melissa. When the time comes to tell her about her origins, they will probably have found a means of doing so that accords with the best interests of Baby M. All in all, Melissa's future appears solid, happy, and promising with them.

Based on all of this we have concluded, independent of the trial court's identical conclusion, that Melissa's best interests call for custody in the Sterns. Our above-mentioned disagreements with the trial court do not, as we have noted, in any way diminish our concurrence with its conclusions. We feel, however, that those disagreements are important enough to be stated. They are disagreements about the evaluation of conduct. They also may provide some insight about the potential consequences of surrogacy.

It seems to us that given her predicament, Mrs. Whitehead was rather harshly judged — both by the trial court and by some of the experts. She was guilty of a breach of contract, and indeed, she did break a very important promise, but we think it is expecting something well beyond normal human capabilities to suggest that this mother should have parted with her newly born infant without a struggle. Other than survival, what stronger force is there? We do not know of, and cannot conceive of, any other case where a perfectly fit mother was expected to surrender her newly born infant, perhaps forever, and was then told she was a bad mother because she did not. We know of no authority suggesting that the moral quality of her act in those circumstances should be judged by referring to a contract made before she became pregnant. We do not countenance, and would never countenance, violating a court order as Mrs. Whitehead did, even a court order that is wrong; but her resistance to an order that she surrender her infant, possibly forever, merits a measure of understanding. We do not find it so clear that her efforts to keep her infant, when measured against the Sterns' efforts to take her away, make one, rather than the other, the wrongdoer. The Sterns suffered, but so did she. And if we go beyond suffering to an evaluation of the human stakes involved in the struggle, how much weight should be given to her nine months of pregnancy, the labor of childbirth, the risk to her life, compared to the payment of money, the anticipation of a child and the donation of sperm?

There has emerged a portrait of Mrs. Whitehead, exposing her children to the media, engaging in negotiations to sell a book, granting interviews that seemed helpful to her, whether hurtful to Baby M or not, that suggests a selfish, grasping woman ready to sacrifice the interests of Baby M and her other children for fame and wealth. That portrait is a half-truth, for while it may accurately reflect what ultimately occurred, its implication, that this is what Mary Beth Whitehead wanted, is totally inaccurate, at least insofar as the record before us is concerned. There is not one word in that record to support a claim that had she been allowed to continue her possession of her newly born infant, Mrs. Whitehead would have ever been heard of again; not one word in the record suggests that her change of mind and her subsequent fight for her child was motivated by anything other than love — whatever complex underlying psychological motivations may have existed.

We have a further concern regarding the trial court's emphasis on the Sterns' interest in Melissa's education as compared to the Whiteheads'. That this difference is a legitimate factor to be considered we have no doubt. But it should not be overlooked that a best-interests test is designed to create not a new member of the intelligentsia but rather a well-integrated person who might reasonably be expected to be happy with life. "Best interests" does not contain within it any idealized lifestyle; the question boils down to a judgment, consisting of many factors, about the likely future happiness of a human being. Fantony v. Fantony, supra, 21 N.J. at 536. Stability, love, family happiness, tolerance, and, ultimately, support of independence — all rank much higher in predicting future happiness than the likelihood of a college education. We do not mean to suggest that the trial court would disagree. We simply want to dispel any possible misunderstanding on the issue.

Even allowing for these differences, the facts, the experts' opinions, and the trial court's analysis of both argue strongly in favor of custody in the Sterns. Mary Beth Whitehead's family life, into which Baby M would be placed, was anything but secure — the quality Melissa needs most. And today it may be even less so.^[18] Furthermore, the evidence and expert opinion based on it reveal personality characteristics, mentioned above, that might threaten the child's best development. The Sterns promise a secure home, with an understanding relationship that allows nurturing and independent growth to develop together. Although there is no substitute for reading the entire record, including the review of every word of each experts' testimony and reports, a summary of their conclusions is revealing. Six experts testified for Mrs. Whitehead: one favored joint custody, clearly unwarranted in this case; one simply rebutted an opposing expert's claim that Mary Beth Whitehead had a recognized personality disorder; one testified to the adverse impact of separation on Mrs. Whitehead; one testified about the evils of adoption and, to him, the probable analogous evils of surrogacy; one spoke only on the question of whether Mrs. Whitehead's consent in the surrogacy agreement was "informed consent"; and one spelled out the strong bond between mother and child. None of them unequivocally stated, or even necessarily implied, an opinion that custody in the Whiteheads was in the best interests of Melissa — the ultimate issue. The Sterns' experts, both well qualified — as were the Whiteheads' — concluded that the best interests of Melissa required custody in Mr. Stern. Most convincingly, the three experts chosen by the court-appointed guardian ad litem of Baby M, each clearly free of all bias and interest, unanimously and persuasively recommended custody in the Sterns.

Some comment is required on the initial ex parte order awarding custody pendente lite to the Sterns (and the continuation of that order after a plenary hearing). The issue, although irrelevant to our disposition of this case, may recur; and when it does, it can be of crucial importance. When father and mother are separated and disagree, at birth, on custody, only in an extreme, truly rare, case should the child be taken from its mother pendente lite, i.e., only in the most unusual case should the child be taken from its mother before the dispute is finally determined by the court on its merits. The probable bond between mother and child, and the child's need, not just the mother's, to strengthen that bond, along with the likelihood, in most cases, of a significantly lesser, if any, bond with the father — all counsel against temporary custody in the father. A substantial showing that the mother's continued custody would threaten the child's health or welfare would seem to be required.

In this case, the trial court, believing that the surrogacy contract might be valid, and faced with the probable flight from the jurisdiction by Mrs. Whitehead and the baby if any notice were served, ordered, ex parte, an immediate transfer of possession of the child, i.e., it ordered that custody be transferred immediately to Mr. Stern, rather than order Mrs. Whitehead not to leave the State. We have ruled, however, that the surrogacy contract is unenforceable and illegal. It provides no basis for either an ex parte, a plenary, an interlocutory, or a final order requiring a mother to surrender custody to a father. Any application by the natural father in a surrogacy dispute for custody pending the outcome of the litigation will henceforth require proof of unfitness, of danger to the child, or the like, of so high a quality and persuasiveness as to make it unlikely that such application will succeed. Absent the required showing, all that a court should do is list the matter for argument on notice to the mother. Even her threats to flee should not suffice to warrant any other relief unless her unfitness is clearly shown. At most, it should result in an order enjoining such flight. The erroneous transfer of custody, as we view it, represents a greater risk to the child than removal to a foreign jurisdiction, unless parental unfitness is clearly proved. Furthermore, we deem it likely that, advised of the law and knowing that her custody cannot seriously be challenged at this stage of the litigation, surrogate mothers will obey any court order to remain in the jurisdiction.

VI.

VISITATION

The trial court's decision to terminate Mrs. Whitehead's parental rights precluded it from making any determination on visitation. 217 N.J. Super. at 399, 408. Our reversal of the trial court's order, however, requires delineation of Mrs. Whitehead's rights to visitation. It is apparent to us that this factually sensitive issue, which was never addressed below, should not be determined de novo by this Court. We therefore remand the visitation issue to the trial court for an abbreviated hearing and determination as set forth below.^[19]

For the benefit of all concerned, especially the child, we would prefer to end these proceedings now, once and for all. It is clear to us, however, that it would be unjust to do so and contrary to precedent.

The fact that the trial court did not address visitation is only one reason for remand. The ultimate question is whether, despite the absence of the trial court's guidance, the record before us is sufficient to allow an appellate court to make this essentially factual determination. We can think of no issue that is more dependent on a trial court's factual findings and evaluation than visitation.

When we examine the record on visitation, the only testimony explicitly dealing with the issue came from the guardian ad litem's experts. Examination of this testimony in light of the complete record, however, reveals that it was an insignificant part of their opinions. The parties, those with a real stake in the dispute, offered no testimony on the issue. The cause for this insufficiency of guidance on the visitation issue was unquestionably the parties' concentration on other, then seemingly much more important, questions: custody, termination of parental rights, and the validity of the surrogacy contract.

Even if we were willing to rely solely on the opinions of the guardian ad litem's experts, their testimony was not fully developed because the issue was not the focus of the litigation. Moreover, the guardian's experts concentrated on determining "best interests" as it related to custody and to termination of parental rights. Their observations about visitation, both in quality and quantity, were really derivative of their views about custody and termination. The guardian's experts were concerned that given Mrs. Whitehead's determination to have custody, visitation might be used to undermine the Sterns' parental authority and thereby jeopardize the stability and security so badly needed by this child. Two of the experts recommended suspension of visitation for five years and the other suspension for an undefined period. None of them fully considered the factors that have led our courts ordinarily to grant visitation in other contexts, with no suspension, even where the non-custodial parent was less than a paragon of virtue. See, e.g., Wilke v. Culp, supra, 196 N.J. Super. at 496; In re Adoption by J.J.P., supra, 175 N.J. Super. at 430. Based on the opinions of her experts, the guardian ad litem recommended suspension of Mrs. Whitehead's visitation rights for five years, with a reevaluation at that time. The basis for that recommendation, whether one regards it as the right or the wrong conclusion, was apparently bolstered when it was learned that Mrs. Whitehead had become pregnant, divorced Richard Whitehead, and then married the father of her new child-to-be. Without any further expert testimony, the guardian ad litem revised her position. She now argues that instead of five years, visitation should be suspended until Melissa reaches majority. This radical change in the guardian ad litem's position reinforces our belief that further consideration must be given to this issue.

The foregoing does not fully describe the extent to which this record leaves us uninformed on the visitation issue. No one, with one exception, included a word about visitation in the final briefs before the trial court. The exception was Mrs. Whitehead's parents who argued for their own visitation. This claim was denied by the trial court and is not now before us. The oral summations of counsel before the trial court were almost equally bereft of even a reference to the visitation issue. Mrs. Whitehead's counsel did not mention visitation. The Sterns' counsel referred to the guardian ad litem's expert testimony about visitation, not to argue for or against visitation but only to support his argument in favor of termination of Mrs. Whitehead's parental rights. The guardian ad litem did argue the visitation issue, devoting a minimal portion of her summation to it. Only the grandparents dealt with visitation, but with their visitation, not with the issue of Mrs. Whitehead's visitation. Finally, on appeal before this Court the record on visitation is inadequate — especially when compared to the treatment of other issues.

We join those who want this litigation to end for the benefit of this child. To spare this two-year-old another sixty to ninety days of litigation, however, at the risk of wrongly deciding this matter, which has life-long consequences for the child and the parties, would be unwise.

We also note the following for the trial court's consideration: First, this is not a divorce case where visitation is almost invariably granted to the non-custodial spouse. To some extent the facts here resemble cases where the non-custodial spouse has had practically no relationship with the child, see Wilke v. Culp, supra, 196 N.J. Super. 487; but it only "resembles" those cases. In the instant case, Mrs. Whitehead spent the first four months of this child's life as her mother and has regularly visited the child since then. Second, she is not only the natural mother, but also the legal mother, and is not to be penalized one iota because of the surrogacy contract. Mrs. Whitehead, as the mother (indeed, as a mother who nurtured her child for its first four months — unquestionably a relevant consideration), is entitled to have her own interest in visitation considered. Visitation cannot be determined without considering the parents' interests along with those of the child.

In all of this, the trial court should recall the touchstones of visitation: that it is desirable for the child to have contact with both parents; that besides the child's interests, the parents' interests also must be considered; but that when all is said and done, the best interests of the child are paramount.

We have decided that Mrs. Whitehead is entitled to visitation at some point, and that question is not open to the trial court on this remand. The trial court will determine what kind of visitation shall be granted to her, with or without conditions, and when and under what circumstances it should commence. It also should be noted that the guardian's recommendation of a five-year delay is most unusual — one might argue that it begins to border on termination. Nevertheless, if the circumstances as further developed by appropriate proofs or as reconsidered on remand clearly call for that suspension under applicable legal principles of visitation, it should be so ordered.

In order that the matter be determined as expeditiously as possible, we grant to the trial court the broadest powers to reach its determination. A decision shall be rendered in no more than ninety days from the date of this opinion.

The trial court shall, after reviewing the transcripts and other material, determine in its discretion whether further evidence is needed and through what witnesses it shall be presented. The trial court should consider limiting the witnesses to the experts who testified and to Mr. and Mrs. Stern and Mr. and Mrs. Whitehead, using its own judgment in deciding which of them, if any, shall be called on to give further evidence. The trial court, in its discretion, may either hear testimony or receive verified written submissions, relaxing the Rules of Evidence to the extent compatible with reliable fact-finding and desirable for an expeditious decision.^[20] Many significant facts bearing on visitation have already been adduced. Although additional evidence may be important, we believe that fairness does not necessarily require that it be produced with all of the procedural safeguards implicit in the Evidence Rules. When it comes to custody matters, application of rules, including those concerning evidence, must on some occasions be flexible, New Jersey Div. of Youth & Family Servs. v. S.S., 185 N.J. Super. 3 (App.Div.), certif. den., 91 N.J. 572 (1982), especially in view of the child's interests in this unique situation.

Any party wishing to appeal from the trial court's judgment on visitation shall file a notice of appeal within ten days thereafter, the Court hereby reducing the ordinary time to appeal pursuant to Rule 2:12-2. Any such appeal is hereby certified to this Court.

Any further proceedings in this matter, or related thereto, if made by application to the trial court shall be made to the judge to whom the matter is assigned on remand. That direction applies to applications related to this matter in any way: whether made before, during, or after proceedings on remand, and regardless of the nature of the application. Any applications for appellate review shall be made directly to this Court.

We would expect that after the visitation issue is determined the trial court, in connection with any other applications in the future, will attempt to assure that this case is treated like any other so that this child may be spared any further damaging publicity.

While probably unlikely, we do not deem it unthinkable that, the major issues having been resolved, the parties' undoubted love for this child might result in a good faith attempt to work out the visitation themselves, in the best interests of their child.

CONCLUSION

This case affords some insight into a new reproductive arrangement: the artificial insemination of a surrogate mother. The unfortunate events that have unfolded illustrate that its unregulated use can bring suffering to all involved. Potential victims include the surrogate mother and her family, the natural father and his wife, and most importantly, the child. Although surrogacy has apparently provided positive results for some infertile couples, it can also, as this case demonstrates, cause suffering to participants, here essentially innocent and well-intended.

We have found that our present laws do not permit the surrogacy contract used in this case. Nowhere, however, do we find any legal prohibition against surrogacy when the surrogate mother volunteers, without any payment, to act as a surrogate and is given the right to change her mind and to assert her parental rights. Moreover, the Legislature remains free to deal with this most sensitive issue as it sees fit, subject only to constitutional constraints.

If the Legislature decides to address surrogacy, consideration of this case will highlight many of its potential harms. We do not underestimate the difficulties of legislating on this subject. In addition to the inevitable confrontation with the ethical and moral issues involved, there is the question of the wisdom and effectiveness of regulating a matter so private, yet of such public interest. Legislative consideration of surrogacy may also provide the opportunity to begin to focus on the overall implications of the new reproductive biotechnology — in vitro fertilization, preservation of sperm and eggs, embryo implantation and the like. The problem is how to enjoy the benefits of the technology — especially for infertile couples — while minimizing the risk of abuse. The problem can be addressed only when society decides what its values and objectives are in this troubling, yet promising, area.

The judgment is affirmed in part, reversed in part, and remanded for further proceedings consistent with this opinion.

For affirmance in part, reversal in part and remandment — Chief Justice WILENTZ and Justices CLIFFORD, HANDLER, POLLOCK, O'HERN, GARIBALDI and STEIN — 7.

Opposed — None.

[1] Subsequent to the trial court proceedings, Mr. and Mrs. Whitehead were divorced, and soon thereafter Mrs. Whitehead remarried. Nevertheless, in the course of this opinion we will make reference almost exclusively to the facts as they existed at the time of trial, the facts on which the decision we now review was reached. We note moreover that Mr. Whitehead remains a party to this dispute. For these reasons, we continue to refer to appellants as Mr. and Mrs. Whitehead.

[2] The Stern-Whitehead contract (the "surrogacy contract") and the Stern-ICNY contract are reproduced below as Appendices A and B respectively. Other ancillary agreements and their attachments are omitted.

[3] Another argument advanced by Mrs. Whitehead is that the surrogacy agreement violates state wage regulations, N.J.S.A. 34:11-4.7, and the Minimum Wage Standard Act, N.J.S.A. 34:11-56a to -56a30. Given our disposition of the matter, we need not reach those issues.

[4] N.J.S.A.9:3-54 reads as follows:

a. No person, firm, partnership, corporation, association or agency shall make, offer to make or assist or participate in any placement for adoption and in connection therewith

(1) Pay, give or agree to give any money or any valuable consideration, or assume or discharge any financial obligation; or

(2) Take, receive, accept or agree to accept any money or any valuable consideration.

b. The prohibition of subsection a. shall not apply to the fees or services of any approved agency in connection with a placement for adoption, nor shall such prohibition apply to the payment or reimbursement of medical, hospital or other similar expenses incurred in connection with the birth or any illness of the child, or to the acceptance of such reimbursement by a parent of the child.

c. Any person, firm, partnership, corporation, association or agency violating this section shall be guilty of a high misdemeanor.

[5] Of course, here there are no "adoptive parents," but rather the natural father and his wife, the only adoptive parent. As noted, however, many of the dangers of using money in connection with adoption may exist in surrogacy situations.

[6] Counsel for the Sterns argues that the Parentage Act empowers the court to terminate parental rights solely on the basis of the child's best interests. He cites N.J.S.A.9:17-53c, which reads, in pertinent part, as follows:

The judgment or order may contain any other provision directed against the appropriate party to the proceeding concerning the duty of support, the custody and guardianship of the child, visitation privileges with the child, the furnishing of bond or other security for the payment of the judgment, the repayment of any public assistance grant, or any other matter in the best interests of the child. [Emphasis supplied].

We do not interpret this section as in any way altering or diluting the statutory prerequisites to termination discussed above. Termination of parental rights differs qualitatively from the matters to which this section is expressly directed, and, in any event, we have no doubt that if the Legislature had intended a substantive change in the standards governing an area of such gravity, it would have said so explicitly.

[7] We conclude not only that the surrogacy contract is an insufficient basis for termination, but that no statutory or other basis for termination existed. See infra at 444-447.

[8] The surrogacy situation, of course, differs from the situation in Sees, in that here there is no "adoptive couple," but rather the natural father and the stepmother, who is the would-be adoptive mother. This difference, however, does not go to the basis of the Sees holding. In both cases, the determinative aspect is the vulnerability of the natural mother who decides to surrender her child in the absence of institutional safeguards.

[9] And the impact on the natural parents, Mr. Stern and Mrs. Whitehead, is severe and dramatic. The depth of their conflict about Baby M, about custody, visitation, about the goodness or badness of each of them, comes through in their telephone conversations, in which each tried to persuade the other to give up the child. The potential adverse consequences of surrogacy are poignantly captured here — Mrs. Whitehead threatening to kill herself and the baby, Mr. Stern begging her not to, each blaming the other. The dashed hopes of the Sterns, the agony of Mrs. Whitehead, their suffering, their hatred — all were caused by the unraveling of this arrangement.

[10] We note the argument of the Sterns that the sperm donor section of our Parentage Act, N.J.S.A. 9:17-38 to -59, implies a legislative policy that would lead to approval of this surrogacy contract. Where a married woman is artificially inseminated by another with her husband's consent, the Parentage Act creates a parent-child relationship between the husband and the resulting child. N.J.S.A. 9:17-44. The Parentage Act's silence, however, with respect to surrogacy, rather than supporting, defeats any contention that surrogacy should receive treatment parallel to the sperm donor artificial insemination situation. In the latter case the statute expressly transfers parental rights from the biological father, i.e., the sperm donor, to the mother's husband. Ibid.Our Legislature could not possibly have intended any other arrangement to have the consequence of transferring parental rights without legislative authorization when it had concluded that legislation was necessary to accomplish that result in the sperm donor artificial insemination context.

This sperm donor provision suggests an argument not raised by the parties, namely, that the attempted creation of a parent-child relationship through the surrogacy contract has been preempted by the Legislature. The Legislature has explicitly recognized the parent-child relationship between a child and its natural parents, married and unmarried, N.J.S.A. 9:17-38 to -59, between adoptive parents and their adopted child, N.J.S.A. 9:3-37 to -56, and between a husband and his wife's child pursuant to the sperm donor provision, N.J.S.A. 9:17-44. It has not recognized any others — specifically, it has never legally equated the stepparent-stepchild relationship with the parent-child relationship, and certainly it has never recognized any concept of adoption by contract. It can be contended with some force that the Legislature's statutory coverage of the creation of the parent-child relationship evinces an intent to reserve to itself the power to define what is and is not a parent-child relationship. We need not, and do not, decide this question, however.

[11] Michigan courts have also found that these arrangements conflict with various aspects of their law. See Doe v. Kelley, 106 Mich. App. 169, 307 N.W.2d 438 (1981), cert. den., 459 U.S. 1183, 103 S.Ct. 834, 74 L.Ed.2d 1027 (1983) (application of sections of Michigan Adoption Law prohibiting the exchange of money to surrogacy is constitutional); Syrkowski v. Appleyard, 122 Mich. App. 506, 333 N.W.2d 90 (1983) (court held it lacked jurisdiction to issue an "order of filiation" because surrogacy arrangements were not governed by Michigan's Paternity Act), rev'd, 420 Mich. 367, 362 N.W.2d 211 (1985) (court decided Paternity Act should be applied but did not reach the merits of the claim).

Most recently, a Michigan trial court in a matter similar to the case at bar held that surrogacy contracts are void as contrary to public policy and therefore are unenforceable. The court expressed concern for the potential exploitation of children resulting from surrogacy arrangements that involve the payment of money. The court also concluded that insofar as the surrogacy contract may be characterized as one for personal services, the thirteenth amendment should bar specific performance. Yates v. Keane, Nos. 9758, 9772, slip op. (Mich.Cir.Ct. Jan. 21, 1988).

The Supreme Court of Kentucky has taken a somewhat different approach to surrogate arrangements. In Surrogate Parenting Assocs. v. Commonwealth ex. rel. Armstrong, 704 S.W.2d 209 (Ky. 1986), the court held that the "fundamental differences" between surrogate arrangements and baby-selling placed the surrogate parenting agreement beyond the reach of Kentucky's baby-selling statute. Id. at 211. The rationale for this determination was that unlike the normal adoption situation, the surrogacy agreement is entered into before conception and is not directed at avoiding the consequences of an unwanted pregnancy. Id. at 211-12.

Concomitant with this pro-surrogacy conclusion, however, the court held that a "surrogate" mother has the right to void the contract if she changes her mind during pregnancy or immediately after birth. Id. at 212-13. The court relied on statutes providing that consent to adoption or to the termination of parental rights prior to five days after the birth of the child is invalid, and concluded that consent before conception must also be unenforceable. Id. at 212-13.

The adoption phase of an uncontested surrogacy arrangement was analyzed in Matter of Adoption of Baby Girl, L.J., 132 Misc.2d 972, 505 N.Y.S.2d 813 (Sur. 1986). Although the court expressed strong moral and ethical reservations about surrogacy arrangements, it approved the adoption because it was in the best interests of the child. Id. at 815. The court went on to find that surrogate parenting agreements are not void, but are voidable if they are not in accordance with the state's adoption statutes. Id. at 817. The court then upheld the payment of money in connection with the surrogacy arrangement on the ground that the New York Legislature did not contemplate surrogacy when the baby-selling statute was passed. Id. at 818. Despite the court's ethical and moral problems with surrogate arrangements, it concluded that the Legislature was the appropriate forum to address the legality of surrogacy arrangements. Ibid.

In contrast to the law in the United States, the law in the United Kingdom concerning surrogate parenting is fairly well-settled. Parliament passed the Surrogacy Arrangements Act, 1985, ch. 49, which made initiating or taking part in any negotiations with a view to making or arranging a surrogacy contract a criminal offense. The criminal sanction, however, does not apply to the "surrogate" mother or to the natural father, but rather applies to other persons engaged in arranging surrogacy contracts on a commercial basis. Since 1978, English courts have held surrogacy agreements unenforceable as against public policy, such agreements being deemed arrangements for the purchase and sale of children. A. v. C., [1985] F.L.R. 445, 449 (Fam. & C.A. 1978). It should be noted, however, that certain surrogacy arrangements, i.e., those arranged without brokers and revocable by the natural mother, are not prohibited under current law in the United Kingdom.

[12] Opponents of surrogacy have also put forth arguments based on the thirteenth amendment, as well as the Peonage Act, 42 U.S.C. § 1994 (1982). We need not address these arguments because we have already held the contract unenforceable on the basis of state law.

[13] As a general rule, a person should be accorded the right to make decisions affecting his or her own body, health, and life, unless that choice adversely affects others. Thus, the United States Supreme Court, while recognizing the right of women to control their own bodies, has rejected the view that the federal constitution vests a pregnant woman with an absolute right to terminate her pregnancy. Instead, the Court declared that the right was "not absolute" so that "at some point the state interests as to protection of health, medical standards, and prenatal life, become dominant." Roe v. Wade, supra, 410 U.S. at 155, 93 S.Ct. at 728, 35 L.Ed.2d at 178. The balance struck in Roe v. Wade recognizes increasing rights in the fetus and correlative restrictions on the mother as the pregnancy progresses. Similarly, in the termination-of-treatment cases, courts generally have viewed a patient's right to terminate or refuse life-sustaining treatment as constrained by other considerations including the rights of innocent third parties, such as the patient's children. Matter of Farrell, 108 N.J. 335, 352 (1987); Matter of Conroy, 98 N.J. 321, 353 (1985). Consistent with that approach, this Court has directed a mother to submit to a life-saving blood transfusion to protect the interests of her unborn infant, even though the mother's religious scruples led her to oppose the transfusion. Raleigh-Fitkin Paul Morgan Hosp. v. Anderson, 42 N.J. 421, 423 (1964); see also Application of President & Directors of Georgetown College, 331 F.2d 1000, 1008 (D.C. Cir.), cert. den., 377 U.S. 978, 84 S.Ct. 1883, 12 L.Ed.2d 746 (1964) (ordering blood transfusion because of mother's "responsibility to the community to care for her infant").

In the present case, the parties' right to procreate by methods of their own choosing cannot be enforced without consideration of the state's interest in protecting the resulting child, just as the right to the companionship of one's child cannot be enforced without consideration of that crucial state interest.

[14] This fundamental right is not absolute. The parent-child biological relationship, by itself, does not create a protected interest in the absence of a demonstrated commitment to the responsibilities of parenthood; a natural parent who does not come forward and seek a role in the child's life has no constitutionally protected relationship. Lehr v. Robertson, supra, 463 U.S. at 258-62, 103 S.Ct. at 2991-93, 77 L.Ed.2d at 624-27; Quilloin v. Walcott, supra, 434 U.S. at 254-55, 98 S.Ct. at 554, 54 L.Ed.2d at 519-20. The right is not absolute in another sense, for it is also well settled that if the state's interest is sufficient the right may be regulated, restricted, and on occasion terminated. See Santosky v. Kramer, supra, 455 U.S. 745, 102 S.Ct. 1388, 71 L.Ed.2d 599.

[15] Were we to find such a constitutional determination necessary, we would be faced with the question of whether it was state action — essential in triggering the fourteenth amendment — that deprived her of that right i.e., whether the judicial decision enforcing the surrogacy contract should be considered "state action" within the scope of the fourteenth amendment. See Shelley v. Kraemer, 334 U.S. 1, 68 S.Ct. 836, 92 L.Ed. 1161 (1948); Cherminsky, "Rethinking State Action," 80 Nw.U.L.Rev. 503 (1985).

[16] If the Legislature were to enact a statute providing for enforcement of surrogacy agreements, the validity of such a statute might depend on the strength of the state interest in making it more likely that infertile couples will be able to adopt children. As a value, it is obvious that the interest is strong; but if, as plaintiffs assert, ten to fifteen percent of all couples are infertile, the interest is of enormous strength. This figure is given both by counsel for the Sterns and by the trial court, 217 N.J. Super.at 331. We have been unable to find reliable confirmation of this statistic, however, and we are not confident of its accuracy. We note that at least one source asserts that in 1982, the rate of married couples who were both childless and infertile was only 5.8%. B. Wattenberg, The Birth Dearth 125 (1987).

On such quantitative differences, constitutional validity can depend, where the statute in question is justified as serving a compelling state interest. The quality of the interference with the parents' right of companionship bears on these issues: if a statute, like the surrogacy contract before us, made the consent given prior to conception irrevocable, it might be regarded as a greater interference with the fundamental right than a statute that gave that effect only to a consent executed, for instance, more than six months after the child's birth. There is an entire spectrum of circumstances that strengthen and weaken the fundamental right involved, and a similar spectrum of state interests that justify or do not justify particular restrictions on that right. We do not believe it would be wise for this Court to attempt to identify various combinations of circumstances and interests, and attempt to indicate which combinations might and which might not constitutionally permit termination of parental rights.

We will say this much, however: a parent's fundamental right to the companionship of one's child can be significantly eroded by that parent's consent to the surrender of that child. That surrender, if voluntarily and knowingly made, may reduce the strength of that fundamental right to the point where a statute awarding custody and all parental rights to an adoptive couple, especially one that includes a parent of the child, would be valid.

[17] At common law the rights of women were so fragile that the husband generally had the paramount right to the custody of children upon separation or divorce. State v. Baird, 21 N.J. Eq. 384, 388 (E. & A. 1869). In 1860 a statute concerning separation provided that children "within the age of seven years" be placed with the mother "unless said mother shall be of such character and habits as to render her an improper guardian." L. 1860, c. 167. The inequities of the common-law rule and the 1860 statute were redressed by an 1871 statute, providing that "the rights of both parents, in the absence of misconduct, shall be held to be equal." L. 1871, c. 48, § 6 (currently codified at N.J.S.A. 9:2-4). Under this statute the father's superior right to the children was abolished and the mother's right to custody of children of tender years was also eliminated. Under the 1871 statute, "the happiness and welfare of the children" were to determine custody, L. 1871, c. 48, § 6, a rule that remains law to this day. N.J.S.A.9:2-4.

Despite this statute, however, the "tender years" doctrine persisted. See, e.g., Esposito v. Esposito, 41 N.J. 143, 145 (1963); Dixon v. Dixon, 71 N.J. Eq. 281, 282 (E. & A. 1906); M.P. v. S.P., 169 N.J. Super. 425, 435 (App.Div. 1979). This presumption persisted primarily because of the prevailing view that a young child's best interests necessitated a mother's care. Both the development of case law and the Parentage Act, N.J.S.A. 9:17-40, however, provide for equality in custody claims. In Beck v. Beck, 86 N.J. 480, 488 (1981), we stated that it would be inappropriate "to establish a presumption ... in favor of any particular custody determination," as any such presumption may "serve as a disincentive for the meticulous fact-finding required in custody cases." This does not mean that a mother who has had custody of her child for three, four, or five months does not have a particularly strong claim arising out of the unquestionable bond that exists at that point between the child and its mother; in other words, equality does not mean that all of the considerations underlying the "tender years" doctrine have been abolished.

[18]Subsequent to trial, and by the time of oral argument, Mr. and Mrs. Whitehead had separated, and the representation was that there was no likelihood of change. Thereafter Mrs. Whitehead became pregnant by another man, divorced Mr. Whitehead, and remarried the other man. Both children are living with Mrs. Whitehead and her new husband. Both the former and present husband continue to assert the desire to have whatever parental relationship with Melissa that the law allows, Mrs. Whitehead continuing to maintain her claim for custody.

We refer to this development only because it suggests less stability in the Whiteheads' lives. It does not necessarily suggest that Mrs. Whitehead's conduct renders her any less a fit parent. In any event, this new development has not affected our decision.

[19] As we have done in similar situations, we order that this matter be referred on remand to a different trial judge by the vicinage assignment judge. The original trial judge's potential "commitment to its findings," New Jersey Div. of Youth & Family Servs. v. A.W., supra, 103 N.J. at 617, and the extent to which a judge "has already engaged in weighing the evidence," In re Guardianship of R., 155 N.J. Super. 186, 195 (App.Div. 1977), persuade us to make that change. On remand the trial court will consider developments subsequent to the original trial court's opinion, including Mrs. Whitehead's divorce, pregnancy, and remarriage.

[20] Ordinarily relaxation of the Rules of Evidence depends on specific authority, either within the Rules or in statutes. See N.J.Rules of Evidence, Comment 2 to Evid.R. 2(2), 72-76 (1987). There are numerous examples, however, of relaxation of these Rules in judicial proceedings for reasons peculiar to the case at hand. We regard the circumstances of the visitation aspect of this case as most unusual. In addition to the ordinary risks to the stability of an infant caused by prolonging this type of litigation, here there are risks from publicity that we simply cannot quantify. We have no doubt that these circumstances justify any sensible means of abbreviating the remand hearing.