Charter Federal Savings Bank v. Director, Office of Thrift Supervision, 773 F. Supp. 809, 825 (W.D. Va. 1991). Moreover, it is fair to presume that when a promisor enters into a contract, it believes that the best remedy it can get if performance becomes impossible is rescission and restitution. Id. Therefore, we believe that plaintiffs' impossibility argument states a claim upon which relief can be granted, and, accordingly, we decline to dismiss count II of the complaint.
Furthermore, we find that count II of plaintiffs' complaint also adequately states a claim against defendants based on failure of consideration. Professor Williston has stated that "failure of consideration exists whenever one who has promised to give some performance fails without his fault to receive in some material respect the agreed exchange for that performance." Williston on Contracts § 814 at pp. 12-14. "Failure of consideration . . . gives the disappointed party a right to rescind the contract" and "it is immaterial whether the failure is due to fraud, mistake, impossibility, or willful breach of promise." Id. at 19, 15-16. In the instant case, as consideration for plaintiffs' taking over three failing thrifts, the FHLBB and the FSLIC promised to count supervisory goodwill as an asset in all of the plaintiffs' capital calculations. The action mandated upon OTS pursuant to FIRREA makes it impossible for defendants to provide this consideration to plaintiffs.
We observe that Connolly v. Pension Benefit Guaranty Corp., 475 U.S. 211, 89 L. Ed. 2d 166, 106 S. Ct. 1018 (1986), under which defendants argue that plaintiffs should bear the burden of the changed law because "'those who do business in [a] regulated field cannot object if the legislative scheme is buttressed by subsequent amendments to achieve the legislative end,'" id. at 227 (quoting FHA v. Darlington, Inc., 358 U.S. 84, 91, 3 L. Ed. 2d 132, 79 S. Ct. 141 (1958)), is inapposite. In the statute construed in Connolly, Congress was concerned with the withdrawal of employers from pension plans, and passed legislation which mandated that employers continue contributing to the plans even after they withdrew from such plans. When the employers complained that the new statute constituted a taking of property without due process of law, the Supreme Court made the statement upon which the defendants rely. It is evident that the specific purpose of the statute in Connolly was to prevent employers from withdrawing from the pension plans, and to have allowed the plaintiffs in that case to withdraw from those plans would have directly contravened Congress' express intent. By contrast, in this case, though we have found that Congress mandated the abrogation of the forbearance agreements, "there is nothing in the record, defendants' arguments, or the legislative history of FIRREA that suggests that [rescinding the contract and granting declaratory relief] would violate a policy of Congress." Charter Federal Savings Bank v. Director, Office of Thrift Supervision, 773 F. Supp. at 827. Accordingly, Connolly would not prohibit this Court from granting plaintiffs the relief that they seek in this complaint. See id. at 826-27.
Defendants also unconvincingly argue that plaintiffs' contract claims are barred by the Sovereign Acts Doctrine. That Doctrine provides that when the United States is a contracting party, it "[is] to be held liable [on the contract] only within the same limits that any other defendant would be in any other court. Though [its] sovereign acts performed for the general good may work injury to some private contractors, such parties gain nothing by having the United States as their defendants.'" Horowitz v. United States, 267 U.S. 458, 461, 69 L. Ed. 736, 45 S. Ct. 344 (1925) (quoting Jones v. United States, 1 Ct. Cl. 383, 384 (1865)). Thus, for example, the United States as a party to a contract cannot be held liable for the fact that a law that it passed in its sovereign capacity makes the other contracting party's performance of the contract more expensive. See, e.g., Tony Downs Foods Co. v. United States, 209 Ct. Cl. 31, 530 F.2d 367 (Ct. Cl. 1976) (granting the government immunity from liability where Executive Order lifting price freeze on turkeys caused monetary loss to party contracting with the Department of Agriculture). However, the Sovereign Acts Doctrine does not forbid courts from excusing private parties who contract with the government from further performance under the contract when the government's sovereign act makes the performance of the contract impossible. In Wah Chang Corp. v. United States, 151 Ct. Cl. 41, 282 F.2d 728 (Ct. Cl. 1960), a private party's performance of its contract with the government became more expensive because the government condemned the party's factory. Id. at 733. Though the Court of Claims held that the party was barred by the Sovereign Acts Doctrine from succeeding in its breach of contract claim against the United States, id. at 733-35, the Court stated in dicta that the private party "would have been justified in ceasing its . . . operations when the condemnation proceedings were initiated." Id. at 733. This reasoning makes sense when one considers that the Sovereign Acts Doctrine requires that a court treat the United States in the same way that it would treat a private party to a contract in similar circumstances. While a private party would not be liable for breach of contract if the United States were to pass a statute that made performance of the contract impossible, the second party to the contract would be able to rescind the contract without penalty. See Cook v. El Paso Natural Gas Co., 560 F.2d 978, 982 (10th Cir. 1977); Charter Federal Savings Bank v. Director, Office of Thrift Supervision, 773 F. Supp. 809, 824 (W.D. Va. 1991); II E. Allan Farnsworth, Farnsworth on Contracts, § 9.5 at 534-35 (1990). Similarly, while the United States cannot be sued for breach of contract if it passes a statute that makes performance of the contract impossible, the private party contracting with the United States may rescind the contract in these circumstances. Thus, plaintiffs' claim for [ILLEGIBLE WORD] of the contracts and for declaratory relief is not barred by the Sovereign Acts Doctrine.
In sum, then, as we have said, count II of plaintiffs complaint states a claim upon which relief may be granted.
c. Count III
In count III of their complaint plaintiffs claim that defendants' failure to honor the forbearance agreements constitutes breach of contract. Because FIRREA made the defendants' performance of the contract impossible they are not liable for breach. See above. In addition, as we have already found, the Sovereign Acts Doctrine shields defendants from liability for passing a statute that makes the defendants' performance of the contracts impossible. Accordingly, count III of the complaint is insufficient as a matter of law, and is dismissed.
d. Count IV
In count IV plaintiffs explicitly contend that defendants are prevented by promissory estoppel from abrogating their forbearance agreements with plaintiffs. Curiously, plaintiffs now maintain in their briefs that although the language of the complaint states otherwise, the complaint does not assert promissory estoppel against the government but "merely asserts one more equitable consideration justifying rescission and a declaration of unenforceability." Plaintiffs' Brief in Opposition to Defendants' Motion to Dismiss at 71. Plaintiffs do not cite any cases to support the notion that this equitable consideration can independently state a claim upon which relief can be granted, and therefore count IV is dismissed.
e. Count V
In count V of plaintiffs' complaint, plaintiffs contend that defendants' failure to honor the forbearance agreements is an unlawful taking of plaintiffs' contract rights within the meaning of the fifth amendment of the United States constitution. For the reasons stated in part II(a) of this opinion, count V is dismissed.
Defendants' motion to dismiss the complaint is granted in part and denied in part. Counts I, III, IV, and V are dismissed. Plaintiffs may go forward on count II.
Dated: New York, New York
February 19, 1992
KENNETH CONBOY, U.S.D.J.