author: Justice Marshall Justice Stevens, Chief Justice Rehnquist,

text:
    REVES et al. v. ERNST & YOUNG
    No. 88-1480.
    Argued November 27, 1989
    Decided February 21, 1990

      Marshall, J., delivered the opinion for a unanimous Court with respect to Part II, and the opinion of the Court with respect to Parts I, III, and IV, in which Brennan, Blackmun, Stevens, and Kennedy, JJ., joined. Stevens, J., filed a concurring opinion, post, p. 73. Rehnquist, C. J., filed an opinion concurring in part and dissenting in part, in which White, O’Connor, and Scalia, JJ., joined, post, p. 76.

      John R. McCambridge argued the cause for petitioners. With him on the briefs were Gary M. Elden, Jay R. Hoffman, and Robert R. Cloar.

      Michael R. Lazerwitz argued the cause for the Securities and Exchange Commission as amicus curiae urging reversal. With him on the brief were Solicitor General Starr, Deputy Solicitor General Merrill, Daniel L. Goelzer, Paul Gonson, Jacob H. Stillman, Martha H. McNeely, Randall W. Qidnn, and Eva Marie Carney.

      John Matson argued the cause for respondent. With him on the brief were Carl D. Liggio, Kathryn A. Oberly, and Fred Lovitch.

      Briefs of amicus curiae urging reversal were filed for the Arkansas Securities Department by John Steven Clark, Attorney General of Arkansas; and for the North American Securities Administrators Association, Inc., by Joseph C. Long.

   Justice Marshall

delivered the opinion of the Court.

This case presents the question whether certain demand notes issued by the Farmers Cooperative of Arkansas and Oklahoma (Co-Op) are “securities” within the meaning of §3(a)(10) of the Securities Exchange Act of 1934. We conclude that they are.

I

The Co-Op is an agricultural cooperative that, at the time relevant here, had approximately 23,000 members. In order to raise money to support its general business operations, the Co-Op sold promissory notes payable on demand by the holder. Although the notes were uncollateralized and uninsured, they paid a variable rate of interest that was adjusted monthly to keep it higher than the rate paid by local financial institutions. The Co-Op offered the notes to both members and nonmembers, marketing the scheme as an “Investment Program.” Advertisements for the notes, which appeared in each Co-Op newsletter, read in part: “YOUR CO-OP has more than $11,000,000 in assets to stand behind your investments. The Investment is not Federal [sic] insured but it is . . . Safe . . . Secure . . . and available when you need it.” App. 5 (ellipses in original). Despite these assurances, the Co-Op filed for bankruptcy in 1984. At the time of the filing, over 1,600 people held notes worth a total of $10 million.

After the Co-Op filed for bankruptcy, petitioners, a class of holders of the notes, filed suit against Arthur Young & Co., the firm that had audited the Co-Op’s financial statements (and the predecessor to respondent Ernst & Young). Petitioners alleged, inter alia, that Arthur Young had intentionally failed to follow generally accepted accounting principles in its audit, specifically with respect to the valuation of one of the Co-Op’s major assets, a gasohol plant. Petitioners claimed that Arthur Young violated these principles in an effort to inflate the assets and net worth of the Co-Op. Petitioners maintained that, had Arthur Young properly treated the plant in its audits, they would not have purchased demand notes because the Co-Op’s insolvency would have been apparent. On the basis of these allegations, petitioners claimed that Arthur Young had violated the antifraud provisions of the 1934 Act as well as Arkansas’ securities laws.

Petitioners prevailed at trial on both their federal and state claims, receiving a $6.1 million judgment. Arthur Young appealed, claiming that the demand notes were not “securities” under either the 1934 Act or Arkansas law, and that the statutes’ antifraud provisions therefore did not apply. A panel of the Eighth Circuit, agreeing with Arthur Young on both the state and federal issues, reversed. Arthur Young & Co. v. Reves, 856 F. 2d 52 (1988). We granted certiorari to address the federal issue, 490 U. S. 1105 (1989), and now reverse the judgment of the Court of Appeals.

II

A

This case requires us to decide whether the note issued by the Co-Op is a “security” within the meaning of the 1934 Act. Section 3(a)(10) of that Act is our starting point:

“The term ‘security’ means any note, stock, treasury stock, bond, debenture, certificate of interest or participation in any profit-sharing agreement or in any oil, gas, or other mineral royalty or lease, any collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit, for a security, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or in general, any instrument commonly known as a ‘security’; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, or warrant or right to subscribe to or purchase, any of the foregoing; but shall not include currency or any note, draft, bill of exchange, or banker’s acceptance which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is like-wise limited.” 48 Stat. 884, as amended, 15 U. S. C. § 78c(a)(10).

The fundamental purpose undergirding the Securities Acts is “to eliminate serious abuses in a largely unregulated securities market.” United Housing Foundation, Inc. v. Forman, 421 U. S. 837, 849 (1975). In defining the scope of the market that it wished to regulate, Congress painted with a broad brush. It recognized the virtually limitless scope of human ingenuity, especially in the creation of “countless and variable schemes devised by those who seek the use of the money of others on the promise of profits,” SEC v. W. J. Howey Co., 328 U. S. 293, 299 (1946), and determined that the best way to achieve its goal of protecting investors was “to define ‘the term “security” in sufficiently broad and general terms so as to include within that definition the many types of instruments that in our commercial world fall within the ordinary concept of a security.”’ Forman, supra, at 847-848 (quoting H. R. Rep. No. 85, 73d Cong., 1st Sess., 11 (1933)). Congress therefore did not attempt precisely to cabin the scope of the Securities Acts. Rather, it enacted a definition of “security” sufficiently broad to encompass virtually any instrument that might be sold as an investment.

Congress did not, however, “intend to provide a broad federal remedy for all fraud.” Marine Bank v. Weaver, 455 U. S. 551, 556 (1982). Accordingly, “[t]he task has fallen to the Securities and Exchange Commission (SEC), the body charged with administering the Securities Acts, and ultimately to the federal courts to decide which of the myriad financial transactions in our society come within the coverage of these statutes.” Forman, supra, at 848. In discharging our duty, we are not bound by legal formalisms, but instead take account of the economics of the transaction under investigation. See, e. g., Tcherepnin v. Knight, 389 U. S. 332, 336 (1967) (in interpreting the term “security,” “form should be disregarded for substance and the emphasis should be on economic reality”). Congress’ purpose in enacting the securities laws was to regulate investments, in whatever form they are made and by whatever name they are called.

A commitment to an examination of the economic realities of a transaction does not necessarily entail a case-by-case analysis of every instrument, however. Some instruments are obviously within the class Congress intended to regulate because they are by their nature investments. In Landreth Timber Co. v. Landreth, 471 U. S. 681 (1985), we held that an instrument bearing the name “stock” that, among other things, is negotiable, offers the possibility of capital appreciation, and carries the right to dividends contingent on the profits of a business enterprise is plainly within the class of instruments Congress intended the securities laws to cover. Landreth Timber does not signify a lack of concern with economic reality; rather, it signals a recognition that stock is, as a practical matter, always an investment if it has the economic characteristics traditionally associated with stock. Even if sparse exceptions to this generalization can be found, the public perception of common stock as the paradigm of a security suggests that stock, in whatever context it is sold, should be treated as within the ambit of the Acts. Id., at 687, 693.

We made clear in Landreth Timber that stock was a special case, explicitly limiting our holding to that sort of instrument. Id., at 694. Although we refused finally to rule out a similar per se rule for notes, we intimated that such a rule would be unjustified. Unlike “stock,” we said, “‘note’ may now be viewed as a relatively broad term that encompasses instruments with widely varying characteristics, depending on whether issued in a consumer context, as commercial paper, or in some other investment context.” Ibid, (citing Securities Industry Assn. v. Board of Governors of Federal Reserve System, 468 U. S. 137, 149-153 (1984)). While common stock is the quintessence of a security, Landreth Timber, supra, at 693, and investors therefore justifiably assume that a sale of stock is covered by the Securities Acts, the same simply cannot be said of notes, which are used in a variety of settings, not all of which involve investments. Thus, the phrase “any note” should not be interpreted to mean literally “any note,” but must be understood against the backdrop of what Congress was attempting to accomplish in enacting the Securities Acts.

Because the Landreth Timber formula cannot sensibly be applied to notes, some other principle must be developed to define the term “note.” A majority of the Courts of Appeals that have considered the issue have adopted, in varying forms, “investment versus commercial” approaches that distinguish, on the basis of all of the circumstances surrounding the transactions, notes issued in an investment context (which are “securities”) from notes issued in a commercial or consumer context (which are not). See, e. g., Futura Development Corp. v. Centex Corp., 761 F. 2d 33, 40-41 (CA1 1985); McClure v. First Nat. Bank of Lubbock, Texas, 497 F. 2d 490, 492-494 (CA5 1974); Hunssinger v. Rockford Business Credits, Inc., 745 F. 2d 484, 488 (CA7 1984); Holloway v. Peat, Marwick, Mitchell & Co., 879 F. 2d 772, 778-779 (CA10 1989), cert. pending No. 89-532.

The Second Circuit’s “family resemblance” approach begins wfith a presumption that any note with a term of more than nine months is a “security.” See, e. g., Exchange Nat. Bank of Chicago v. Touche Ross & Co., 544 F. 2d 1126, 1137 (CA2 1976). Recognizing that not all notes are securities, however, the Second Circuit has also devised a list of notes that it has decided are obviously not securities. Aecordingly, the “family resemblance” test permits an issuer to rebut the presumption that a note is a security if it can show that the note in question “bear[s] a strong family resemblance” to an item on the judicially crafted list of exceptions, id., at 1137-1138, or convinces the court to add a new instrument to the list, see, e. g., Chemical Bank v. Arthur Andersen & Co., 726 F. 2d 930, 939 (CA2 1984).

In contrast, the Eighth and District of Columbia Circuits apply the test we created in SEC v. W. J. Howey Co., 328 U. S. 293 (1946), to determine whether an instrument is an “investment contract” to the determination whether an instrument is a “note.” Under this test, a note is a security only if it evidences “(1) an investment; (2) in a common enterprise; (3) with a reasonable expection of profits; (4) to be derived from the entrepreneurial or managerial efforts of others.” 856 F. 2d, at 54 (case below). Accord, Baurer v. Planning Group, Inc., 215 U. S. App. D. C. 384, 391-393, 669 F. 2d 770, 777-779 (1981). See also Underhill v. Royal, 769 F. 2d 1426, 1431 (CA9 1985) (setting forth what it terms a “risk capital” approach that is virtually identical to the Hoioey test).

We reject the approaches of those courts that have applied the Hoioey test to notes; Howey provides a mechanism for determining whether an instrument is an “investment contract.” The demand notes here may well not be “investment contracts,” but that does not mean they are not “notes.” To hold that a “note” is not a “security” unless it meets a test designed for an entirely different variety of instrument “would make the Acts’ enumeration of many types of instruments superfluous,” Landreth Timber, 471 U. S., at 692, and would be inconsistent with Congress’ intent to regulate the entire body of instruments sold as investments, see supra, at 60-62.

The other two contenders —the “family resemblance” and “investment versus commercial” tests — are really two ways of formulating the same general approach. Because we think the “family resemblance” test provides a more promising framework for analysis, however, we adopt it. The test begins with the language of the statute; because the Securities Acts define “security” to include “any note,” we begin with a presumption that every note is a security. We nonetheless recognize that this presumption cannot be irrebutable. As we have said, supra, at 61, Congress was concerned with regulating the investment market, not with creating a general federal cause of action for fraud. In an attempt to give more content to that dividing line, the Second Circuit has identified a list of instruments commonly denominated “notes” that nonetheless fall without the “security” category. See Exchange Nat. Bank, supra, at 1138 (types of notes that are not “securities” include “the note delivered in consumer financing, the note secured by a mortgage on a home, the short-term note secured by a lien on a small business or some of its assets, the note evidencing a ‘character’ loan to a bank customer, short-term notes secured by an assignment of accounts receivable, or a note which simply formalizes an open-account debt incurred in the ordinary course of business (particularly if, as in the case of the customer of a broker, it is collateralized)”); Chemical Bank, supra, at 939 (adding to list “notes evidencing loans by commercial banks for current operations”).

We agree that the items identified by the Second Circuit are not properly viewed as “securities.” More guidance, though, is needed. It is impossible to make any meaningful inquiry into whether an instrument bears a “resemblance” to one of the instruments identified by the Second Circuit without specifying what it is about those instruments that makes them non-“securities.” Moreover, as the Second Circuit itself has noted, its list is “not graven in stone,” 726 F. 2d, at 939, and is therefore capable of expansion. Thus, some standards must be developed for determining when an item should be added to the list.

An examination of the list itself makes clear what those standards should be. In creating its list, the Second Circuit was applying the same factors that this Court has held apply in deciding whether a transaction involves a “security.” First, we examine the transaction to assess the motivations that would prompt a reasonable seller and buyer to enter into it. If the seller’s purpose is to raise money for the general use of a business enterprise or to finance substantial investments and the buyer is interested primarily in the profit the note is expected to generate, the instrument is likely to be a “security.” If the note is exchanged to facilitate the purchase and sale of a minor asset or consumer good, to correct for the seller’s cash-flow difficulties, or to advance some other commercial or consumer purpose, on the other hand, the note is less sensibly described as a “security.” See, e. g., Forman, 421 U. S., at 851 (share of “stock” carrying a right to subsidized housing not a security because “the inducement to purchase was solely to acquire subsidized low-cost living space; it was not to invest for profit”). Second, we examine the “plan of distribution” of the instrument, SEC v. C. M. Joiner Leasing Corp., 320 U. S. 344, 353 (1943), to determine whether it is an instrument in which there is “common trading for speculation or investment,” id., at 351. Third, we examine the reasonable expectations of the investing public: The Court will consider instruments to be “securities” on the basis of such public expectations, even where an economic analysis of the circumstances of the particular transaction might suggest that the instruments are not “securities” as used in that transaction. Compare Landreth Timber, 471 U. S., at 687, 693 (relying on public expectations in holding that common stock is always a security), with id., at 697-700 (Stevens, J., dissenting) (arguing that sale of business to single informed purchaser through stock is not within the purview of the Acts under the economic reality test). See also Forman, supra, at 851. Finally, we examine whether some factor such as the existence of another regulatory scheme significantly reduces the risk of the instrument, thereby rendering application of the Securities Acts unnecessary. See, e. g., Marine Bank, 455 U. S., at 557-559, and n. 7.

We conclude, then, that in determining whether an instrument denominated a “note” is a “security,” courts are to apply the version of the “family resemblance” test that we have articulated here: A note is presumed to be a “security,” and that presumption may be rebutted only by a showing that the note bears a strong resemblance (in terms of the four factors we have identified) to one of the enumerated categories of instrument. If an instrument is not sufficiently similar to an item on the list, the decision whether another category should be added is to be made by examining the same factors.

B

Applying the family resemblance approach to this case, we have little difficulty in concluding that the notes at issue here are “securities.” Ernst & Young admits that “a demand note does not closely resemble any of the Second Circuit’s family resemblance examples.” Brief for Respondent 43. Nor does an examination of the four factors we have identified as being relevant to our inquiry suggest that the demand notes here are not “securities” despite their lack of similarity to any of the enumerated categories. The Co-Op sold the notes in an effort to raise capital for its general business operations, and purchasers bought them in order to earn a profit in the form of interest. Indeed, one of the primary inducements offered purchasers was an interest rate constantly revised to keep it slightly above the rate paid by local banks and savings and loans. From both sides, then, the transaction is most naturally conceived as an investment in a business enterprise rather than as a purely commercial or consumer transaction.

As to the plan of distribution, the Co-Op offered the notes over an extended period to its 23,000 members, as well as to nonmembers, and more than 1,600 people held notes when the Co-Op filed for bankruptcy. To be sure, the notes were not traded on an exchange. They were, however, offered and sold to a broad segment of the public, and that is all we have held to be necessary to establish the requisite “common trading” in an instrument. See, e. g., Landreth Timber, supra (stock of closely held corporation not traded on any exchange held to be a “security”); Tcherepnin, 389 U. S., at 337 (nonnegotiable but transferable “withdrawable capital shares” in savings and loan association held to be a “security”); Howey, 328 U. S., at 295 (units of citrus grove and maintenance contract “securities” although not traded on exchange).

The third factor — the public’s reasonable perceptions — also supports a finding that the notes in this case are “securities.” We have consistently identified the fundamental essence of a “security” to be its character as an “investment.” See swpra, at 61, 65. The advertisements for the notes here characterized them as “investments,” see supra, at 59, and there were no countervailing factors that would have led a reasonable person to question this characterization. In these circumstances, it would be reasonable for a prospective purchaser to take the Co-Op at its word.

Finally, we find no risk-reducing factor to suggest that these instruments are not in fact securities. The notes are uncollateralized and uninsured. Moreover, unlike the certificates of deposit in Marine Bank, supra, at 557-558, which were insured by the Federal Deposit Insurance Corporation and subject to substantial regulation under the federal banking laws, and unlike the pension plan in Teamsters v. Daniel, 439 U. S. 551, 569-570 (1979), which was comprehensively regulated under the Employee Retirement Income Security Act of 1974, 88 Stat. 829, 29 U. S. C. § 1001 et seq. (1982 ed.), the notes here would escape federal regulation entirely if the Acts were held not to apply.

The court below found that “[t]he demand nature of the notes is very uncharacteristic of a security,” 856 F. 2d, at 54, on the theory that the virtually instant liquidity associated with demand notes is inconsistent with the risk ordinarily associated with “securities.” This argument is unpersuasive. Common stock traded on a national exchange is the paradigm of a security, and it is as readily convertible into cash as is a demand note. The same is true of publicly traded corporate bonds, debentures, and any number of other instruments that are plainly within the purview of the Acts. The demand feature of a note does permit a holder to eliminate risk quickly by making a demand, but just as with publicly traded stock, the liquidity of the instrument does not eliminate risk altogether. Indeed, publicly traded stock is even more readily liquid than are demand notes, in that a demand only eliminates risk when, and if, payment is made, whereas the sale of a share of stock through a national exchange and the receipt of the proceeds usually occur simultaneously.

We therefore hold that the notes at issue here are within the term “note” in §3(a)(10).

Ill

Relying on the exception in the statute for “any note . . . which has a maturity at the time of issuance of not exceeding nine months,” 15 U. S. C. § 78c(a)(10), respondent contends that the notes here are not “securities,” even if they would otherwise qualify. Respondent cites Arkansas cases standing for the proposition that, in the context of the state statute of limitations, “[a] note payable on demand is due immediately.” See, e. g., McMahon v. O’Keefe, 213 Ark. 105, 106, 209 S. W. 2d 449, 450 (1948) (statute of limitations is triggered by the date of issuance rather than by date of first demand). Respondent concludes from this rule that the “maturity” of a demand note within the meaning of §3(a)(10) is immediate, which is, of course, less than nine months. Respondent therefore contends that the notes fall within the plain words of the exclusion and are thus not “securities.”

Petitioners counter that the “plain words” of the exclusion should not govern. Petitioners cite the legislative history of a similar provision of the 1933 Act, 48 Stat. 76, 15 U. S. C. §77c(a)(3), for the proposition that the purpose of the exclusion is to except from the coverage of the Acts only commercial paper — short-term, high quality instruments issued to fund current operations and-sold only to highly sophisticated investors. See S. Rep. No. 47, 73d Cong., 1st Sess., 3-4 (1933); H. R. Rep. No. 85, 73d Cong., 1st Sess., 15 (1933). Petitioners also emphasize that this Court has repeatedly held (see supra, at 60-63) that the plain words of the definition of a “security” are not dispositive, and that we consider the economic reality of the transaction to determine whether Congress intended the Securities Acts to apply. Petitioners therefore argue, with some force, that reading the exception for short-term notes to exclude from the Acts’ coverage investment notes of less than nine months’ duration would be inconsistent with Congress’ evident desire to permit the SEC and the courts flexibility to ensure that the Acts are not manipulated to investors’ detriment. If petitioners are correct that the exclusion is intended to cover only commercial paper, these notes, which were sold in a large scale offering to unsophisticated members of the public, plainly should not fall within the exclusion.

We need not decide, however, whether petitioners’ interpretation of the exception is correct, for we conclude that even if we give literal effect to the exception, the notes do not fall within its terms.

Respondent’s contention that the demand notes fall within the “plain words” of the statute rests entirely upon the premise that Arkansas’ statute of limitations for suits to collect demand notes is determinative of the “maturity” of the notes, as that term is used in the federal Securities Acts. The “maturity” of the notes, however, is a question of federal law. To regard States’ statutes of limitations law as controlling the scope of the Securities Acts would be to hold that a particular instrument is a “security” under the 1934 Act in some States, but that the same instrument is not a “security” in others. Compare McMahon, supra, at 106 (statute runs from date of note), with 42 Pa. Cons. Stat. §5525(7) (1988) (statute runs “from the later of either demand or any payment of principal of or interest on the instrument”). We are unpersuaded that Congress intended the Securities Acts to apply differently to the same transactions depending on the accident of which State’s law happens to apply.

The Chief Justice’s argument in partial dissent is but a more artful statement of respondent’s contention, and it suffers from the same defect. The Chief Justice begins by defining “maturity” to mean the time when a note becomes due. Post, at 77 (quoting Black’s Law Dictionary 1170 (3d ed. 1933)). Because a demand note is “immediately ‘due’ such that an action could be brought at any time without any other demand than the suit,” post, at 77, the Chief Justice concludes that a demand note is due immediately for purposes of the federal securities laws. Even if the Chief Justice is correct that the “maturity” of a note corresponds to the time at which it “becomes due,” the authority he cites for the proposition that, as a matter of federal law, a demand note “becomes due” immediately (as opposed to when demand is made or expected to be made) is no more dispositive than is Arkansas case law. The Chief Justice’s primary source of authority is a treatise regarding the state law of negotiable instruments, particularly the Uniform Negotiable Instruments Law. See M. Bigelow, Law of Bills, Notes, and Checks v-vii (3d. ed. W. Lile rev. 1928). The quotation upon which the Chief Justice relies is concerned with articulating the general state-law rule regarding when suit may be filed. The only other authority the Chief Justice cites makes plain that state-law rules governing when a demand note becomes due are significant only in that they control the date on which statutes of. limitation begins to run and whether demand must precede suit. See 8 C. J., Bills and Notes §602, p. 406 (1916). Indeed, the treatise suggests that States were no more unanimous on those questions in 1933 than they are now. Ibid. In short, the dissent adds nothing to respondent’s argument other than additional authority for what “maturity” means in certain state-law contexts. The dissent provides no argument for its implicit, but essential, premise that state rules concerning the proper method of collecting a debt control the resolution of the federal question before us.

Neither the law of Arkansas nor that of any other State provides an answer to the federal question, and as a matter of federal law, the words of the statute are far from “plain” with regard to whether demand notes fall within the exclusion. If it- is plausible to regard a demand note as having an immediate maturity because demand could be made immediately, it is also plausible to regard the maturity of a demand note as being in excess of nine months because demand could be made many years or decades into the future. Given this ambiguity, the exclusion must be interpreted in accordance with its purpose. As we have said, we will assume for argument’s sake that petitioners are incorrect in their view that the exclusion is intended to exempt only commercial paper. Respondent presents no competing view to explain why Congress would have enacted respondent’s version of the exclusion, however, and the only theory that we can imagine that would support respondent’s interpretation is that Congress intended to create a bright-line rule exempting from the 1934 Act’s coverage all notes of less than nine months’ duration, because short-term notes are, as a general rule, sufficiently safe that the Securities Acts need not apply. As we have said, however, demand notes do not necessarily have short terms. In light of Congress’ broader purpose in the Acts of ensuring that investments of all descriptions be regulated to prevent fraud and abuse, we interpret the exception not to cover the demand notes at issue here. Although the result might be different if the design of the transaction suggested that both parties contemplated that demand would be made within the statutory period, that is not the case before us.

IV

For the foregoing reasons, we conclude that the demand notes at issue here fall under the “note” category of instruments that are “securities” under the 1933 and 1934 Acts. We also conclude that, even under respondent’s preferred approach to §3(a)(10)’s exclusion for short-term notes, these demand notes do not fall within the exclusion. Accordingly, we reverse the judgment of the Court of Appeals and remand the case for further proceedings consistent with this opinion.

So ordered.

Justice Stevens,

concurring.

While I join the Court’s opinion, an important additional consideration supports my conclusion that these notes are securities notwithstanding the statute’s exclusion for currency and commercial paper that has a maturity of no more than nine months. See 15 U. S. C. §78c(a)(10) (§3(a)(10) of the Securities Exchange Act of 1934). The Courts of Appeals have been unanimous in rejecting a literal reading of that exclusion. They have instead concluded that “when Congress spoke of notes with a maturity not exceeding nine months, it meant commercial paper, not investment securities.” Sanders v. John Nuveen & Co., 463 F. 2d 1075, 1080 (CA7), cert. denied, 409 U. S. 1009 (1972). This view was first set out in an opinion by Judge Sprecher, and soon thereafter endorsed by Chief Judge Friendly. Zeller v. Bogue Electric Mfg. Corp., 476 F. 2d 795, 800 (CA2), cert. denied, 414 U. S. 908 (1973). Others have adopted the same position since. See, e. g., McClure v. First Nat. Bank of Lubbock, Texas, 497 F. 2d 490, 494-495 (CA5 1974), cert. denied, 420 U. S. 930 (1975); Holloway v. Peat, Marwick, Mitchell & Co., 879 F. 2d 772, 778 (CA10 1989); Baurer v. Planning Group, Inc., 215 U. S. App. D. C. 384, 389-391, 669 F. 2d 770, 775-777 (1981).

In my view such a settled construction of an important federal statute should not be disturbed unless and until Congress so decides. “[A]fter a statute has been construed, either by this Court or by a consistent course of decision by other federal judges and agencies, it acquires a meaning that should be as clear as if the judicial gloss had been drafted by the Congress itself.” Shearson/American Express Inc. v. McMahon, 482 U. S. 220, 268 (1987) (Stevens, J., concurring in part and dissenting in part); see also Chesapeake & Ohio R. Co. v. Schwalb, 493 U. S. 40, 51 (1989) (Stevens, J., concurring in judgment). What I have said before of taxation applies equally to securities regulation: “there is a strong interest in enabling” those affected “to predict the legal consequences of their proposed actions, and there is an even stronger general interest in ensuring that the responsibility for making changes in settled law rests squarely on the shoulders of Congress.” Commissioner v. Fink, 483 U. S. 89, 101 (1987) (dissenting opinion). Past errors may in rare cases be “sufficiently blatant” to overcome the “ ‘strong presumption of continued validity that adheres in the judicial interpretation of a statute,’ ” but this is not such a case. Id., at 103 (quoting Square D Co. v. Niagara Frontier Tariff Bureau, Inc., 476 U. S. 409, 424 (1986)).

Indeed, the agreement among the Courts of Appeals is made all the more impressive in this case because it is buttressed by the views of the Securities and Exchange Commission. See Securities Act Release No. 33-4412, 26 Fed. Reg. 9158 (1961) (construing § 3(a)(3) of the Securities Act of 1933, the 1933 Act’s counterpart to § 3(a)(10) of the 1934 Act). We have ourselves referred to the exclusion for notes with a maturity not exceeding nine months as an exclusion for “commercial paper.” Securities Industry Assn. v. Board of Governors of Federal Reserve System, 468 U. S. 137, 150-152 (1984). Perhaps because the restriction of the exclusion to commercial paper is so well established, respondents admit that they did not even argue before the Court of Appeals that their notes were covered by the exclusion. A departure from this reliable consensus would upset the justified expectations of both the legal and investment communities.

Moreover, I am satisfied that the interpretation of the statute expounded by Judge Sprecher and Judge Friendly was entirely correct. As Judge Friendly has observed, the exclusion for short-term notes must be read in light of the prefatory language in § 2 of the 1933 Act and § 3 of the 1934 Act. See Exchange Nat. Bank of Chicago v. Touche Ross & Co., 544 F. 2d 1126, 1131-1132, and nn. 7-10 (CA2 1976). Pursuant to that language, definitions specified by the Acts may not apply if the “context otherwise requires.” Marine Bank v. Weaver, 455 U. S. 551, 556 (1982) (the “broad statutory definition is preceded, however, by the statement that the terms mentioned are not to be considered securities if ‘the context otherwise requires . .'.’”); accord, Landreth Timber Co. v. Landreth, 471 U. S. 681, 697-698 (1985) (Stevens, J., dissenting). The context clause thus permits a judicial construction of the statute which harmonizes the facially rigid terms of the 9-month exclusion with the evident intent of Congress. Exchange Nat. Bank, 544 F. 2d, at 1132-1133. The legislative history of § 3(a)(3) of the 1933 Act indicates that the exclusion was intended to cover only commercial paper, and the SEC has so construed it. Sanders, 463 F. 2d, at 1079, and nn. 12-13; Zeller, 476 F. 2d, at 799-800, and n. 6. As the Courts of Appeals have agreed, there is no apparent reason to construe §3(a)(10) of the 1934 Act differently. Sanders, 463 F. 2d, at 1079-1080, and n. 15; Zeller, 476 F. 2d, at 800. See also Comment, The Commercial Paper Market and the Securities Acts, 39 U. Chi. L. Rev. 362, 398 (1972).

For these reasons and those stated in the opinion of the Court, I conclude that the notes issued by respondents are securities within the meaning of the 1934 Act.

Chief Justice Rehnquist,

with whom Justice White, Justice O’Connor, and Justice Scalia join, concurring in part and dissenting in part.

I join Part II of the Court’s opinion, but dissent from Part III and the statements of the Court’s judgment in Parts I and IV. In Part III, the Court holds that these notes were not covered by the statutory exemption for “any note . . . which has a maturity at the time of issuance of not exceeding nine months.” Treating demand notes as if they were a recent development in the law of negotiable instruments, the Court says “if it is plausible to regard a demand note as having an immediate maturity because demand could be made immediately, it is also plausible to regard the maturity of a demand note as being in excess of nine months because demand could be made many years or decades into the future. Given this ambiguity, the exclusion must be interpreted in accordance with its purpose.” Ante, at 72-73.

But the terms “note” and “maturity” did not spring full blown from the head of Congress in 1934. Neither are demand notes of recent vintage. “Note” and “maturity” have been terms of art in the legal profession for centuries, and a body of law concerning the characteristics of demand notes, including their maturity, was in existence at the time Congress passed the 1934 Act.

In construing any terms whose meanings are less than plain, we depend on the common understanding of those terms at the time of the statute’s creation. See Gilbert v. United States, 370 U. S. 650, 655 (1962) (“[I]n the absence of anything to the contrary it is fair to assume that Congress use[s a] word in [a] statute in its common-law sense”); Roadway Express, Inc. v. Piper, 447 U. S. 752, 759 (1980) (in construing a word in a statute, “we may look to the contemporaneous understanding of the term”); Standard Oil Co. of New Jersey v. United States, 221 U. S. 1, 59 (1911) (common-law meaning “presumed” to have been Congress’ intent); see also Lorillard v. Pons, 434 U. S. 575, 583 (1978); United States v. Spencer, 839 F. 2d 1341, 1344 (CA9 1988). Contemporaneous editions of legal dictionaries defined “maturity” as “[t]he time when a . . . note becomes due.” Black’s Law Dictionary 1170 (3d ed. 1933); Cyclopedic Law Dictionary 649 (2d ed. 1922). Pursuant to the dominant consensus in the case law, instruments payable on demand were considered immediately “due” such that an action could be brought at any time without any other demand than the suit. See, e. g., M. Bigelow, Law of Bills, Notes, and Checks §349, p. 265 (3d ed. W. Lile rev. 1928); 8 C. J., Bills and Notes §602, p. 406, and n. 83 (1916). According to Bigelow:

“So far as maker and acceptor are concerned, paper payable ... ‘on demand’ is due from the moment of its delivery, and payment may be required on any business day, including the day of its issue, within the statute of limitations. In other words, as to these parties the paper is at maturity all the time, and no demand of payment is necessary before suit thereon.” Bigelow, supra, §349, at 265 (emphasis added; emphasis in original deleted; footnote omitted).

To be sure, demand instruments were considered to have “the peculiar quality of having two maturity dates — one for the purpose of holding to his obligation the party primarily liable (e. g. maker), and the other for enforcing the contracts of parties secondarily liable (e. g. drawer and indorsers).” Bigelow, supra, § 350, at 266 (emphasis omitted). But only the rule of immediate maturity respecting makers of demand notes has any bearing on our examination of the exemption; the language in the Act makes clear that it is the “maturity at time of issuance” with which we are concerned. 15 U. S. C. § 78c(a)(10). Accordingly, in the absence of some compelling indication to the contrary, the maturity date exemption must encompass demand notes because they possess “maturity at the time of issuance of not exceeding nine months.”

Petitioners and the lower court decisions cited by Justice Stevens rely, virtually exclusively, on the legislative history of § 3(a)(3) of the 1933 Act for the proposition that the term “any note” in the exemption in § 3(a)(10) of the 1934 Act encompass only notes having the character of short-term “commercial paper” exchanged among sophisticated traders. I am not altogether convinced that the legislative history of § 3(a)(3) supports that interpretation even with respect to the term “any note” in the exemption in § 3(a)(3), and to bodily transpose that legislative history to another statute has little to commend it as a method of statutory construction.

The legislative history of the 1934 Act — under which this case arises — contains nothing which would support a restrictive reading of the exemption in question. Nor does the legislative history of § 3(a)(3) of the 1933 Act support the asserted limited construction of the exemption in §3(a)(10) of the 1934 Act. Though the two most pertinent sources of congressional commentary on § 3(a)(3) — H. R. Rep. No. 85, 73d Cong., 1st Sess., 15 (1933) and S. Rep. No. 47, 73d Cong., 1st Sess., 3-4 (1933) — do suggest an intent to limit § 3(a)(3)’s exemption to short-term commercial paper, the references in those Reports to commercial paper simply did not survive in the language of the enactment. Indeed, the Senate Report stated “[n]otes, drafts, bills of exchange, and bankers’ acceptances 'which are commercial paper and arise out of current commercial, agricultural, or industrial transactions, and ivhich are not intended to be marketed to the public, are exempted. . . .” S. Rep. No. 47, supra, at 3-4 (emphasis added). Yet the provision enacted in § 3(a)(3) of the 1933 Act exempts “[a]ny note, draft, bill of exchange, or banker’s acceptance which arises out of a current transaction or the proceeds of which have been or are to be used for current transactions, and which has a maturity at the time of issuance of not exceeding nine months . . . 15 U. S. C. §77c(a)(3) (emphasis added).

Such broadening of the language in the enacted version of § 3(a)(3), relative to the prototype from which it sprang, cannot easily be dismissed in interpreting § 3(a)(3). A fortiori, the legislative history’s restrictive meaning cannot be imputed to the facially broader language in a different provision of another Act. Although I do not doubt that both the 1933 and 1934 Act exemptions encompass short-term commercial paper, the expansive language in the statutory provisions is strong evidence that, in the end, Congress meant for commercial paper merely to be a subset of a larger class of exempted short-term instruments.

The plausibility of imputing a restrictive reading to § 3(a) (10) from the legislative history of § 3(a)(3) is further weakened by the imperfect analogy between the two provisions in terms of both phraseology and nature. Section 3(a)(10) lacks the cryptic phrase in § 3(a)(3) which qualifies the class of instruments eligible for exemption as those arising “out of . . . current transaction[s] or the proceeds of which have been or are to be used for current transactions . ” While that passage somehow may strengthen an argument for limiting the exemption in § 3(a)(3) to commercial paper, its absence in §3(a)(10) conversely militates'against placing the same limitation thereon.

The exemption in § 3(a)(3) excepts the short-term instruments it covers solely from the registration requirements of the 1933 Act. The same instruments are not exempted from the 1933 Act’s antifraud provisions. Compare 15 U. S. C. § 77c(a)(8) with 15 U. S. C. §§77/(2) and 77q(c); see also Securities Industry Assn. v. Board of Governors of Federal Reserve System, 468 U. S. 137, 151 (1984). By contrast, the exemption in § 3(a)(10) of the 1934 Act exempts instruments encompassed thereunder from the entirety of the coverage of the 1934 Act including, conspicuously, the Act’s antifraud provisions.

Justice Stevens argues that the suggested limited reading of the exemption in §3(a)(10) of the 1934 Act “harmonizes” the plain terms of that provision with the legislative history of the 1933 Act. Ante, at 76. In his view, such harmony is required by the “context clause” at the beginning of the 1934 Act’s general definition of “security.” It seems to me, instead, that harmony is called for primarily between §3(a)(10)’s general definition and its specific exemption. The fairest reading of the exemption in light of the context clause is that the situation described in the exemption — notes with maturities at issue of less than nine months — is one contextual exception Congress especially wanted courts to recognize. Such a reading does not render the context clause superfluous; it merely leaves it to the judiciary to flesh out additional “context clause” exceptions.

Justice Stevens also states that we have previously referred to the exemption in §3(a)(10) as an exclusion for commercial paper. Ante, at 76 (citing Securities Industry Assn., supra, at 150-152). In the Securities Industry Assn. dictum, however, we described the exemption in §3(a)(10) merely as “encompass[ing]” commercial paper and in no way concluded that the exemption was. limited to commercial paper. See 468 U. S., at 150-151. Indeed, in Securities Industry Assn., our purpose in referring to §3(a)(10) was to assist our determination whether commercial paper was even included in the 73d Congress’ use of the words “notes ... or other securities” in the Glass-Steagall Banking Act of 1933.

In sum, there is no justification for looking beyond the plain terms of §3(a)(10), save for ascertaining the meaning of “maturity” with respect to demand notes. That inquiry reveals that the Co-Op’s demand notes come within the purview of the section’s exemption for short-term securities. I would therefore affirm the judgment of the Court of Appeals, though on different reasoning.

       We have consistently held that “[t]he definition of a security in § 3(a) (10) of the 1934 Act... is virtually identical [to the definition in the Securities Act of 1933] and, for present purposes, the coverage of the two Acts may be considered the same.” United Housing Foundation, Inc. v. Forman, 421 U. S. 837, 847, n. 12 (1975) (citations omitted). We reaffirm that principle here.

       An approach founded on economic reality rather than on a set of per se ■rules is subject to the criticism that whether a particular note is a “security” may not be entirely clear at the time it is issued. Such an approach has the corresponding advantage, though, of permitting the SEC and the courts sufficient flexibility to ensure that those who market investments are not able to escape the coverage of the Securities Acts by creating new instruments that w'ould not be covered by a more determinate definition. One could question whether, at the expense of the goal of clarity, Congress overvalued the goal of avoiding manipulation by the clever and dishonest. If Congress erred, however, it is for that body, and not this Court, to correct its mistake.

       The Second Circuit’s version of the family resemblance test provided that only notes ivith a term of more than nine months are presumed to be “securities.” See supra, at 63. No presumption of any kind attached to notes of less than nine months’ duration. The Second Circuit’s refusal to extend the presumption to all notes was apparently founded on its interpretation of the statutory exception for notes with a maturity of nine months or less. Because we do not reach the question of how to interpret that exception, see infra, at 71, we likewise express no view on how that exception might affect the presumption that a note is a “security.”

       We emphasize that by “profit” in the context of notes, we mean “a valuable return on an investment,” which undoubtedly includes interest. We have, of course, defined “profit” more restrictively in applying the Howey test to what are claimed to be “investment contracts.” See, e. g., Forman, 421 U. S., at 852 (“[P]rofit” under the Howey test means either “capital appreciation” or “a participation in earnings”). To apply this restrictive definition to the determination whether an instrument is a “note” would be to suggest that notes paying a rate of interest not keyed to the earning of the enterprise are not “notes” within the meaning of the Securities Acts. Because the Howey test is irrelevant to the issue before us today, see supra, at 64, we decline to extend its definition of “profit” beyond the realm in which that definition applies.

       Reference to the state common law of negotiable instruments does not suggest that “Congress intended the Securities Acts to apply differently to the same transactions depending on the accident of which State’s law happens to apply.” See ante, at 71. Rather, in the absence of a federal law of negotiable instruments, cf. De Sylva v. Ballentine, 351 U. S. 570, 580 (1956) (“[TJhere is no federal law of domestic relations, which is primarily a matter of state concern”), or other alternative sources for discerning the applicability of the statutory term “maturity” to demand notes, we are dependent on the state common law at the time of the Act’s creation as a basis for a nationally uniform answer to this “federal question.” As we said in Mississippi Band of Choctaw Indians v. Holyfield, 490 U. S. 30, 47 (1989):

      “That we are dealing with a uniform federal rather than a state definition does not, of course, prevent us from drawing on general state-law principles to determine ‘the ordinary meaning of the words used.’ Well-settled state law can inform our understanding of what Congress had in mind when it employed a term it did not define.”
      See also 2A C. Sutherland on Statutory Construction § 50.04, pp. 438-439 (4th ed. 1984) (noting the “utility” found by various courts, including this Court, in “examining a federal statute with reference to the common law of the various states as it existed at the time the statute was enacted”). In 1934, when this statute was enacted, as is true today, the American law of negotiable instruments was found in the state-court reporters. Though the States were not unanimous on the issue of the time of maturity of demand notes, virtually every matter of state common law evokes a majority and minority position. The vast number of courts that adopted the majority view of immediate maturity, see 8 C. J., Bills and Notes § 602, p. 406, n. 83 (1916), compels the conclusion that the immediate maturity rule constituted “well-settled state law” or a “general state-law principle” at the time § 3(a)(10) was enacted.


source: Caselaw Access Project

author:
Justice Scalia
      Justice Stevens,

license: Public Domain

text:
    SULLIVAN, SECRETARY OF HEALTH AND HUMAN SERVICES, et al. v. EVERHART et al.
    No. 88-1323.
    Argued November 27, 1989
    Decided February 21, 1990

      Scalia, J., delivered the opinion of the Court, in which Rehnquist, C. J., and White, Blackmun, and O’Connor, JJ., joined. Stevens, J., filed a dissenting opinion, in which Brennan, Marshall, and Kennedy, JJ., joined, post, p. 96.

      Amy L. Wax argued the cause pro hac vice for petitioners. With her on the briefs were Solicitor General Starr, Acting Assistant Attorney General Schiffer, Deputy Solicitor General Memll, and William Ranter.

      Linda J. Olson argued the cause for respondents. With her on the brief were R. Eric Solem and Daniel M. Taubman.

        Cathy Ventrell-Monsees and Peter Komlos-Hrobsky filed a brief for the American Association of Retired Persons et al. as amici curiae urging affirmance.

   Justice Scalia

delivered the opinion of the Court.

If the Secretary of Health and Human Services determines that & beneficiary has received “more or less than the correct amount of payment,” the Social Security Act requires him to effect “proper adjustment or recovery,” subject to certain restrictions in the case of overpayments. This case requires us to decide whether the Secretary’s so-called “netting” regulations, under which he calculates the difference between past underpayments and past overpayments, are merely a permissible method of determining whether “more or less than the correct amount of payment” was made, or are instead, as to netted-out overpayments, an “adjustment or recovery” that must comply with procedures for recovery of overpayments imposed by the Act.

I

Two statutory benefit programs established by the Social Security Act (Act) are involved: the Old-Age, Survivors, and Disability Insurance program (OASDI), 53 Stat. 1362, as amended, 42 U. S. C. §401 et seq. (1982 ed. and Supp. V), and the Supplemental Security Income program (SSI), 86 Stat. 1465, 42 U. S. C. § 1381 et seq. (1982 ed. and Supp. V). Millions of Americans receive benefits under these programs; inevitably, some beneficiaries occasionally receive more than their entitlement, and others less. The OASDI program provides the following procedure for correcting such errors:

“Whenever the Secretary finds that more or less than the correct amount of payment has been made to any person under this subchapter, proper adjustment or recovery shall be made, under regulations prescribed by the Secretary, as follows:
“(A) With respect to payment to a person of more than the correct amount, the Secretary shall decrease any payment under this subchapter to which such overpaid person is entitled, or shall require such overpaid person or his estate to refund the amount in excess of the correct amount, or shall decrease any payment under this subchapter payable to his estate or to any other person on the basis of the wages and self-employment income which were the basis of the payments to such overpaid person, or shall apply any combination of the foregoing. . . .
“(B) With respect to payment to a person of less than the correct amount, the Secretary shall make payment of the balance of the amount due such underpaid person . . . Act §§ 204(a)(1)(A), (B); 42 U. S. C. §§404(a)(1)(A), (B) (1982 ed., Supp. V).

As to overpayments, the Act provides:

“In any case in which more than the correct amount of payment has been made, there shall be no adjustment of payments to, or recovery by the United States from, any person who is without fault if such adjustment or recovery would defeat the purpose of this subchapter or would be against equity and good conscience.” Act § 204(b); 42 U. S. C. § 404(b) (1982 ed.).

The provisions regulating payment errors in the SSI program are substantially similar. Califano v. Yamasaki, 442 U. S. 682, 697 (1979), held that the limitation on adjustment or recovery of overpayments imposed by § 204(b) of the Act gives recipients the right to an oral hearing at which they may attempt to convince the Secretary to waive recoupment.

In the provisions set forth above, the Act contemplates that the Secretary will “fin[d] [whether] more or less than the correct amount” of payment has been made. Elsewhere, it confers upon the Secretary general authority to “make rules and regulations and to establish procedures, not inconsistent with the provisions of this subchapter, which are necessary or appropriate to carry out such provisions,” Act § 205(a), 42 U. S. C. § 405(a) (1982 ed.); see also Act § 1631(d)(1), 42 U. S. C. § 1383(d)(1) (1982 ed., Supp. V) (SSI). Pursuant to that authority, the Secretary promulgated the regulations at issue here. The SSI regulation provides:

“The amount of an underpayment or overpayment is the difference between the amount paid to a recipient and the amount of payment actually due such recipient for a given period. An overpayment or underpayment period begins with the first month for which there is a difference between the amount paid and the amount actually due for that month. The period ends with the month the initial determination of overpayment or underpayment is made.” 20 CFR §416.538 (1989).

The OASDI regulation unhelpfully provides that “[t]he amount of an overpayment or underpayment is the difference between the amount paid to the beneficiary and the amount of the payment to which the beneficiary was actually entitled,” 20 CFR §404.504 (1989), but the Secretary has interpreted this as embodying the methodology set forth in the SSI regulation. Dept, of Health and Human Services, Social Security Ruling 81-19a (cum. ed. 1981).

Two hypotheticals will illustrate the operation of the netting regulations. Mr. A, entitled to $100 per month, is erroneously paid $80 in January and erroneously paid $150 in February. In March, the Secretary determines that these payments were incorrect, nets the errors (i. e., calculates the difference between the underpayment and the overpayment), and seeks to recover the net overpayment of $30. Mrs. B, also entitled to $100 per month, receives $50 in April and' $110 in May. In June, the Secretary makes the incorrect payment determination, nets the errors, and pays out $40. In neither case may the beneficiary seek to have the underpayment and the overpayment treated separately: Mr. A could not demand $20 for January and seek a waiver of the recoupment of $50 for February, and Mrs. B could not demand $50 for April and seek a waiver for the $10 in May.

In the present case, the Secretary made both underpayments and overpayments to each of the respondents, and netted those errors pursuant to the regulations. He determined that three respondents (the original plaintiffs) received net underpayments, and paid that net amount. The other respondents (intervenors below) received net overpayments, and the Secretary offered them hearings to determine whether recoupment should be waived as to the net overpayment. The plaintiffs (later joined by the intervenors) filed this suit under §§ 205(g) and 1631(c)(3) of the Act, 42 U. S. C. §§405(g), 1383(c)(3) (1982 ed.), in the United States District Court for the District of Colorado. They claimed that the netting regulations were facially invalid because (1) they were contrary to the Act and (2) they violated beneficiaries’ rights to procedural due process. The District Court granted respondents’ motion for summary judgment on the former ground, and the Court of Appeals for the Tenth Circuit affirmed in all relevant respects. Everhart v. Bowen, 853 F. 2d 1532 (1988). The court noted that two other Courts of Appeals had upheld the netting regulations against similar attacks. Id., at 1536-1537 (citing Lugo v. Schweicker, 776 F. 2d 1143 (CA3 1985), and Webb v. Bowen, 851 F. 2d 190 (CA8 1988)).

We granted certiorari. 490 U. S. 1080 (1989).

II

Our mode of reviewing challenges to an agency’s interpretation of its governing statute is well established: We first ask “whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.” Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837, 842-843 (1984). “In ascertaining the plain meaning of the statute, the court must look to the particular statutory language at issue, as well as the language and design of the statute as a whole.” K mart Corp. v. Cartier, Inc., 486 U. S. 281, 291 (1988); see also Mead Corp. v. Tilley, 490 U. S. 714, 722-723 (1989). But “if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute,” Chevron, supra, at 843, that is, whether the agency’s construction is “rational and consistent with the statute,” NLRB v. Food and Commercial Workers, 484 U. S. 112, 123 (1987). These principles apply fully to the Secretary’s administration of the Act. See Schweiker v. Gray Panthers, 453 U. S. 34, 43 (1981); Batterton v. Francis, 432 U. S. 416, 425 (1977).

A

We first consider whether the Act speaks directly to the validity of the netting regulations. Two provisions are relevant: a general authorization and a specific limitation. First, the Act authorizes the Secretary to determine whether “more or less than the correct amount” has been paid. 42 U. S. C. §§ 404(a)(1), 1383(b)(1)(A) (1982 ed., Supp. V). The Act does not define the term “correct amount.” It assuredly could be construed to refer to the amount properly owing for a given month. If that were the only possible interpretation, respondents would prevail, since the netting regulations ascertain the correct amount for a longer time period. But the Act does not foreclose a more expansive interpretation of “correct amount,” viz., the amount properly owing as of the date of the determination. Although the Act elsewhere describes OASDI and SSI as monthly benefit programs, e. g., Act §202(a), 42 U. S. C. §402(a) (1982 ed., Supp. V); Act § 1611(c)(1), 42 U. S. C. § 1382(c)(1) (1982 ed., Supp. V), it nowhere specifies that the correctness of payments must be determined on a month-by-month basis.

The fuller context of the OASDI provisions suggests that Congress, in authorizing the Secretary to determine whether the “correct amount” was paid, did not prohibit him from making that determination for more than a monthly time period. The Act authorizes a determination of whether “the correct amount of payment has been made,” 42 U. S. C. §404(a)(1) (1982 ed., Supp. V), and mandates adjustments “[w]ith respect to payment to a person of more than the correct amount,” § 404(a)(1)(A), and “[w]ith respect to payment to a person of less than the correct amount,” § 404(a)(1)(B). If Congress had in mind only shortfalls or excesses in individual monthly payments, rather than in the overall payment balance, it would have been more natural to refer to “the correct amount of any payment,” and to require adjustment “with respect to any payment... of less [or more] than the correct amount.” This terminology is used elsewhere in § 204(a)(1)(A), whenever individual monthly payments are at issue (“the Secretary shall decrease any payment under this subchapter to which such overpaid person is entitled”; “shall decrease any payment under this subchapter payable to his estate”). 42 U. S. C. §404(a)(1)(A) (1982 eel., Supp. V) (emphases added). Moreover, the provision governing adjustment of overpayments to a- deceased beneficiary seems to contemplate computation on a multipayment basis (“[T]he Secretary . . . shall decrease any payment under this sub-chapter payable to his estate or to any other person on the basis of the wages and self-employment income which were the basis of the payments to such overpaid person”). Ibid. (emphasis added).

The Act’s provisions governing SSI are slightly different, but in no way contradict the Secretary’s position. They authorize the Secretary to determine whether “more or less than the correct amount of benefits has been paid,”42 U. S. C. § 1383(b)(1)(A) (1982 ed., Supp. V) (emphasis added). Had this read “more or less than the correct amount of any benefit” it might support respondents’ position, but as written it at least bears (if it does not indeed favor) the interpretation that more than a single monthly benefit is at issue.

Respondents nevertheless maintain, as did the Court of Appeals, that another provision of the Act directly precludes the Secretary from netting underpayments and overpayments. They point to § 204(b), 42 U. S. C. § 404(b) (1982 ed.), which provides: “In any case in which more than the correct amount of payment has been made, there shall be no adjustment of payments to, or recovery by the United States from, any person who is without fault if such adjustment or recovery would defeat the purpose of this subchapter or would be against equity and good conscience.” See also Act § 1631(b)(1)(B), 42 U. S. C. § 1383(b)(1)(B) (1982 ed., Supp. V) (SSI). Respondents argue that by using the phrase “adjustment or recovery,” Congress intended to subject to this requirement all collection methods, including the setoff effected by netting. They claim this broad meaning is given to the words “adjustment” and “recovery” by other Social Security regulations (e. g., 20 CFR §§404.502-404.503 (1989)), common usage (e. g., Webster’s Third New International Dictionary 27, 1898 (1981) (hereinafter Webster’s)), and general legal usage (e. g., United States v. Burchard, 125 U. S. 176 (1888)). Under this interpretation, when the agency calculates the difference between, or nets, Mr. A’s $20 underpayment and his $50 overpayment, see supra, at 87-88, it has engaged in “adjustment or recovery,” but without complying with the restrictions on “adjustment or recovery” that the Act imposes.

In our view, however, with this provision as with those discussed earlier, respondents have established at most that the language may bear the interpretation they desire — not that it cannot bear the interpretation adopted by the Secretary. “Adjustment” can have the more limited meaning (which the Secretary favors) of “an increase or decrease” of payments (Webster’s 27), and “recovery” can have the more limited meaning of “get[ting] back” payments already made (see id., at 1898 (“recover”)). Moreover, other provisions of the Act support this limited meaning. It is at least reasonable, if not necessary, to read the phrase “adjustment or recovery” in § 204(b) in pari materia with the identical phrase in § 204(a)(1). The latter section directs the Secretary, if he finds that incorrect payment has been made, to make “proper adjustment or recovery . . . as follows.” In the case of overpayment, he shall “decrease any payment under this sub-chapter to which such overpaid person is entitled, or shall require such overpaid person or his estate to refund the amount in excess of the correct amount . . . .” 42 U. S. C. §404(a)(1)(A) (1982 ed., Supp. V). As to SSI, “adjustment or recovery shall... be made by appropriate adjustments in future payments to such individual or by recovery from . . . or by payment to such individual or his eligible spouse . . . .” 42 U. S. C. § 1383(b)(1)(A) (1982 ed., Supp. V). Giving the terms their more limited meaning does not produce absurd policy consequences. Reducing future benefits, or requiring the beneficiary to pay over cash, will ordinarily produce more hardship than merely setting off past .underpayments and overpayments. It is not at all unreasonable to think that waiver hearings were established only for the former.

As used in the Act, therefore, adjustment can be read to mean decreasing future payments, and recovery to mean obtaining a refund from the beneficiary. Under this interpretation, when the agency nets Mr. A’s underpayment against his overpayment, it is not engaged in “adjustment or recovery,” but only in the calculation of whether “more or less than the correct amount of payment has been made.” Only after making that calculation does the Secretary take the additional step of rectifying any error by “adjustment” (increasing or decreasing future payments) or “recovery” (obtaining a refund from the beneficiary). And it is only this latter step that is governed by § 204(b) of the Act. We do not say this is an inevitable interpretation of the statute; but it is assuredly a permissible one.

B

Since the Act reasonably bears the Secretary’s interpretation that netting is permitted, only one issue remains: Respondents contend that the manner in which the regulations provide for netting to be conducted is arbitrary and capricious, because of their definition of the netting period. Overpayments are netted with underpayments up to the “month [of] the initial determination” of error. 20 CFR §416.538 (1989). “Initial determination” is a term of art meaning the Secretary’s formal determination that an error was committed. See 20 CFR §§404.902, 416.1402 (1989). Needless to say, that formal determination will not be simultaneous with the Secretary’s first discovery that something is amiss; delay is inevitable. Respondents contend that this delay is fatal. At best, they say, the period over which netting is conducted will turn on the fortuity of the time period between discovery and formal determination. At worst, the Secretary will manipulate the netting period by delaying formal determination, thus including more underpayments in the netting period and reducing the net overpayment subject to the recoupment-waiver procedures.

It seems to us not arbitrary or capricious to establish a grace period within which these determinations can be considered and formally made; they should not be spur-of-the-moment decisions. That delay will extend the netting period, and may result in the inclusion of more underpayments to be netted. But we cannot say that the alternatives — immediate determinations, or determinations within a fixed period — would not produce errors that make beneficiaries worse off on the whole.

Moreover, although the Secretary’s regulations do not establish a fixed time period for the formal determination, they do establish a time limit upon the principal adverse consequence of delay: the netting-in of additional underpayments. The regulations provide:

“Where an apparent overpayment has been detected but determination of the overpayment has not been made (see § 416.558(a)), a determination and payment of an underpayment which is otherwise due cannot be delayed unless a determination with respect to the apparent overpayment can be made before the close of the month following the month in which the underpaid amount was discovered.” 20 CFR §416.538 (1989).

See also Dept, of Health and Human Services, Program Operations Manual System, GN 02201.002 (1989) (Social Security Administration policy to resolve overpayments as quickly as possible). Respondents’ fear of intentional manipulation of the netting period can be entirely dismissed if this provision is observed in good faith — as we must presume, in this facial challenge, it will be. See, e. g., FCC v. Schreiber, 381 U. S. 279, 296 (1965). The intentional manipulation hypothesis is in any event implausible. Deliberately protracting the netting period may indeed draw in future underpayments; but it may just as likely draw in future overpayments, which will be uncollectible until the Secretary’s determination is made. The Secretary might conceivably ensure that delay works to the Government’s financial advantage by deliberately underpaying while keeping the netting period open, but since that is an obvious violation of the Act it is again not the stuff of which a facial challenge can be constructed.

In addition to the fact that the disadvantages of the Secretary’s approach are less than respondents assert, the disadvantages of respondents’ approach are more. The Secretary points out that a separate accounting for each month would cause the agency great expense, in the cost of a greatly increased volume of complex recoupment-waiver proceedings, in the cost of overpayments that are simply written off because the cost of the proceedings would exceed the recovery, and in the cost of overpayments whose return will be subject to lengthy delays. These expenses “in the end come out of the pockets of the deserving since resources available for any particular program of social welfare are not unlimited.” Mathews v. Eldridge, 424 U. S. 319, 348 (1976).

Respondents seek to minimize the administrative burden by proposing a scheme under which the Secretary would notify the beneficiary of underpayments and overpayments, withhold reimbursement of the underpayments for a brief period during which the beneficiary may seek waiver of recoupment of overpayments, and then net the underpayments and that portion of the overpayments as to which waiver has not been sought. This scheme, however, does not at all address the problem of delay in netting that is the asserted basis for finding the regulations arbitrary and capricious. Substituting “notification” of underpayments and overpayments for “determination” of underpayments and overpayments merely gives the occasion for the delay another name. What this alternative proposal of respondents really puts forward is an alternative means of assuring that overpayments cannot be “netted out” without an opportunity for waiver hearing. As we discussed at length earlier, the statute does not require such assurance. In sum, we find no basis for holding the regulations arbitrary and capricious.

* * *

The Court of Appeals did not reach respondents’ contention that the regulations violate due process, and we will not address that claim in the first instance. See, e. g., United States v. Sperry Corp., 493 U. S. 52, 66 (1989). Accordingly, the judgment is reversed, and the case is remanded for further proceedings consistent with this opinion.

It is so ordered.

Justice Stevens,

with whom Justice Brennan, Justice Marshall, and Justice Kennedy join, dissenting.

The kingly power to rewrite history has not been delegated to the Secretary of Health and Human Services. Nevertheless, the Secretary now claims authority to determine that no underpayment has been made to a beneficiary who concededly received a deficient monthly payment. The majority accepts this argument. Because I believe this result inconsistent with both common sense and the plain terms of the statute, I respectfully dissent.

The Social Security Act (Act), 42 U. S. C. §401 et seq. (1982 ed. and Supp. V), establishes the Old-Age, Survivors, and Disability Insurance program (OASDI) and the Supplemental Security Income program (SSI). By enacting this legislation, Congress authorized the Secretary to make monthly payments to literally millions of elderly and needy beneficiaries. Anticipating that there will inevitably be many occasions on which such a payment is more or less than the correct amount, Congress directed the Secretary to prescribe regulations outlining the procedure for remedying overpayments and underpayments.

In the vast majority of cases, these procedures are uncontroverted. We deal today only with a narrow category of disputed cases in which claimants assert rights designed to protect specially disadvantaged beneficiaries. Respondents, like the plaintiffs in Califano v. Yamasaki, 442 U. S. 682 (1979), wish to compel the Secretary to waive his claim for recoupment of an overpayment. See 42 U. S. C. § 404(b) (1982 ed.) (§204(b) of the Act) and 42 U. S. C. § 1383(b)(1) (B)(i) (1982 ed., Supp. V) (§ 1631(b)(l)(B)(i) of the Act) (requiring waiver by the Secretary under certain circumstances). The Secretary protests that allowing these waivers would burden the benefits program with “great expense” and a “greatly increased volume of complex . . . proceedings.” Ante, at 94. The Secretary’s fears are, of course, irrelevant if the statute commands him to honor respondents’ waiver requests. Moreover, we noted in Yamasaki that in 1977 the average overpayment to OASDI beneficiaries exceeded $500, but that only 3.4 percent of the overpaid persons requested that the Secretary waive recoupment. 442 U. S., at 686, n. 2. Thus, although § 204(b) applies as a legal matter to all OASDI cases in which “more than the correct amount of payment has been made,” our decision today applies as a practical matter only to about 3.5 percent of OASDI overpayments. Even this category encompasses overpayments not implicated by respondents’ complaint, however. The present controversy affects only those cases in which the Secretary attempts to recoup an overpayment by netting it together with an underpayment, and in which the beneficiary seeks a waiver. We address, in short, the claims of a subset of the minority of overpaid beneficiaries who seek waivers.

With respect to these beneficiaries, as in all other cases involving overpayments, Congress has given the Secretary explicit mandatory instructions. Those instructions require him to recognize that any case in which “more than the correct amount of payment has been made” involves a factual event that cannot be ignored. The Secretary cannot erase the historical record or pretend that the overpayment never occurred simply because later events alter the significance of earlier ones.

This is what the statutory command says about OASDI overpayments:

“In any case in which more than the correct amount of payment has been made, there shall be no adjustment of payments to, or recovery by the United States from, any person who is without fault if such adjustment or recovery would defeat the purpose of this subchapter or would be against equity and good conscience.” § 204(b) of the Act; 42 U. S. C. § 404(b) (1982 ed.).

We have previously recognized that this provision “concerning the fact of the overpayment” speaks in “the imperative voice” and requires that “‘there shall be no adjustment of payments to, or recovery by the United States from, any person’ who qualifies for waiver.” Califano v. Yamasaki, 442 U. S., at 693-694.

As the Court of Appeals for the Tenth Circuit observed, by this provision and its SSI counterpart the “statute makes a clear differentiation” between overpayments and underpayments. Everhart v. Bowen, 853 F. 2d 1532, 1537 (1988). “While the provisions relating to underpayments mandate payment without qualification, the recovery of overpayment provisions are qualified by the waiver of recoupment procedures.” Ibid. The reason for this distinction is easily surmised. A needy person who unknowingly receives an overpayment may spend it, not realizing that the Government will later take back money by reducing needed benefits, or by refusing to compensate for a prior underpayment. The beneficiary may be left without money essential to pay monthly bills. Thus, as Judge Gibbons has observed, the “difference in treatment of overpayments and underpayments ... is quite consistent with the fundamental policy motivating Congress in enacting both Titles; namely assuring those most in need in our society that they will receive a monthly benefit which will from month to month provide for the necessities of life.” Lugo v. Schweiker, 776 F. 2d 1143, 1154 (CA3 1985) (dissenting opinion). The procedures at issue here, however, “treat overpayments and underpayments equally,” Everhart, 853 F. 2d, at 1537, thereby deviating from both the letter and the purpose of the statutory command.

If we use two typical cases involving a $500 overpayment as examples, we can readily see how the Secretary’s “netting regulations” violate the statutory command. In the first example, we may assume that the $500 overpayment was made in 1978 and first discovered in 1988. If we further assume that the beneficiary was without fault and that it would have been against equity and good conscience to recoup that amount from him in 1988, it necessarily follows that he had a statutory right to a waiver of any such recoupment. In our second hypothetical example, we may assume the same facts with the addition that in 1988 the beneficiary’s monthly checks were erroneously reduced by $250 for each of two months. Under the Secretary’s reading of the statute, the beneficiary’s request for payment of the balance of the amount due for those two months could be denied on the ground that neither more nor less than the correct amount of payment had been made during the period between 1978 and 1988.

In my view such a reading of the statute is intolerable. The assumption that an underpayment in 1988 — whether negligent or deliberate — could extinguish a needy beneficiary’s statutory right to request a waiver of recoupment of an overpayment that occurred years earlier is flatly inconsistent with the statutory command that “equity and good conscience” should determine the waiver issue. For the Secretary to pretend that neither more nor less than the correct amount had been paid — when there was not only a series of incorrect monthly payments in 1978 but also a pair of incorrect payments in 1988 — is nothing short of rewriting history to destroy a citizen’s valuable statutory right.

In light of the statistics quoted in Yamasaki, 442 U. S., at 686, n. 2, we might expect that the Secretary’s refusal to recognize waiver requests would injure beneficiaries in less than 4 percent of the netting cases. The illustrative hypotheticals propounded by the majority, which suppose an underpayment and overpayment in quick succession during a 2-month period, ante, at 87-88, are most likely typical of the cases in which a beneficiary would elect not to request any waiver. Yet, as Congress foresaw, recoupment of other over-payments may entail much more serious difficulties for the statutory beneficiaries. The Secretary’s “netting regulations” cover brief 2-month discrepancies, like the examples invented by the majority, but the regulations also authorize netting over multiyear periods, as was done with respect to the actual respondents in this case. The regulations may thus provide a form of rough justice in 97 percent of the netting cases, but that ratio in no way excuses the injustice that is apparent in true hardship cases. Those cases are few in comparison to the total volume handled by the Secretary. They are, however, of crucial importance to the beneficiaries.

For some beneficiaries the amount at stake is substantial, and the reasons why Congress commanded the Secretary to carefully consider the equities of the particular case are overwhelmingly apparent. Thus, for example, respondent Emil Zwiezen and his wife are both dependent on their monthly Social Security checks of $911. According to the Secretary, Mr. Zwiezen received $9,483 in overpayments between 1978 and 1981. The Secretary, however, failed to give Mr. Zwiezen certain increases in his monthly benefit amount to which he was entitled and, by April 1984, he had accumulated underpayments of $4,376. Although he ultimately received a waiver of the net overpayment remaining after the Secretary subtracted the underpayments, Mr. Zwiezen never had an opportunity to obtain a waiver of the entire overpayment and thus could not recover any portion of the increases that had been denied to him. According to his affidavit, the resulting shortfall caused this elderly couple to suffer severe emotional and financial consequences. Mr. Zwiezen could not pay his water bills, had fallen behind in his house payments, and feared that his doctor and druggist would stop providing him medical care. Affidavit of Emil Zwiezen, reproduced in Brief for Appellee in No. 87-1839 (CA10), p. 31A. See also Everhart v. Bowen, 694 F. Supp. 1518, 1519-1520 (Colo. 1988).

The validity of the netting regulations that enabled the Secretary to recover $4,376 from Mr. Zwiezen without giving him the notice and opportunity to request a waiver required by § 204(b) depends on a highly unnatural reading of three statutory provisions. First, the Secretary assumes that no overpayment or underpayment can actually occur until he finds that it has occurred. This assumption is not only foreclosed by the plain language of § 204(b) and § 1631 (b)(l)(B)(i), but also perversely converts a duty to find the facts into a power to change them.

Second, the Secretary assumes that the words “adjustment” and “recovery” in the two prohibitions against inequitable recoupment of overpayments do not apply to either a deliberate or an inadvertent decrease in monthly payments unless the Secretary has previously made a formal finding that an overpayment occurred. As a practical matter this means that either a simple mistake or a deliberate effort to await underpayments before recognizing overpayments can effect the same adjustment or recovery that the statute expressly prohibits. But “[n]o recovery means no recovery by setoff, and no recovery by suit; no recovery at all.” Lugo v. Schweiker, 776 F. 2d, at 1154 (Gibbons, J., dissenting). The “netting regulations permit the Secretary to accomplish what the waiver provisions plainly and unequivocally forbid; namely a recovery by the United States of overpayments without a hearing on waiver.” Id., at 1155 (footnote omitted). In my opinion the words “adjustment” and “recovery” are not such chameleons.

Finally, in a statutory scheme that is replete with references to monthly payments and monthly benefits, the Secretary assumes that the word “payment” as used in § 204(a), § 204(b), and § 1631(b)(l)(B)(i), and the word “benefits” as used in § 1631(b)(1)(A), refer to the aggregate amount of numerous payments that may have been made over a period of several years. Indeed, the relevant payment period — instead of the month in which more or less than the correct amount of payment has been made — is in the Secretary’s eyes an accordion-like concept that may be expanded to encompass overpayments that occurred in the past or underpayments that are ongoing. “The key to the netting regulations is the Secretary’s completely artificial definition of the period for calculation of overpayments and underpayments.” Lugo, 776 F. 2d, at 1155 (dissenting opinion).

The net effect of these distortions of statutory language is to defeat clear congressional intent. The Secretary contends that we must nevertheless defer to his interpretation of the statute. Relying heavily upon Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 (1984), the Secretary would have us believe that his responsibility to construe ambiguous provisions in the statutes he administers confers upon him authority to define away over-payments and underpayments when a program participant has received both. The majority accepts this suggestion. But Chevron and its progeny yield the Secretary no such privilege. Because the “judiciary is the final authority on issues of statutory construction and must reject administrative constructions which are contrary to clear congressional intent,” we defer to the administrator’s interpretation of a statute only after “employing traditional tools of statutory construction.” Id., at 843, n. 9. We have accordingly not hesitated to find that “agency interpretations must fall to the extent they conflict with statutory language.” Public Employees Retirement System of Ohio v. Betts, 492 U. S. 158, 171 (1989). See also Dole v. Steelworkers, ante, p. 26; INS v. Cardoza-Fonseca, 480 U. S. 421, 445-450 (1987).

Indeed, Califano v. Yamasaki, 442 U. S. 682 (1979), in which we first recognized the hearing right the Secretary has denied to these respondents, itself rejected the Secretary’s reading of this statute. Although the statute does not state by express terms that a hearing is essential before the Secretary makes a § 204(b) waiver decision, we nevertheless found it clear in Yamasaki that Congress intended that a hearing be held. We analyzed the statute and concluded that “the nature of the statutory standards makes a hearing essential.” Id., at 693. The import of the statutory terms in this case is, I believe, equally clear.

The majority, however, refuses to heed the direction of those standards. In so doing, the majority makes much of its conclusion that, had Congress wished to prohibit netting, “it would have been more natural” for Congress to phrase its command in terms of “any payment.” Ante, at 90. Perhaps that is so. But it is entirely possible that Congress clearly intended to prohibit any netting that diminishes waiver rights, but nonetheless did not have the netting problem in mind when drafting language relevant to overpayments and underpayments. The netting procedure here is so inconsistent with the mandatory character, of the waiver provision, with the statutory terms discussed above, and with the statute’s reference to “equity and good conscience,” that Congress might simply have thought it unnecessary to add further language ruling out specifically any such program. In any event, the majority’s argument is irrelevant. Just as we do not sit to supply statutory directives where Congress gave none, we likewise do not sit to insist that Congress express its intent as precisely as would be possible. Our duty is to ask what Congress intended, and not to assay whether Congress might have stated that intent more naturally, more artfully, or more pithily.

In this case it is clear beyond peradventure that Congress intended to ensure that needy citizens would receive their full monthly benefit checks, even if that policy sometimes means forgoing any opportunity the Government might have to recoup an earlier overpayment. The Secretary’s reading of the statute puts an unreasonable strain upon both its words and its purpose. If context were ignored entirely, I suppose that a student of language could justify the Secretary’s interpretation of “adjustment” and “payment,” and his duty to find historical facts. Perhaps that is what the majority means when it says that the statutory language “reasonably bears,” ante, at 93, the Secretary’s argument. But I find it inconceivable that wise judges can conclude that regulations in which the Secretary delegates to himself the power to rewrite history are “based on a permissible construction of the statute.” Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S., at 843.

I respectfully dissent.

       “(A) Whenever the Secretary finds that more or less than the correct amount of benefits has been paid with respect to any individual, proper adjustment or recovery shall, subject to the succeeding provisions of this subsection, be made by appropriate adjustments in future payments to such individual or by recovery from such individual or his eligible spouse (or from the estate of either) or by payment to such individual or his eligible spouse ....
      “(B) The Secretary (i) shall make such provision as he finds appropriate in the case of payment of more than the correct amount of benefits with respect to an individual with a view to avoiding penalizing such individual or his eligible spouse who was without fault in connection with the overpayment, if adjustment or recovery on account of such overpayment in such case would defeat the purposes of this subchapter, or be against equity and good conscience, or (because of the small amount involved) impede efficient or effective administration of this subchapter . . . .” Act §§ 1631(b)(1)(A), (B): 42 U. S. C. §§ 1383(b)(1)(A), (B) (1982 ed., Supp. V).

       The Secretary’s argument becomes especially weak if this subset is very large. If the- Secretary can evade the waiver provisions by netting overpayments against underpayments, and if netting is possible in most eases, then the Secretary’s procedures would effectively nullify the waiver provisions. Such a consequence would be strong evidence that the Secretary’s procedures are inconsistent with the statute. See, e. g., Colautti v. Franklin, 439 U. S. 379, 392 (1979) (it is an “elementary canon of construction that a statute should be interpreted so as not to render one part inoperative”).

       SSI overpayments subject the Secretary to a similar command. Section 1631(b)(l)(B)(i) of the Act, 42 U. S. C. § 1383(b)(l)(B)(i) (1982 ed., Supp. V), reads: “The Secretary . . . shall make such provision as he finds appropriate in the case of payment of more than the correct amount of benefits with respect to an individual with a view to avoiding penalizing such individual or his eligible spouse who was without fault in connection with the overpayment, if adjustment or recovery on account of such overpayment in such case would defeat the purposes of this subchapter, or be against equity and good conscience, or (because of the small amount involved) impede efficient administration of this subchapter.”

       The OASDI provision reads: “In any case in which more than the correct amount of payment has been made, there shall be no adjustment. . . .” 42 U. S. C. § 404(b) (1982 ed.). Notably, the section does not refer to “any case in which the Secretary finds that more than the correct amount of payment has been made . . . .”
      Likewise, 42 U. S. C. § 1383(b)(1)(B)(i) (1982 ed., Supp. V) applies “in the case of payment of more than the correct amount of benefits . . . ,” not merely “in the case that the Secretary finds payment of more than the correct amount of benefits.”

       The majority speculates that “[djeliberately protracting the netting period may indeed draw in future underpayments; but it may just as likely draw in future overpayments, which will be uncollectible until the Secretary’s determination is made." Ante, at 94. This proposition depends, of course, upon the relative frequency of overpayments and underpayments. The majority assumes that the two occur with equal frequency, an assumption for which it offers no support. One might indeed make precisely the opposite assumption: that the Government errs in its own favor more often, and more substantially, than it errs in favor of beneficiaries.

       See, e. g., 42 U. S. C. §§ 402(a). 402(j) (1982 and Supp. V); 42 U. S. C. § 1382(c)(1) (1982 ed., Supp. V).

       It is, of course, of no importance that Yamasaki predates Chevron U. S. A. Inc. v. Natural Resources Defense. Council, Inc., 467 U. S. 837 (1984). As we made clear in Chevron, the interpretive maxims summarized therein were “well-settled principles.” Id., at 845.

       Even this much is far from clear. The majority’s suggestion is that Congress could have referred to individual monthly payments, rather than a net transfer, by using the phrase “any payment,” rather than simply “payment,” in, for example, 42 U. S. C. § 404(b) (1982 ed.). The provision reads in relevant part, “In any case in which more than the correct amount of payment has been made . . . .”
      For reasons already stated, I do not believe that this provision is ambiguous. But if it were, the majority’s suggestion would not dispell entirely the interpretive difficulties that trouble the majority. The word “payment” embraces two concepts: that of a wealth transfer, and that of a transaction used to effect such a transfer. For this reason, it is possible for a lender to tell a borrower that “a series of 15 payments will be needed to effect payment of the debt.” By using the plural form of “payment,” the lender focuses attention upon several transactions, rather than the transfer accomplished by the transactions together. And, indeed, careful examination of the statute, the majority opinion, and this dissent will show that all three frequently distinguish transactions from transfer by invoking the plural, “payments.”
      The majority wisely declines to suggest that Congress should have used the plural in § 404(b) to prohibit netting. That option was not available for two reasons. First, we are imagining how Congress might redraft the section to refer more specifically to a single defective payment, and not to multiple payments. Had Congress referred to the “correct amount of payments,” readers would have believed that Congress was referring, albeit awkwardly, to the number of transactions, rather than to the amount of an individual transaction. Second, although we are assuming that Congress does not wish to refer to the comprehensive transfer effected by multiple payments together, Congress must refer to the subsidiary transfer accomplished by the transaction in question: it is precisely the abnormality of that transfer which makes the transaction of interest. We are dealing, in short, with a payment of improper payment.
      As already noted, the majority proposes to solve this problem by inserting the word “any" before “payment.” But the adjective begs the question. “Any payment” may differ from “payment” not by distinguishing a single transaction or transfer from the aggregate of all such transfers, but rather by distinguishing all possible such aggregate transfers from some paradigmatic group of aggregate transfers. The word “any” arguably makes the subsection applicable to any and all possible payments. In other words, the introductory clause to the redrafted version of § 404(b) would include the word “any” twice — “In any case in which more than the correct amount of any payment has been made . . .’’ — but the majority and the Secretary could continue to make in the face of two “anys” the argument they now make in the face of one. The second “any” would rule out exceptions to the general rule without explaining whether the general rule applied to transfers or transactions: the revised statute might be read to mean that the Secretary must provide for waiver by any and all beneficiaries of any and all net overpayments. This may not be the most obvious interpretation, but, to use the majority’s own phrase, the proposed language “reasonably bears” this interpretation. Ante, at 93. Accordingly, the majority would apparently have to permit netting by the Secretary even if confronted by its own proposed clear expression of congressional intent to prohibit netting.
      The Congress which the majority imagines would thus have to search for other means to express its intent. One possible attempt is actually in the statute. Congress uses the awkward phrase, “correct amount of payment has been made.” The educated layman may cringe on hearing this legalism; “correct amount has been paid” seems to say as much and more crisply. Why add the bulky “of payment”? It is at least possible that Congress hoped to focus attention on individual payments: the “of payment” reminds the reader that “amounts” due are not simply due in total, but due in regular installments — denominated “payments.” This point is obviously not dispositive, but it is more plausible than the majority’s discussion of “any payment.”
      Of course, Congress could have obviated the need for any such analysis by inserting into the statute a reference to payments in individual months, or simply by saying: “The Secretary shall not net underpayments and over-payments.” My point is not that a more precise statute is impossible, however; my point is only that the interpretive difficulties posed by the statute cannot reasonably be ascribed to a conscious delegation, to the absence of intent, or to inability to forge a coalition. See Chevron, 467 U. S., at 865. Rather, the interpretive problems pending before us result from an imprecision inherent in the concept of payment. That sort of imprecision is inevitable in political language. See The Federalist No. 37, p. 230 (E. Earle ed. 1937) (James Madison on the nature of imprecision in political concepts).

       See Yamasaki, 442 U. S., at 693-695.

       In Yamasaki, for example, we interpreted the statute to confer a hearing right, even though Congress never used the word “hearing.” One might argue that if Congress wished to establish a hearing right, “it would be more natural” for Congress to draft a statute that mentioned hearings expressly. The Yamasaki Court supplied the proper answer to this objection: whether or not reference to hearings would be more natural, it is unnecessary, since the hearing right inheres in “the nature of the statutory standards.” Id., at 693.