author: PER CURIAM: MILLER, Trial Judge:

text:
    Veronica L. CAMACHO et al. v. The UNITED STATES.
    No. 245-68.
    United States Court of Claims.
    April 17, 1974.

      William B. Nabors, Saipan, Mariana Islands, attorney of record, for plaintiffs.
    Herbert Pittle, Washington, D. C., with whom was Asst. Atty. Gen., Wallace H. Johnson, for defendant.
    Before DAVIS, NICHOLS and BENNETT, Judges.
   OPINION

PER CURIAM:

This case comes before the court on defendant’s motion, filed January 7, 1974, for judgment requesting that the court adopt, as the basis for its judgment in this case, the recommended decision of Trial Judge Philip R. Miller, filed November 14, 1973, pursuant to Rule 134(h), plaintiffs having failed to file a notice of intention to except thereto as provided by Rule 141(a) and the time for so filing pursuant to the Rules of the court having expired. Upon consideration thereof, without oral argument, since the court agrees with the trial judge’s recommended decision, as hereinafter set forth, it hereby affirms and adopts the same as the basis for its judgment in this case, granting defendant’s said motion for judgment. Therefore, it is concluded that plaintiffs are not entitled to recover and their petition is dismissed.

OPINION OF TRIAL JUDGE

MILLER, Trial Judge:

This is a suit

for just compensation under the fifth amendment to the Constitution for the taking by the United States of two tracts of land in Saipan, Mariana Islands. Saipan is now a part of the Trust Territory of the Pacific Islands, of which the United States is trustee under a delegation from the United Nations. Joint Res. July 18, 1947, ch. 271, 61 Stat. 397. The taking is an outgrowth of events originating in World War II. The land was originally owned by Joaquin Lizama, who was killed during the invasion of Saipan by American Military Forces in 1944. Plaintiffs are his surviving children and sole heirs.

During the period between the two World Wars Saipan was governed by Japan, for most of such period under the authority of a mandate from the League of Nations. It was a source of agricultural products for Japan, primarily sugar and copra. At the start of World War II the native population numbered about 3,500. Although the Japanese imported several thousand additional civilian workers from Japan and Okinawa, the government also recognized the rights of the local people in their land and by regulation prohibited the alienation of such land to others unless approval was first obtained from the Director of the South Seas Bureau which administered such territory. However, this did not bar the expansion of a large Japanese agricultural corporation, Nanyo Kohotsu Kabushiki Kaisha (N.K.K.), which at the time of the invasion had acquired ownership of about 28 percent of the privately-owned land, and leased a great deal more.

World War II resulted in a great upheaval in the entire property structure of the island. First, to prevent the use ,of the island as a staging point for an attack on Japan the Japanese Military Establishment took over much of the land for purposes of fortification, airfields, ammunition and equipment storage, and the stationing of 30,000 Japanese troops. Second, the fury of the American invasion and fighting thereafter resulted in the destruction of most structures, boundaries and land records. United States Military Forces invaded Saipan on June 15, 1944 after a 4-day bombardment. When the fighting ended, 29,000 of the 30,000 Japanese soldiers on the island were dead, as were 400 Saipanese. Almost all of the buildings and landmarks used for surveys and cadastral maps were levelled. Third, the local people were then removed from their land, confined in a relatively small fenced-in area and kept in protective custody until July 1946, a period of 2 years. They were not permitted to leave such area except under guard, for work details or other special purposes. Fourth, in preparation for the invasion of Japan practically the entire island was reconstructed with paved roads, airstrips, huge fuel and ammunition dumps, warehouses, pipelines, power lines, military quarters and training areas for up to 200,000 American troops. Hardly a square foot of the island remained undisturbed. Finally, after the conclusion of the war, the reconstruction of the island and the continued American presence necessitated retention of much of the land and structures for military and public purposes, irrespective of prewar ownership and prewar boundaries of the particular tracts.

While both the United States Military Government and the Trust Territory Government, which succeeded it in 1947 under the United Nations trusteeship, recognized the right of pre-existing private property, all of the public land office records, including the survey maps, were lost and nearly all of the individual monuments marking the corners of land parcels were missing. After the end of the war it became very difficult to reconstruct ownership of land and prewar boundaries thereof. Thus when the local people regained their freedom and new maps were drawn, it became necessary for them to file claims to ownership of individual tracts, with very few having any documents to prove ownership.

On December 29, 1947 the Deputy High Commissioner for the Trust Territory executed Trust Territory Policy Letter P-1 prescribing land policy to be followed in the administration of the territory. The policy letter reaffirmed the principle of private land ownership for the native population so that families might have means of subsistence. It stated that decisions by the prior Japanese administration as to land ownership and rights prior to Japan’s resignation from the League of Nations, on March 27, 1935, would be considered binding. However, transfers thereafter to non-natives would be subject to review. They would be considered valid unless the sales were not made of free will and just compensation was not received. In the latter event title would be returned to former owners upon paying to the Trust Territory Government the amount previously received by the former owners from the transferees.

The policy letter also reaffirmed the policy of the United States to pay compensation to private owners for property required for public use. And it further, stated a preference for compensating such owners by exchange of public land rather than by cash so that the citizenry not be landless.

Trust Territory Office of Land Management Regulation No. 1, originally issued January 11, 1951, provided for the filing of a claim by every person claiming an interest in land used or occupied by the United States. A title officer was authorized in each district to determine, after due notice and hearing, the ownership of any tract of land in the district used, occupied or controlled by the government and to appraise, evaluate and recommend for settlement any claim for damages resulting from the taking. Where an estate was claimed jointly or in common by the heirs of a deceased owner and where no executor or administrator had been appointed, the regulatibn provided for the district land officer to appoint one or more of the claimants to act as trustee or trustees for the group in connection with all matters having to do with land return and claims. However, he was forbidden to sell or otherwise dispose of land except with the approval of all parties having an interest therein or of the High Court. Appeal from the determination of the district land title officer to the Trial Division of the High Court of the Trust Territory was authorized within one year and the latter could in its discretion hear the case de novo or on the prior record before the title officer.

The two tracts of issue herein' are:

(1) Lot nos. 591, 592, 593 and 594, South District, located at Kobler Field, As Perdido, Saipan (hereinafter referred to as the As Perdido tract). The area of the property is uncertain and measures from 6.8 to 8.0 hectares. This property has remained in the possession and under the control of the defendant since 1944. At some time prior to 1950 the Navy Department constructed an airfield, Kobler Field, and related buildings thereon, and the Trust Territory Government has continued to use it for such purpose.

(2) Lot no. 1387, Garapan District, Saipan, consisting of 1 hectare. This has also been in the possession and under the control of the United States since 1944. The Navy Department constructed various buildings and a paved road on the property, and the Trust Territory Government has continued to use it for the same purposes.

The plaintiffs have been aware of such occupation and usage by the defendant since it occurred, and plaintiffs have not attempted to occupy either property since 1945.

The original claims with respect to both tracts of land at issue were filed by Carmen M. Lizama, widow of Joaquin Lizama. Claim 59-A, filed January 4, 1945, covered the As Perdido property and stated that the area was about 8 cho. (A cho is a Japanese area measure equivalent to slightly less than 1 hectare.) Claim 75-A, filed January 10, 1945, covered the Garapan property, and described it as having an area of 1 cho.

Carmen having died in 1946, at some time between 1950 and 1952, Trust Territory officials called Veronica Lizama Camacho, daughter of Joaquin and Carmen, to the Land and Claims Office to question her about the claim to the As Perdido property. There, after some discussion, she executed a paper conceding that the property had previously been sold by her father to a Japanese corporation, the N.K.K. company, although her mother had not known it, and accordingly the property did not belong to the heirs of Carmen M. Lizama. At trial Veronica attempted to repudiate this statement claiming that she did not understand English and that she had only signed a small blank piece of paper without any writing on it. However, there were two witnesses to her execution of the document, Judge Gregorio T. Camacho and Henry S. Pangelinan, an official of the Land and Claims Office. Their testimony establishes that the document was typewritten before Veronica signed it and that she engaged in a half-hour’s discussion with officials in the office in the Chamorro language before she executed the document.

On December 29, 1952, the Title Officer for the Saipan District filed a Determination of Ownership stating that, “after due public notice and private notice to all parties as of record, and after public hearings at which all persons claiming an interest in the [As Perdido property] were given full opportunity to be heard,” he had determined that the land in question was “the property of the government of the Japanese mandated territory and is now vested in the Area Property Custodian for the Trust Territory of the Pacific Islands pursuant to the vesting order dated September 27, 1951”. Accordingly he released the land and gave immediate possession to the custodian. Plaintiffs failed to file any appeal from such determination of the Title Officer to the High Court within one year as permitted by Regulation No. 1.

On July 16, 1953, the same title officer issued the determination that the Garapan property, consisting of 1 hectare, was “the property of the heirs of Joaquin Lizama represented by Jose M. Lizama as land trustee”, but he denied them possession because the land was part of a United States retention area. Following such determination of ownership, on December 30, 1954, Jose M. Li-zama on behalf of the heirs of Joaquin Lizama, deceased, as land trustee, entered into a written agreement with the Trust Territory Government for the exchange of the Garapan property for other public property. It is not clear from the record whether Jose’s delegation by the other heirs to act as land trustee on their behalf in the presentation of the claim was sufficient to authorize his entering into the exchange agreement.

Pursuant to the exchange agreement, on February 5, 1958, the Trust Territory Government tendered deeds to the heirs of Joaquin Lizama represented by Jose Lizama, but he refused to accept such deeds and both he and the other heirs refused to execute a quit claim deed for the Garapan property. Jose’s explanation for such refusal was that the deeds tendered him were not in accordance with his oral agreement with the representative of the Trust Territory Government. He understood he was to receive a larger tract for himself and that each of the other heirs was to receive an individual house lot. He claimed that the written agreement did not reflect the oral understanding, that he did not understand English and that the written agreement was not translated.

On June 29, 1966 plaintiffs brought two suits in the Trial Division of the High Court of the Trust Territory, entitled, Jose M. Lizama, et al., Plaintiffs v. Elias P. Sabían, District Land Title Officer, Defendant, Civil- Action Nos. 174 and 175, invoking the original jurisdiction of such court to try all causes involving the adjudication of title to land. In the first action plaintiffs claimed both compensation and return of the As Perdido property stating that they had, claimed such property from the Trust Territory Government in 1954, without success. In the second action plaintiffs made similar claim with respect to the Garapan property. In both, the defendant moved to dismiss with prejudice because (a) the court lacked jurisdiction of the suit, no appeal having been taken from the title determination; (b) plaintiffs had failed to join an indispensable party, the government of the Trust Territory, which had not consented to be sued; (c) an appeal from the title determination was barred by the 1-year limitation period prescribed by Land Management Regulation No. 1 in each case; and (d) the complaint lacked certainty in that it failed to describe the land. In addition, the defendant contended that the first suit should be dismissed because the plaintiffs’ father had sold the property in 1938 to a Japanese corporation, and the second suit should be dismissed because the plaintiffs had agreed to exchange the land for other land. After oral argument, on October 31, 1966, the High Court entered orders dismissing both suits without prejudice and without opinion. Plaintiffs filed no, appeal to the Appellate Division of the High Court.

Plaintiffs contend that the determination of the land title officer in 1952 that the As Perdido property was owned by a Japanese corporation (and hence was vested in the Alien Property Custodian) was invalid because notice of hearings on plaintiffs’ claims had not been given to the plaintiffs, in violation of Land Management Regulation No. 1. They also assert that there is doubt as to whether the sale by plaintiffs’ father to the Japanese corporation in 1938 had actually taken place; that if it occurred, it may only have involved a part of the tract; and that the consideration paid by the Japanese corporation was inadequate.

With respect to the Garapan property plaintiffs contend that the 1954 exchange agreement between Jose Lizama and the Trust Territory Government is null and void because they did not consent to the exchange, and that such consent is required under Land Management Regulation No. 1.

Defendant does not challenge the plaintiffs’ position that the United States Constitution guarantees just compensation to an alien for the taking of property in a foreign country. This was decided as a matter of first impression in Turney v. United States, 115 F.Supp. 457, 464, 126 Ct.Cl. 202, 215 (1953), and adverted to in Seery v. United States, 127 F.Supp. 601, 603, 130 Ct.Cl. 481, 483-484 (1955) (involving foreign property of an American citizen). Nor for purposes of this case does defendant question whether the Constitution requires compensation for the post-hostilities failure to return foreign property taken from aliens in enemy territory during a war, although the matter may not be wholly free from doubt. However, under the view we take of this case, that plaintiffs are not entitled to recover in any event, it is unnecessary to decide such question.

Defendant urges primarily that this action is barred by the statute of limitations, 28 U.S.C. § 2501, since both properties at issue were taken by the United States more than 6 years before suit was filed. Second, defendant contends plaintiffs are collaterally estopped by the 1966 decisions of the High Court of the Trust Territory which they failed to appeal to the Appellate Division of the High Court. Third, defendant asserts, plaintiffs were not in fact the owners of the As Perdido property, since their father had sold it to the Japanese corporation in 1938. And, fourth, defendant avers, plaintiffs’ claim to compensation for the Garapan property was satisfied by the exchange agreement and plaintiffs have simply refused to accept the substitute land.

It is decided herein that plaintiffs’ petition must be dismissed because it is barred by the statute of limitations. Title 28 U.S.C. § 2501 provides in pertinent part: “Every claim of which the Court of Claims has jurisdiction shall be barred unless the petition thereon is filed within six years after such claim first accrues.” This requirement is jurisdictional and cannot be waived by the United States. United States v. Wardwell, 172 U.S. 48, 19 S.Ct. 86, 43 L.Ed. 360 (1898); Finn v. United States, 123 U.S. 227, 8 S.Ct. 82, 31 L.Ed. 128 (1887); Nager Electric Co. v. United States, 368 F.2d 847, 857, 177 Ct.Cl. 234, 249 (1966).

The petition in this case was filed August 27, 1968. Both properties at issue were taken by defendant prior to 1945 and have been occupied by it and by the Trust Territory Government continuously since that time. The As Per-dido property has had an airfield on it in continuous use since prior to 1950, and the Garapan property has had a paved road and various buildings thereon, constructed by the Navy Department some time prior to 1951. Plaintiffs have been aware of such appropriation at all times and have made no effort to occupy either property since 1945.

Plaintiffs claim the statutory period did not begin to run until 1966, because they received no formal notice of determination from the Land and Claims Office until 1966, that they had no attorney before then, and were ignorant of their right to bring suit in this court; but such arguments are insufficient to avoid the bar of limitations.

First, if they did not receive fair or proeedurally proper administrative treatment, their remedy was to appeal within one year from the administrative determinations to the Trial Division of the Trust Territory High Court, as provided in Trust Territory Office of Land Management Regulation No. 1, which had the power to hear the case de novo. If there was proper basis for tolling the limitation provision on appeal, plaintiffs could have asserted such grounds in the Trial Division of the High Court and, if necessary, appealed therefrom to the Appellate Division of the High Court. However, when plaintiffs’ 1966 suits against the district land title officer were dismissed without prejudice by the Trial Division, at a time when plaintiffs did have counsel, they discontinued any further proceedings in that court. This court does not, of course, have appellate review jurisdiction over the High Court of the Trust Territory.

Second, assuming the claims to just compensation are cognizable under the United States Constitution and provide an independent basis for suit in this court, the administrative proceedings before the Trust Territory Government have not been made a prerequisite to such suit and hence do not toll the statute of limitations for bringing it. In creating the Court of Claims Congress restricted the court’s jurisdiction to suits wherein the petition is filed within 6 years after such claims first accrue. Soriano v. United States, 352 U.S. 270, 273, 77 S.Ct. 269, 1 L.Ed.2d 306 (1957). Where the filing of an administrative claim or other proceeding is not made a statutory prerequisite to suit but .is only permissive, the statute of limitations is not tolled by the pend-ency of such a claim. Soriano v. United States, supra; Crown Coat Front Co. v. United States, 386 U.S. 503, 519, 87 S.Ct. 1177, 18 L.Ed.2d 256 (1967); Friedman v. United States, 310 F.2d 381, 159 Ct.Cl. 1 (1962), cert, denied, sub nom., Lipp v. United States, 373 U.S. 932, 83 S.Ct. 1540, 10 L.Ed.2d 691 (1963); Steel Improvement Co. v. United States, 355 F.2d 627, 174 Ct.Cl. 24 (1966).

In Soriano v. United States, supra, plaintiff, a resident of the Philippines, brought suit in the Court of Claims to recover just compensation for the requisitioning by Philippine guerilla forces of food, equipment and supplies during the Japanese occupation of the Philippine Islands. The suit was filed in April 1951, more than 6 years after the last requisition in January 1945. The petitioner contended, however, that the suit was timely because he was first required to present his claim to the Army Claims Service and such administrative procedure was not exhausted until 1948. The Supreme Court ruled, however (352 U.S. at 274-275, 77 S.Ct. at 272):

Petitioner asserts that his action did not accrue until the denial of the claim by the Army Claims Service. * * * Petitioner would have us hold that this just compensation case could not be filed until after an administrative denial of his claim filed with the Army Claims Service. But * * * Congress has made no such requirement. It has not so restricted the jurisdiction of the Court of Claims.6 Under the circumstances, for us to say that the exhaustion of administrative remedies in such case is a prerequisite to the jurisdiction of the Court of Claims would but “en-graft [another] disability upon the statute” and thus frustrate the purpose of Congress. Furthermore, it would be a limitless extension of the period of limitation that Congress expressly provided for the prosecution of claims against the Government in the Court of Claims. This we cannot do. [Footnote omitted.]

Plaintiffs’ argument that they were ignorant of their rights and lacked legal counsel is also insufficient to toll the statute of limitations for suit in this court. A similar argument was considered in the case of Japanese War Notes Claimants Ass’n v. United States, 373 F.2d 356, 359, 178 Ct.Cl. 630, 634-635, cert, denied, 389 U.S. 971, 88 S.Ct. 466, 19 L.Ed.2d 461 (1967). There the plaintiffs brought suit in 1964 to recover reimbursement for losses from counterfeit Japanese military currency distributed in the Philippine Islands by United States military intelligence agents during the Japanese occupation between 1942 and 1945. Plaintiffs claimed that they were ignorant of their rights and lacked knowledge of the circumstances during most of the intervening years. The court held however that “Ignorance of rights which should be known is not enough” to toll the statute of limitations, and “Plaintiff must either show that defendant has concealed its acts with the result that plaintiff was unaware of their existence or it must show that its injury was ‘inherently unknowable’ at the accrual date.” Congress has not provided for tolling the statute of limitations because a claimant has not had counsel. See Andrade and Pitt River Tribe v. United States, 485 F.2d 660, 664, 202 Ct.Cl. 988, 997 (1973). To create such an exception would be to allow claims on behalf of one group of claimants to remain open indefinitely. This would tend to frustrate one of the prime objectives of the statute of limitations, “to prevent factual issues from being tried too long after the events occurred —with witnesses dead or gone, records lost or destroyed, and memories confused or dimmed- — -at a time when the past cannot be reconstructed with any pretense of accuracy.” Friedman v. United States, supra, 310 F.2d at 401, 159 Ct.Cl. at 34.

There is accordingly no need to resolve most of the other contentions and defenses raised by the parties concerning the administrative proceedings before the Trust Territory Government. However, with respect to the merits of the As Perdido property claim it must be observed that this issue having been fully tried before this court the evidence is persuasive that Joaquin Lizama had indeed sold the As Perdido property to the Japanese N.K.K. corporation in 1938, and therefore his heirs did not own such property at the time of its taking thereafter. As shown in greater detail in findings 16 and 19, this is borne out by photographic copies of the original records incident to the sale, containing Joaquin’s stamp or signature, which were found in N.K.K.’s files.

Plaintiffs claim in their brief that “[a] great deal of doubt exists as to whether the purported sale of the farm at As Perdido was in fact a legal transaction.” A principal element of that contention is the evidence that Fritz Li-zama, Joaquin’s son (also killed in the war), whose signature and stamp appear on the sales agreement as a witness to his father’s signature on the November 4, 1937 sales agreement, left Saipan in 1936 to go to Ponape and did not return until some time in the year 1938. But this is not sufficient to prove the entire sale was a fabrication. That would necessitate the conclusion that a number of other documents in Japanese and Cha-morro were also fabricated: A survey map incident to the sales agreement; the joint application by Joaquin and N. K.K., dated November 9, 1937, for approval of the sale by the Director of the South Seas Bureau; the director’s approval, dated October 7, 1938; the letter, dated October 20, 1938, from the Saipan Branch Office of the South Seas Government transmitting such approval; and the joint letter from Joaquin and N.K.K. to the Saipan Branch Office, dated November 2, 1938, requesting registration of the transfer. This seems highly improbable. It is much more likely that the recollections of the witnesses as to when Fritz left Saipan or whether he returned for a visit are faulty after many years. It may also be, as plaintiffs’ counsel himself suggested at trial, that the agreement could have been sent to Fritz for execution in Ponape. And, still further, Fritz could have executed his attestation as a witness to his father’s signature upon his return to Saipan during the first half of 1938.

Plaintiffs also offered testimony that one Jose Cruz, a cousin of their father, continued to work on the farm during 1938. But in view of the fact that the transfer of the farm was not completed until November 1938, this evidence is not inconsistent with the fact of a sale.

Next, plaintiffs contend that the documents of conveyance “may or may not be authentic” because signature stamps could easily be made for 50 cents. But. the documents were admitted in evidence without objection, and plaintiffs’ counsel conceded at trial that he had no direct evidence that the signatures and stamps were not that of Joaquin. Mere speculation that the execution might have been forged is not a substitute for proof. Moreover, plaintiffs’ witness, Benigno O. Sabían, who testified as to the cost of the signature stamps, repudiated such speculation, stating that stamps had to be approved by government officials, that forgery could never happen and that the use of an unauthorized stamp would have resulted in imprisonment.

Finally, plaintiffs imply that the Japanese may have exercised coercion against Joaquin and they state that there is a question as to the adequacy of the compensation. But plaintiffs’ counsel conceded at trial that he had no evidence of coercion with respect to the 1938 transaction and he did not offer any testimony that the ¥3,224 (then worth about $806) was not a fair price for the land in 1938.

Thus even if their suit were not barred by the statute of limitations, the evidence adduced by the parties at trial shows that plaintiffs are not entitled to recover on the merits with respect to the major part thereof.

      . One hectare equals 10,000 square meters or approximately 2.43 acres.

      . Now Alien Property Custodian. 27 Trust Territory Code § 2 (1970).

      . Gf. Juragua Iron Co. v. United States, 212 U.S. 297, 306, 29 S.Ct. 385, 53 L.Ed. 520 (1909) ; United States v. Caltex, Inc., 344 U.S. 149, 73 S.Ct. 200, 97 L.Ed. 157 (1952) ; Pauly v. United States, 152 Ct.Cl. 838 (1961) ; Aris Gloves, Inc. v. United States, 420 F.2d 1386, 190 Ct.Cl. 367 (1970) ; Seery v. United States, supra, and Cuban Truck and Equipment Co. v. United States, 333 F.2d 873, 166 Ct.Cl. 381 (1964), cert, denied, 382 U.S. 844, 86 S.Ct. 65, 15 L.Ed.2d 85 (1965).

      . Cf. 67 Trust Territory Code § 115 (1970) (1966 ed., § 1039). And see Rivera v. Trust Territory, 4 Trust Territory Reports 140 (1968), which outlines the relief available in the High Court in cases presenting such issues, and Sechelong v. Trust Territory, 2 T.T.R. 526 (1964).

      . Ibid. And see Ngodrii v. Trust Territory, 2 T.T.R. 142 (1960) for a case in which the limitations provision in Office of Land Management Regulation No. 1 was tolled.


source: Caselaw Access Project

author: KASHIWA, Judge.

license: Public Domain

text:
    Isabella D. ARMATA et al. v. The UNITED STATES.
    No. 23-73.
    United States Court of Claims.
    April 17, 1974.

      Samuel H. Levinkind, New York City, atty. of record, for plaintiff.
    John E. Evans, U. S. Dept, of Justice, Tax Div., Washington, D. C., with whom was Asst. Atty. Gen. Scott P. Crampton, for defendant. Gilbert E. Andrews, Jr. and Joseph Kovner, Washington, D. C., of counsel.
    Before DURFEE, Senior Judge and KASHIWA and BENNETT, Judges.
    ON DEFENDANT’S MOTION AND PLAINTIFFS’ CROSS MOTION FOR SUMMARY JUDGMENT
   KASHIWA, Judge.

Plaintiffs filed this suit for the refund of federal estate taxes in the amount of $139,469.44, paid with respect to the Estate of Eleanor L. Miles, deceased, plus statutory interest thereon. The case is presently before the court on defendant’s motion for summary judgment and plaintiffs’ cross motion for summary judgment. We hold for the defendant, allowing its motion for summary judgment.

There is no genuine issue as to any material fact. Briefly stated, the facts are as follows. On November 1, 1957, Eleanor L. Miles, the decedent, executed an inter-vivos trust agreement, transferring certain property to a named trustee to be held in trust according to the terms of the agreement. The terms of the 1957 agreement, as amended by the 1959 agreement, provided in pertinent part:

FIRST: The Trustee * * * shall pay or apply the net income in quarter-annual installments or oftener, to or for the use of the Grantor during the term of her life. Upon the death of the Grantor, said trust shall terminate and the principal then remaining on hand together with the accrued income thereon shall be paid, transferred and delivered to [designated beneficiaries] * * *
-X- -X- * * -X- -X-
ELEVENTH: The Grantor reserves the right at any time and from time to time to withdraw any or all of the property subject to the trust hereby created and to take possession of the same, and the right at any time and from time to time to modify, alter and amend this agreement and the trust hereby created in any manner and to revoke this agreement and the trust hereby created in part from time to time or in whole at any time, by an instrument or instruments in writing, signed and acknowledged by her and delivered to the Trustee, * * *.

After the creation and amendment of the trust, the decedent was adjudicated an incompetent by the State of New York, and a committee of the person and property of the decedent was appointed in 1964. The decedent remained incompetent until her death on January 6, 1966.

The trust, however, was in existence on the date of death. The value of the corpus as of the alternative valuation date was $597,011.51. This value was included by the executor in the gross estate of the decedent. The decedent’s total gross estate was $628,565.99. The amount of estate tax reported and paid was $139,469.44. But for the inclusion of the $597,011.51 value of the trust corpus, the estate tax liability would have been zero.

In determining whether the trust corpus was properly included in the decedent’s gross estate, two issues are raised for our resolution:

(1) Whether, under the trust agreement, the decedent retained a lifetime right to trust income, thereby requiring the inclusion of the corpus pursuant to section 2036 of the Internal Revenue Code of 1954; and whether, if said income right was retained, the decedent’s incompetence prevents the inclusion.

(2) Whether decedent’s incompetence prevents the inclusion of the assets of the trust in her gross estate when, in the absence of such incompetence, those assets would admittedly be included, pursuant to section 2038, because of the decedent’s retained power to modify, alter, amend, and revoke the trust.

Turning first to the issue of whether section 2036(a)(1) requires the corpus to be included in the gross estate because of a retention of an income right for life, we are initially faced with the problem of analyzing the trust agreement under New York law.

The Government argues that article First of the trust, directing that the trustee “ * * * shall pay or apply the net income * * * to or for the use of the Grantor during the term of her life,” amounts to nothing more than a textbook example of a retained income right and, thus, subjects the corpus to inclusion under section 2036(a)(1). The plaintiffs, on the other hand, contend that under New York law article First created discretion in the trustee as to the application of income for the use of the grantor. The plaintiffs argue that Matter of Lazarus and Matter of Fisher, 54 Misc.2d 593, 283 N.Y.S.2d 235 (Surr.Ct.1967), lend support for this view.

We find no merit in the plaintiffs’ argument. Rather, the language of article First appears to us to command, in as clear language as possible, that the “net income” was to be distributed. Certainly, the mere use of the word “apply” carries no inherent implication that the trustee’s discretion was to be exercised in a determination of the amounts to be disbursed. It is our view that all the net income was required to be disbursed to the grantor directly or for her use.

The case of Lazarus, swpra, is plainly distinguishable. In that case, a will created a trust for the benefit of the incompetent :

* * * “to apply the net income therefrom for the care, comfort, maintenance and support of my niece, BA-BETTE LEVY, for and during the term of her natural life, or, if my Trustee shall determine it to be for the best interest of my said niece, to pay over the net income from said trust fund to her at such intervals as my said Trustee shall determine not less, however, then quarter-annually.” * * * [54 Misc.2d at 595, 283 N.Y.S.2d at 237.]

The issue was whether the committee for the incompetent niece had the right to receive all of the net income not expended by the trustee for the niece’s care, comfort, maintenance, and support. The court held that the trust did not mandate disbursement of the net income, but, rather, gave the trustee discretion to determine how much should be paid out.

The testatrix intended the trustee, in the trustee’s own discretion, to decide whether to pay the income or to apply it directly for the care, comfort, maintenance and support of the beneficiary. And the testatrix, I think, intended to vest in the trustee discretion to determine how much of the income was necessary to be used for the care, comfort, etc., of the beneficiary. Such a discretion is implicit in any provision to apply income for such a purpose. The trustee is surely not required to spend more for the beneficiary’s maintenance, support, etc., than is reasonably appropriate and proper. And it would also seem to be quite unusual for the creator of a trust to give the trustee discretion to apply income for the care, comfort, maintenance and support of the beneficiary, and to direct nevertheless, that any amount not so needed be paid compulsorily as earned to the beneficiary. [Matter of Lazarus, supra, 54 Misc.2d at 595-596, 283 N.Y.S.2d at 238.]

It must be remembered that, in the instant case, article First, did not directly give the trustee discretion. Rather, all the net income was to be paid or applied to or for the use of the grantor. We are loathe to read in discretion to a document when it is evident from other articles that the decedent was capable of articulating discretionary standards when she chose to do so. Article Second provides :

The trustee is authorized in his absolute and unrestricted discretion * *• * to pay or apply from the principal of the trust fund such amount or amounts as he shall deem advisable and proper to and for the use and benefit of the Grantor without regard to income from other sources or other property which she may have. [Emphasis supplied.]

Similarly, article Seventh provides, in pertinent part:

* * * The Trustee shall have discretion to resolve any doubts concerning the application of this paragraph or the allocation of any property between principal and income for which no express provision is made in this agreement, and his decision shall be binding on all interested parties. The primary concern of the Grantor in creating this trust is her own welfare and the Grantor requests the Trustee, in exercising the foregoing discre-tions, to take such fact into consideration. [Emphasis supplied.]

The language used in the will involved in Matter of Fisher, supra, directed the trustees

* * “to pay the net income thereof to or for the benefit of my daughter WENDY during her natural life. * * *” [54 Misc.2d at 597, 283 N.Y.S.2d at 239-240.]

The surrogate held that surplus income had to be paid to the beneficiary’s committee as the trust language was mandatory, requiring payment of the entire net income. Plaintiffs point out that the Fisher will used only the word “pay” while the Lazarus will, on the other hand, used only the word “apply.” In effect, they argue that since the trust in the instant case used the disjunctive (“pay or apply”), the rule of Lazarus governs and the discretion of the trustee prevents the application of section 2036(a)(1). What plaintiffs neglect to point out is that the Lazarus will explicitly provided that distribution of income was a matter within the discretion of the trustee. The language of the Fisher will simply did not grant such discretion; the entire net income was to be paid out “to or for the benefit of my daughter.” Similarly, the language of the inter-vivos trust at bar allowed for no discretion. Rather, the entire net income was to be paid or applied “to or for the use of the Grantor.” The trustee’s only discretion, if such it can be termed, was, as in Fisher, whether to pay the net income directly or apply it for the use or benefit of the beneficiary. The existence of trustee “discretion” as to manner of distribution does not prevent includibility under section 2036. The plaintiffs, to prevent the inclusion, are required to show that discretion can be exercised with respect to the question of how much of the income is to be distributed to the grantor. This the plaintiffs before us have not been able to show. “Discretion” as to manner of distribution simply did not deprive the decedent, under section 2036, of “the possession, or enjoyment of, or the right to the income from, the property.” If “apply” is to have any meaning in the context of Lazarus versus the “pay” in Fisher (and the Surrogate’s Court acknowledges that “[t]he difference is doubtless very slight,” Matter of Fisher, supra, 54 Misc.2d at 599, 283 N.Y.S.2d at 241), no such emphasis can be given to the word in the context of the case at bar. We view the words “pay or apply” in the instant case as merely directing various methods of distribution of the entire net income.

We hold, therefore, that the decedent’s transfer of her property to the v trust was a transfer with a retained life interest within the meaning of section 2036. As such, the value of the property is includible in the decedent’s gross estate. It is of no moment that the decedent had been declared incompetent as her rights to the income were exercisable by the committee which acted on her behalf. See City Bank Farmers Trust Co. v. McGowan, 323 U.S. 594, 65 S.Ct. 496, 89 L.Ed. 493 (1945); Horner v. United States, 485 F.2d 596, 202 Ct.Cl. 649 (1973).

Plaintiffs misinterpret the effect of incompeteney in the context of the incompetent’s power to alter, amend, or terminate the trust. The plaintiffs admit that without the judicially declared incompetency of the grantor, the Government would be correct in its assertion that article Eleventh, supra, creates powers which would otherwise require inclusion of the property in the gross estate pursuant to section 2038. The plaintiffs, drawing some support from Matter of DelBello, 19 N.Y.2d 466, 280 N.Y.S.2d 651, 227 N.E.2d 579 (1967), and Matter of Barletta, 2 Misc. 2d 135, 150 N.Y.S.2d 479 (Surr.Ct. 1956), argue that when the person holding the power is incompetent, the power to terminate will only be approved by a court on a showing that such a decision was required for the continued support of the incompetent. These cases involved, respectively, a Totten trust and jointly held property; and whatever the rule is in those circumstances, we believe that with respect to a normal inter-vivos trust the New York rule is distinctly and unambiguously announced in In re Fleming’s Estate, 173 Misc. 851, 19 N.Y.S.2d 234 (S.Ct.1940). The issue in Fleming involved whether the court could authorize allowances from the principal of an incompetent’s estate for the maintenance of his niece, a relative to whom the incompetent owed no duty. The court held that

* * * the rule is well established that they [the allowances] may be made upon the theory that the incompetent would, in all probability, assume the burden if he were sane. * * * [173 Misc. at 853, 19 N.Y.S.2d at 236.]

This case, then, is firm authority for the proposition that the powers retained under article Eleventh continue to exist even though the holder of those powers is incompetent. The committee, or guardian as the case may be, merely steps into the shoes of the incompetent. The decedent’s committee could have exercised those powers for whatever reason upon a finding by the appropriate New York court that the decedent, if competent, would have done so. Thus, the power to modify, alter, amend, and revoke, which is exercisable by the committee for the grantor in the case at bar, existed at the date of the grantor’s death; and the trust corpus must be included pursuant to section 2038. See, also, City Bank Farmers Trust Co. v. McGowan, supra; Horner v. United States, supra; Hurd v. Commissioner, 160 F.2d 610 (1st Cir. 1947) ; In re Lattimore, 32 A.D.2d 880, 301 N.Y.S.2d 874 (1969); Matter of Harris, 35 Misc.2d 443, 229 N.Y.S.2d 997 (S.Ct.1962).

For the foregoing reasons, we hold that the corpus of the trust is includible in the decedent’s gross estate pursuant to (1) section 2036(a)(1) due to the decedent’s retained lifetime right to income, as well as (2) section 2038(a)(1) due to her retained power to modify, alter, amend, and revoke the trust. Further, we hold that the decedent’s judicially declared incompetence prior to her death, which existed at the date of death, does not affect the inclusion of the corpus under either of these provisions. Defendant’s motion for summary judgment is granted, plaintiffs’ cross motion for summary judgment is denied, and the petition is, therefore, dismissed.

      . “§ 2036. Transfers with retained life estate
      “(a) General Rule.—
      “The value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money’s worth), by trust or otherwise, under which he lias retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death—
      “(1) the possession or enjoyment of, or the right to the income from, the property, or
      “(2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom.”

      . All references to statutory tax provisions are to the Internal Revenue Code of 1954, as amended.

      . “§ 2038. Revocable transfers “(a) In general.—
      “The value of the gross estate shall include the value of all property—
      “(1) Transfers after June 22, 1936. — To the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money’s worth), by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power (in whatever capacity exercisable) by the decedent alone or by the decedent in conjunction with any other person (without regard to when or from what source the decedent acquired such power), to alter, amend, revoke, or terminate, or where any such power is relinquished in contemplation of decedent’s death.”
      v *!• •i* í|¡

      . “The phrase ‘to or for the benefit of my daughter’ does give the trustees the discretion as to whether they shall pay all the money directly to the daughter or whether they shall pay part or all of it to some third person in payment of the daughter’s expenses or otherwise for the daughter’s benefit.” [Matter of Fisher, supra, 54 Misc.2d at 599, 283 N.Y.S.2d at 241.]


author: SKELTON, Judge.

text:
    Algie L. OUTLAW and Meaka S. Outlaw v. The UNITED STATES.
    No. 125-72.
    United States Court of Claims.
    April 17, 1974.

      Henry C. Lowenhaupt, St. Louis, Mo., atty. of record, for plaintiff. Owen T. Armstrong and Lowenhaupt, Chasnoff, Freeman, Holland & Mellitz, St. Louis, Mo., of counsel.
    Richard D. Silvester, Washington, D. C., with whom was Asst. Atty. Gen. Scott P. Crampton, for defendant. Gilbert E. Andrews, Jr., and Joseph Kov-ner, Washington, D. C., of counsel.
    Before COWEN, Chief Judge, and DAVIS, and SKELTON, Judges.
   OPINION

SKELTON, Judge.

This is a suit for the refund of income taxes and interest in the sum of $7,512.34, paid by the plaintiff under protest for the calendar years 1965, 1966, and 1967. The plaintiff, Algie L. Outlaw, joined by his wife, Meaka S. Outlaw, brings this suit.

The facts giving rise to this suit, all of which are stipulated by the parties, are generally described as follows, although the details of such facts will be more fully discussed under the various headings of this opinion set forth below. This method of handling the facts is for the purpose of shortening the opinion and avoiding a duplication of such facts.

The plaintiff, along with 40 other persons, organized a venture on January 15, 1965, by the execution of two agreements. The first was designated the “Cherry Hill Agreement” which was comprised of three groups of people as follows:

1. Real Estate Investors Group. This group was originally composed of 27 persons and ultimately 41 individuals of whom the plaintiff was one. They furnished the money for the venture which will be later described.

2. Founders Group. This group was composed of six persons who were experts in agriculture and agronomy who were to furnish expert agricultural advice and supervision of the work of the venture.

3. Financing Group. This group consisted of 13 persons who were on a standby basis and who were to be activated only in the event of successful future development of growing bamboo for the paper pulp industry.

The second instrument entered into by the persons composing the venture was an indenture of trust called “Cherry Hill Trust No. 1,” which was entered into by the plaintiff and the other persons in the venture with the Citizens and Southern National Bank of Savannah, Georgia, as trustee. These two instruments are referred to in the stipulation of facts as the “Constituent Instruments.” Each of them incorporated the other by reference.

The Trust was formed for the ownership of record title to, and management of, certain farm lands for investment in Georgia. The trustee was specifically empowered to engage in agriculture on those lands. An operating committee was established to give instructions to the trustee and the trustee acted upon directions received from the operating committee. The trustee engaged in farming operations including the commercial farming of row crops (lettuce, celery, onions, beets, radishes, okra, and the like) including the growing and marketing of fresh produce which was harvested and sold to local chains and markets on the eastern seaboard. At the same time, the trustee, acting through the founders group, engaged in experimental growing of bamboo looking toward developing it for paper pulp purposes.

During each of the years 1965, 1966, and 1967, the Trust sustained net operating losses. These losses were allowed to flow through the Trust to the plaintiff and the other 40 persons in the venture and they deducted such losses from their Federal income tax returns. The Internal Revenue Service audited the income tax returns of the 41 individuals involved and ruled that the Trust was an association taxable as a corporation and accordingly was required to deduct the losses as such for the years in question and that the plaintiff and the other individuals in the venture were not entitled to take their pro rata share of such losses as deductions on their individual income tax returns. The present suit is maintained only by the plaintiff, Algie L. Outlaw, however, a final decision on the tax liability of the other 40 persons in the venture is being held in abeyance awaiting the outcome of this suit by the plaintiff.

The question in this case is whether the Cherry Hill Trust is an association taxable as a corporation under Section 7701(a)(3) of the Internal Revenue Code of 1954. If it is such an association, then it is the entity which must take deductions for any tax losses for the years in suit. If not, then the plaintiff can deduct his pro rata share of such losses under Section 671 of the Internal Revenue Code of 1954 which would allow the pass-through of income and losses to trust beneficiaries. We have carefully considered the facts and the law involved in this case and have concluded that the decision of the Internal Revenue Service was correct and that the plaintiff is not entitled to recover.

The Internal Revenue Code defines a corporation to include “associations, joint-stock companies, and insurance companies.” Section 7701(a)(3). Associations are further defined in the Treasury Regulations, Section 301.7701-2 in pertinent part as follows:

(a) Characteristics of corporations.
(1) The term “association” refers to an organization whose characteristics require it to be classified for purposes of taxation as a corporation rather than as another type of organization such as a partnership or a trust. There are a number of a major characteristics ordinarily found in a pure corporation which, taken together, distinguish it from other organizations. These are: (i) Associates, (ii) an objective to carry on business and divide the gains therefrom, (iii) continuity of life, (iv) centralization of management, (v) liability for corporate debts limited to corporate property, and (vi) free transferability of interests. Whether a particular organization is to be classified as an association must be determined by taking into account the presence or absence of each of these corporate characteristics. The presence or absence of these characteristics will depend upon the facts in each individual case. In addition to the major characteristics set forth in this subparagraph, other factors may be found in some cases which may be significant in classifying an organization as an association, a partnership, or a trust. An organization will be treated as an association if the corporate characteristics are such that the organization more nearly resembles a corporation than a partnership or trust. See Mor-rissey et al. v. Commissioner (1935) 296 U.S. 344 [56 S.Ct. 289, 80 L.Ed. 263].
(2) Since associates and an objective to carry on business for joint profit are essential characteristics of all organizations engaged in business for profit (other than the so-called one-man corporation and the sole proprietorship), the absence of either of these essential characteristics will cause an arrangement among co-owners of property for the development of such property for the separate profit of each not to be classified as an association. * * *

As may be seen from the above-quoted Regulation, the Supreme Court decision in the case of Morrissey v. Commissioner, 296 U.S. 344, 56 S.Ct. 289, 80 L.Ed. 263 (1935), was the basis for the Treasury Regulations and that decision and the Regulations control the disposition of this case. The Morrissey case involved a situation where a Trust was created for the purpose of developing certain tracts of land and constructing and operating a golf course. The trustees were empowered to buy, sell, lease, and operate the land owned by the Trust and to construct and operate the golf course, club houses, and to receive rents, profits, and income and to make loans, investments, and regulations and to manage the trust estate as if they were the owners. They had no power to bind the beneficiaries personally. Interests in the Trust were freely transferable. The death of an investor or a trustee was not to end the Trust, which was to continue for 25 years. The land was developed by the Trust and some of it was converted into lots and sold. The golf course and club house were constructed on the rest of the property and conveyed to a corporation in exchange for its stock. For a time the trustees leased the golf course from the corporation and operated the golf facilities, but later the activities of the trustees were confined to the collection of installments on previous sales, the sale of other parts of the land, and the receipt of dividends from the golf course and the disposition of money to the beneficiaries of the Trust. The court held that the venture was a business trust organized for the operation of a business for the benefit of the beneficiaries. In that case, the Supreme Court enumerated the factors necessary for the taxation of a venture as a corporation as follows:

3. “Association” implies associates. It implies the entering into a joint enterprise, and, as the applicable regulation imports, an enterprise for the transaction of business. * * * [Emphasis supplied.] [296 U.S. at 356, 56 S.Ct. at 295.] ******
What, then, are the salient features of a trust — when created and maintained as a medium for the carrying on of a business enterprise and sharing its gains — which may be regarded as making it analogous to a corporate organization? A corporation, as an entity, holds the title to the property embarked in the corporate undertaking. Trustees, as a continuing body with provision for succession, may afford a corresponding advantage during the existence of the trust. Corporate organization furnishes the opportunity for a centralized management through representatives of the members of the corporation. The designation of trustees, who are charged with the conduct of an enterprise — who act “in much the same manner as directors” — may provide a similar scheme, with corresponding effectiveness. Whether the trustees are named in the trust instrument with power to select successors, so as to constitute a self-perpetuating body, or are selected by, or with the advice of, those beneficially interested in the undertaking, centralization of management analogous to that of corporate activities may be achieved. An enterprise carried on by means of a trust may be secure from termination or interruption by the death of owners of beneficial interests and in this respect their interests are distinguished from those of partners and are akin to the interests of members of a corporation. And the trust type of organization facilitates, as does corporate organization, the transfer of beneficial interests without affecting the continuity of the enterprise, and also the introduction of large numbers of participants. The trust method also permits the limitation of the personal liability of participants to the property embarked in the undertaking. [296 U.S. at 359, 56 S.Ct. at 296.] [Emphasis supplied.]

In our opinion, the Morrissey case is on all fours with the case before us. In that case, as well as in our case, the characteristics of the venture or entity must be compared with those of a corporation. It can be taxed as a corporation even though it is not identical in every respect with a corporation. The Supreme Court in the Morrissey case stated that “The inclusion of associations with corporations implies resemblance; but it is resemblance and not identity.” [Id. at 357, 56 S.Ct. at 295.] Treasury Regulation Section 301.7701-2(a) (3) states:

An unincorporated organization shall not be classified as an association unless such organization has more corporate characteristics than noncorporate characteristics. * * *

Consequently, it becomes necessary to compare the Cherry Hill Trust in the instant case with the corporate characteristics described in the Morrissey case and in the Treasury Regulations. It is clear from that case and the Regulations that an association will be taxed as a corporation rather than as a general trust or a partnership if it has the following characteristics:

1. Associates.

2. An objective to carry on business and divide the gains therefrom.

3. Continuity of Life.

4. Centralization of Management.

5. Liability for Corporate debts limited to corporate property.

6. Free Transferability of Interests.

We shall now consider whether or not the Cherry Hill Trust in the instant case had most, if not all, of these characteristics and more nearly resembled a corporation than a general trust or a partnership as follows:

1. Associates. It is clear that the trust had associates. Originally it had 27 participants and later on this number was increased to 41. They were members of the real estate investors group and provided the capital funds for the venture. The plaintiff has contended that associates must be numerous in number. We do not agree. See Swanson v. Commissioner, 296 U.S. 362, 56 S.Ct. 283, 80 L.Ed. 273 (1935) where it was held that only two associates were sufficient for an association. Also see Helvering v. Coleman-Gilbert, 296 U.S. 369, 56 S.Ct. 285, 80 L.Ed. 278 (1935) where only five associates were held to be sufficient.

2. Objective to Carry on Business and Divide the Gains Therefrom. It will be seen from Section 301.7701-2(a)(2) that a venture will not be classified as an association unless it has both associates and an objective to carry on business for joint profit. The absence of either of these characteristics will cause the venture not to be classified as an association. We have already shown that the Trust in the instant case had associates. We will now proceed to examine the business objective of the venture. The Supreme Court stated in the Helvering case that the purpose of a venture is to be determined by referring to the agreement of the parties. In this regard, the Supreme Court stated:

* * * The parties are not at liberty to say that their purpose was other or narrower than that which they formally set forth in the instrument under which their activities were conducted. * * * lid. at 374, 56 S.Ct. at 287.]

An examination of the Cherry Hill Agreement and the Cherry Hill Trust, the constituent instruments in this case, shows without a doubt that the Trust was established for a business purpose. These instruments show that the purpose of the Trust was “to exploit agricultural lands in the State of Georgia” and “to provide for the holding of record title to real estate, ownership of machinery and equipment, accounting of receipts and disbursements relative thereto, and their respective interests in the agricultural projects contemplated.”

The trustees were empowered to: [A]cquire farm lands in the State of Georgia with or without improvements, and farm and construction machinery, equipment and implements, and to engage in agriculture upon such lands, and to improve them and to demolish existing improvements, * * * [to] employ and discharge agents, employees, advisors, attorneys and others, * * *. [Emphasis supplied.] [Ex. 1 at 2.]

The trustees were instructed to allow the Founders Group to use the land owned by the trust estate for the purpose of experimenting with the commercial planting of grasses, bamboos, row crops, cereal crops, timber, and wood or other like or different crops.

The Cherry Hill Agreement stated the purpose of the trustee’s business objective to be:

[T]o invest in agricultural lands in the State of Georgia, and cause the same to be cultivated and to raise crops of commercial value, and generally to exploit such lands as farm lands', * * *. [Emphasis supplied.] [Ex. 2 at 1.]

Also, such agreement provided:

The present interest of the Real Estate Investors Group is primarily in owning, developing and exploiting agricultural lands for income. [Emphasis supplied.] [Ex. 2 at 3.]

It is significant that prior to the execution of the Cherry Hill Agreement and the Cherry Hill Trust, an offering memorandum was prepared by a firm of securities dealers and brokers in St. Louis, Missouri, which was distributed to the plaintiff and other investors, which described the purpose of the investment and the possible yield and profits as follows :

The investors’ holding through Beneficial Interests of the Trust will initially consist of a participation in commercial farming of row crops (lettuce, celery, onions, beets, radishes, okra, and the like) which, if successful, yield high profits per acre. * * *

It was further stated in Section V that—

During the first two years major emphasis will be on the establishment of a commercial agricultural operation (stage one) in the growing and marketing of fresh produce. * * * These products will be sold, in most instances under advance contract, to local chains and to markets on the eastern seaboard.
* -X- * 'X- * *
Results of the experience of the first two years should determine whether the emphasis would continue to be solely on commercial produce farming or, whether, in addition, there should be included bamboo growing and pulping. * * *
* * * * * -X-
In the event results of commercial produce farming are sufficiently attractive to warrant its continued expansion, it may also be necessary to raise additional equity capital. * # *

It has been held that where an entity is given the power to conduct a business in the instrument which creates it, such evidence is sufficient to prove a business objective. See Helvering v. Coleman-Gilbert, supra, and Abraham v. United States, 406 F.2d 1259 (6th Cir. 1969). It would seem that this requirement has been met by the foregoing facts. However, it is proper to consider whether or not the venture actually engaged in business activities. We are convinced that such is the case. For instance, the facts show that the Trust ultimately owned more than 10,000 acres of land, 400 acres of which was actively cultivated and crops were raised thereon and 1,000 acres of the land was utilized in the bamboo experimental project. The Trust employed from 18 to 20 full time employees plus 60 to 70 temporary workers during harvest season. It also employed full time managers, accountants, and an agronomist. The operation reports of the managers showed an active business was conducted in the hiring and firing of employees, buying, selling, and exchanging land, buying farm equipment, feed and fertilizer, and selling harvested crops. Substantial sums were shown as “business expenses.” The plaintiff has contended that the only purpose of the Trust was to hold title to the property of the venture for the benefit of the beneficiaries as an investment on their behalf. We disagree. In face of the foregoing facts, it is clear to us that the investors had an objective to carry on business through the Trust, and in fact did so. Furthermore, they intended to divide the gains from the business conducted by the Trust if there were any. Paragraph 28A of the Stipulation of Facts so provides.

3. Continuity of Life. Section 301.-7701-2(b) provides as follows:

(b) Continuity of life. (1) An organization has continuity of life if the death, insanity, bankruptcy, retirement, resignation, or expulsion of any member will not cause a dissolution of the organization. * * *
* -X- -X- * -X- -X-
(3) An agreement establishing an organization may provide that the organization is to continue for a stated period or until the completion of a stated undertaking or such agreement may provide for the termination of the organization at will or otherwise. * * * [I]f the agreement provides that the organization is to continue for a stated period or until the completion of a stated transaction, the organization has continuity of life if the effect of the agreement is that no member has the power to dissolve the organization in contravention of the agreement. * * *

The Cherry Hill Trust provided that it was to exist for ten years. There was no provision in the constituent instruments that allowed an investor to terminate the organization at will. Furthermore, he could not do so under state law in violation of the agreement. As a matter of fact, one investor, W. Mac-Lean Johnson, died during the first year of the Trust, but his death had no effect whatever on the existence of the Trust. Consequently, in our opinion, the Cherry Hill Trust had continuity of life within the meaning of the Regulations and decided cases.

4. Centralization of Management. Section 301.7701-2(c) of the Regulations provides as follows:

(1) An organization has centralized management if any person (or any group of persons which does not include all the members) has continuing exclusive authority to make the management decisions necessary to the conduct of the business for which the organization was formed. * * *

In this case, the management of the Trust was placed in the hands of an operating committee which gave instructions to and supervised the trustee with respect to farming, land reclamation, and the bamboo project. This committee met periodically to formulate policies for the Trust and to make decisions regarding the acquisition and use of land and the expenditures of money for equipment and other expenses of the Trust. The committee was authorized to replace its members who died or resigned and actually did so when one of its members, W. MacLean Johnson, died. The committee occupied itself with the everyday activities of the Trust requesting information and giving advice, instructions, and authorizations to the trustee and local managers regarding the activities of the venture. The argument of the plaintiff that the operating committee was not the agent of the trustee nor responsible to it is beside the point. We are only concerned with whether or not the trust resembles a corporation, not whether it is identical in all respects to a corporation. The Regulations do not require that an agency relationship must exist between management and the trust. We are of the opinion that centralization of management existed in this case.

5. Limited Liability. Section 301.-7701-2(d) (1) provides as follows:

(1) An organization has the corporate characteristic of limited liability if under local law there is no member who is personally liable for the debts of or claims against the organization.
•X* vr -X-

The original indenture of trust provided as follows:

* * * [N]o member of the Real Estate Investors Group shall be required to pay any further amount to the Trust Estate in excess of amounts previously, within one year then last past, paid to him from the Trust Estate, unless and except to the extent that he shall be obligated to do so by his own individual agreement or undertaking.

This provision no doubt was meant to limit the investor’s liability and was so understood by them,.because in 1965 two of the investors guaranteed bank loans for the Trust. Such a guarantee would not have been necessary if the plaintiff' and other investors had unlimited liability for the debts of the Trust. In 1966, the indenture of trust was amended to provide as follows:

D. The beneficiaries of this Trust shall not be individually liable beyond their respective proportionate interest in the assets of the Trust for any action, omission, contract, debt or claim incurred by or arising from the operation of the Trust as contemplated by the Trust Indenture.

This amendment is further proof that the investors were doing everything possible to limit their liability for the debts of the Trust. Nevertheless, it is agreed by all parties that local law determines the question of limited liability. In the case of National City Bank v. First National Bank, 193 Ga. 477, 19 S.E.2d 19 (1942), the Supreme Court of Georgia recognized the general rule that beneficiaries are not usually liable for obligations of a trust citing 2 Bogert on Trusts 977, § 294. However, the court stated at page 489, 19 S.E.2d at page 26 as follows:

* * * It is uniformly held that if the cestuis may dictate on questions of the management of the trust, they are liable for the debts. * * *

This statement requires consideration of the question of whether the investors in the Trust managed the business or whether the business was managed by the operating committee. It appears that the operating committee was not elected by the investors. In the beginning this committee consisted of five individuals and was established to give instructions to the trustee. The trustee and the founders group acted under the supervision of this committee. The committee was authorized to appoint successors of any member of the committee who died, resigned, or became incapacitated, and they were not limited in their choice to someone already connected with the Trust. .This procedure was followed as shown by the appointment of a successor to W. MacLean Johnson, a member of the committee who died. Therefore, it appears that the operating committee which managed the business of the venture was for all practical purposes a self-perpetuating autonomous body. Under this arrangement, the trustee was not the agent of the investors. Furthermore, the investors did not control the trustee nor the business of the undertaking. This was left to the operating committee. Under these circumstances, it seems clear that the investors were not liable for the debts of the Trust. Further proof of this fact is shown by the purchase by the Trust of an insurance policy in the sum of $1,000,000 covering liability for its debts. It is hardly likely that such a policy would have been taken out if the investors were personally liable for its obligations. The plaintiff contends that the investors were personally liable for the debts of the Trust under the local laws of Georgia and that the insurance policy was taken out to protect them from such personal liability. While this is a good argument, it is unpersuasive. Under all the facts and circumstances, we think the investors were not liable for the debts of the Trust; and even if they were, as pointed out below, such liability alone would not prevent the Trust from being classified as an association taxable as a corporation.

6. Free Transferability of Interest. In this case the investors either purchased one or more “beneficial interest” at $25,000 each, in the Trust, or purchased a six percent note. This provided the initial capital for the Trust. In 1966 all of the note holders exchanged their notes for “beneficial interests.”

Section 301.7701-2(e) (1) provides as follows :

(1) An organization has the corporate characteristic of free transferability of interests if each of its members or those members owning substantially all of the interests in the organization have the power, without the consent of other members, to substitute for themselves in the same organization a person who is not a member of the organization. * * *

The facts show that the investors in the Trust were able to transfer their entire interests without the consent of anyone, provided they first gave notice to the trustee. However, if an investor wished to transfer less than his entire interest, he was required to have the consent of the trustee. In such an event, the trustee could not refuse to consent to such an assignment unless it believed that the assignment would substantially increase the expenses or burden of administering the Trust. The facts show that on three different occasions interests of investors were actually transferred, and there is no evidence that an investor was ever prevented from transferring his interest. The requirement that notice be given to the trustee before assigning an interest appears to have been a mere formality and not a restriction on the free transferability of an interest. The Regulations further provide that if an investor must have the consent of other members or if he must first offer his interest to the other members at its fair market value, a modified form of free transferability of interests exists. The provisions of the trust in the instant case do not so provide, and even if they did, this would not necessarily prevent the Trust involved in this case from being an association taxable as a corporation. Such a situation would be a condition that would have to be considered in determining whether the venture resembled a corporation more than a trust or a partnership.

In the Morrissey case, the Supreme Court did not state how many of the corporate characteristics a venture must have before it -would be considered an association taxable as a corporation, However, the court did say:

4. The inclusion of associations with corporations implies resemblance : but it is resemblance not identity. * * * [296 U.S. 357, 56 S.Ct. 295.]

The Regulations provide with respect to this question:

(3) An unincorporated organization shall not be classified as an association unless such organization has more corporate characteristics than noncorporate characteristics. * * * [301.7701-2(a) (3)]

We have already pointed out that the existence of associates and a business objective are the only two characteristics required by the Regulations before an organization will be considered an association. Consequently, if the organization has two or more of the four remaining corporate characteristics, making a total of four or more of the six listed in the Regulations, it will be treated as an association taxable as a corporation. The foregoing discussion of the facts in this case indicate that the Trust had all six of the listed characteristics of a corporation. The two most favorable to the plaintiff are those with respect to limited liability and free transferability of interest. Nevertheless, as stated above, we think those two characteristics more nearly resemble corporate characteristics than those of a general trust or a partnership. But even if this were not so with these two characteristics, the other four definitely are corporate in character and would be sufficient to classify the Trust as an association. It should be pointed out that in Swanson v. Commissioner, 296 U.S. 362, 56 S.Ct. 283, 80 L.Ed. 273 (1935), an organization was classified as an association even though only a modified form of free transferability of interest existed. In Cooper v. Commissioner, 262 F.2d 530 (10th Cir. 1958), cert, denied, 359 U.S. 944, 79 S.Ct. 724, 3 L.Ed.2d 677 (1959), an entity was found to be an association even though it lacked the characteristic of limited liability of investors and had only a modified form of free transferability of interest.

Section 301.7701-2(a) (1) provides in pertinent part:

* * * In addition to the major characteristics set forth in this sub-paragraph, [i.e., the six listed above] other factors may be found in some cases which may be significant in classifying an organization as an association, a partnership, or a trust. [Emphasis supplied.]

In the instant case at least two other factors appear to be significant. These are: (1) the fact that the Trust was authorized and able to acquire title to real estate and personal property and to sell and exchange it and to otherwise deal with it as its own as a corporation would do; and (2) the financing of the Trust was promoted in the beginning by the preparation and distribution of an offering memorandum or prospectus prepared by a firm of securities brokers who were paid a fee for their work, which was similar to the method used by many corporations to obtain initial capital. These factors are additional corporate characteristics. See Morrissey v. Commissioner, supra, and Harrison Property Management Co. v. United States, 475 F.2d 623, 201 Ct.Cl. 77, (1973), cert, denied, 414 U.S. 1130, 94 S.Ct. 868, 38 L.Ed.2d 754 (1974).

The plaintiff argues that the Trust in this case should be classified as a partnership or a general trust instead of an association. Considering the partnership argument first, it is readily apparent that the entity here is not a partnership because as such it could not meet the requirements of Morrissey nor of the Regulations. While it is true that a partnership complies with two of the requirements, namely (1) associates (partners), and (2) a business objective, it totally lacks the other four characteristics. For instance, there is no continuity of life because the death of a partner or the assignment of his interest dissolves the partnership. There is no centralization of management because each partner has an equal voice in the affairs of the partnership. Limited liability does not exist, as each partner is liable under local law for all partnership debts. There is no free transferability of interest within the meaning of the Regulations because no partner can substitute for himself in the partnership an outsider without the consent of the other partners. Even if such consent is obtained and the substitution is made by the assignment of the interest of the retiring partner, the old partnership is dissolved and a new one is formed between the remaining partners and the new partner. Thus, it is clear that the Trust in the instant case is not a partnership.

In the alternative, the plaintiff contends that the organization involved here is a general or ordinary trust. Section 301.7701-4 of the Regulations defines a trust of this kind as being an arrangement whereby a trustee takes title to property and protects and preserves it for beneficiaries who cannot share in the discharge of this responsibility and, by reason thereof, are not associates in a joint enterprise for the conduct of business for profit. Clearly, the Trust in this case could not meet these requirements, because it did more than merely hold and protect the title to property for the investors — it conducted an active business for profit.

If the orgainization in this case was any kind of trust, it was a business or commercial trust created by the investors to carry on a profit-making business. The fact that it was technically cast in trust form did not change the real character of the organization if under the Regulations discussed herein it more nearly resembled an association or a partnership than a trust. See Section 301.7701-4(b) of the Regulations which defines business trusts. Even though the organization in the instant case could be said to be a business trust, it is considered for tax purposes as an association that is taxable as a corporation because it has all of the characteristics of a corporation.

In our opinion, the Treasury Regulations cited in this opinion are reasonable and conform to the revenue statutes, and are, therefore, valid. See United States v. Correll, 389 U.S. 299, 88 S.Ct. 445, 19 L.Ed.2d 537 (1967); Commissioner v. South Texas Lumber Co., 333 U.S. 496, 505, 68 S.Ct. 695, 92 L.Ed. 831 (1948); Birchenough v. United States, 410 F.2d 1247, 187 Ct.Cl. 702 (1969); Hampton Roads Ind. Electronics Corp. v. United States, 178 F.Supp. 474, 147 Ct.Cl. 635 (1959).

We conclude that the Cherry Hill Trust more nearly resembles an association than a general trust or a partnership and consequently, was taxable as a corporation. Accordingly, we hold that plaintiff is not entitled to a refund of taxes for the calendar years 1965, 1966, and 1967, and interest thereon.

CONCLUSION OF LAW

Upon the foregoing opinion, which includes therein the necessary facts that were stipulated by the parties, the court concludes as a matter of law that judgment should be and is hereby entered in favor of the defendant; that plaintiff’s claim is denied; and plaintiff’s petition is dismissed.

      . Meaka S. Outlaw is plaintiff by virtue of the fact that she signed a joint income tax return with her husband, Algie L. Outlaw. The term “plaintiff” used herein refers only to Algie L. Outlaw.

      . All references herein to Regulations are to Treasury Regulations.