author: PER CURIAM.

text:
    UNITED STATES of America, Petitioner, v. The Honorable John K. REGAN, United States District Judge, et al., Respondents.
    No. 74-1559.
    United States Court of Appeals, Eighth Circuit.
    Submitted Sept. 13, 1974.
    Decided Oct. 11, 1974.

      Richard E. Coughlin, Asst. U. S. Atty., St. Louis, Mo., for petitioner.
    Richard C. Witzel, St. Louis, Mo., for Tocco, and others.
    Before MATTHES, Senior Circuit Judge, and HEANEY and STEPHENSON, Circuit Judges.
   PER CURIAM.

This mandamus proceeding presents to this court for the first time the question whether a district court may modify or alter a sentence more than 120 days after the judgment of conviction has become final by ordering that the sentence imposed be served pursuant to 18 U.S.C. § 4208(a)(2). A review of the pertinent facts is necessary for an understanding of the issue.

On August 19, 1970, Frank James Tocco, Norris Lee Smith, Ralph Long, and Charles Richmond, named as respondents herein, were each convicted of bank robbery and conspiracy to commit bank robbery, in violation of 18 U.S.C. §§ 2113(a) and 371. On September 18, 1970, all were sentenced to imprisonment of 20 years under the robbery count and concurrently to 5 years under the conspiracy count. These sentences were to be served pursuant to 18 U.S.C. § 4202, which provides that a federal prisoner becomes eligible to be released on parole after serving one third of his sentence.

On appeal, this court affirmed the convictions of all four men. United States v. Long, 449 F.2d 288 (8th Cir. 1971). Our mandates affirming the convictions of Smith, Long, and Richmond were filed in the district court on November 12, 1971, and the mandate affirming Tocco’s conviction was filed on March 17, 1972, after the Supreme Court denied his petition for certiorari. 405 U.S. 974, 92 S.Ct. 1191, 31 L.Ed.2d 247 (1972).

All four filed motions for reduction of sentence on July 5, 1972, pursuant to Fed.R.Crim.P. 35. Of the four motions, only the one filed by Tocco was within 120 day limit of Rule 35. Each motion was denied by the district court.

On June 21, 1974, Judge Regan entered orders “modifying” the sentence of each of the four to include the provision that the sentence was to be served pursuant to § 4208(a)(2). A federal prisoner serving a sentence under that subsection need not serve a minimum of one third of his sentence before becoming eligible for parole, but rather may be eligible for parole at any time the board of parole determines.

On July 22, 1974, the United States instituted this action for a writ of mandamus or prohibition pursuant to Fed.R.App.P. 21, seeking a writ directing Judge Regan to vacate his orders of June 21 modifying the sentences of the prisoner-respondents. Judge Regan filed an answer to the petition for mandamus stating in part:

Following the receipt of the renewed motions by defendants for reduction or modification of sentence, this respondent obtained information respecting the institutional records of defendants Tocco, Long, and Smith and it appeared therefrom that their records are such that each of them warrant parole consideration at an earlier date than that which is otherwise available to them under the sentences as originally imposed. Defendant Richmond has not yet entered upon service of the sentence imposed upon him for the reason that he is presently serving a sentence in the Missouri State Penitentiary for an unrelated offense.

Acting sua sponte, we appointed Richard C. Witzel, Esquire, to represent Tocco, Smith, Long, and Richmond. Mr. Witzel filed a comprehensive brief and presented an oral argument in behalf of his clients. We commend Mr. Witzel for his diligent efforts, which clearly demonstrate that he responsibly discharged the duties imposed upon him by virtue of the appointment.

At the outset we take note that at common law it was established that a court could not set aside or alter one of its judgments after the expiration of the term at which the judgment was entered, unless a statute provided otherwise. See, e. g., United States v. Benz, 282 U.S. 304, 51 S.Ct. 113, 75 L.Ed. 354 (1931); United States v. Mayer, 235 U. S. 55, 35 S.Ct. 16, 59 L.Ed. 129 (1914); 12 Cyclopedia Fed.Proced. § 50.108 et seq. (1965 rev.). Since the abrogation of any effect of the expiration of term of court, the provisions of Rule 35 have governed the power of a court in the federal judiciary to reduce sentences. See United States v. Ellenbogen, 390 F.2d 537 (2d Cir.), cert. denied, 393 U.S. 918, 89 S.Ct. 241, 21 L.Ed.2d 206 (1968).

Rule 35 expressly grants jurisdiction to a district court to correct an illegal sentence at any time, and authorizes the court to reduce a sentence or correct a sentence imposed in an illegal manner within 120 days after receipt by the court of the mandate of affirmance on appeal or within 120 days after disposition by the Supreme Court upholding the conviction.

Numerous courts have held that this 120 day limit is absolute, and may not be extended for any reason, since the federal rules of criminal procedure themselves provide that the time limit in Rule 35 cannot be enlarged. See Fed.R.Crim.P. 45(b). The time limit in Rule 35 is considered jurisdictional, and once the 120 day period has passed a court is without power to reduce a valid sentence pursuant to Rule 35. United States v. Mehrtens, 494 F.2d 1172 (5th Cir. 1974); Peterson v. United States, 432 F.2d 545 (8th Cir. 1970); United States v. Gorman, 431 F.2d 633 (5th Cir. 1970); United States v. Ellenbogen, supra.

There is precedent holding that a district court may consider an untimely Rule 35 motion under certain circumstances. See Dodge v. Bennett, 335 F.2d 657 (1st Cir. 1964). Unlike this proceeding, however, in that case there was a good faith attempt by the prisoner to comply with the prescribed time limit, but for reasons wholly beyond his control and attributable to governmental negligence, the Rule 35 motion did not timely reach the court. We therefore do not consider the holding of that ease as apposite here, since the instant facts do not evince the aggravated and unjust circumstances outlined in the Dodge opinion. There are no circumstances on this record justifying a holding that the district court should act upon these grossly untimely motions in the interests of equity.

The four prisoner-respondents, however, argue that even if the 120 day period is an absolute jurisdictional limit to the district court’s power to reduce sentence under Rule 35, the district court could amend their sentences beyond the 120 day period because the addition of a 4208(a)(2) parole provision is not truly a “reduction” of sentence, but rather only a “modification” and not within the ambit of Rule 35. They maintain that no reduction of sentence is involved here and Rule 35 therefore does not apply because they will still be within the custody of the Attorney General on their sentences even if they are paroled.

Initially, we note that the prisoner-respondents’ contention that the June 21 orders were not issued pursuant to Rule 35 is apparently contrary to the intention of the author of those orders. Judge Regan, in his answer to the application for the writ of mandamus, stated that

this respondent determined in view of the length of the original sentences to reconsider his previous orders overruling the motions for reduction or modification of sentences by authorizing the same to be served under the provisions of Section 4208(a)(2)

This language indicates that Judge Re-gan believed that he was acting upon Rule 35 motions to reduce sentence and strongly suggests that he considered himself to be in effect reducing the sentences of the four men.

In addition, those cases which have previously ruled on this question have held that the addition of a 4208(a). (2) parole provision to a sentence is a “reduction” in Sentence. See United States v. Bryan, 498 F.2d 366 (5th Cir. 1974); Banks v. United States, 365 F.Supp. 594 (N.D.Miss.1973); United States v. Rush, 60 F.R.D. 211 (D.Minn. 1973). Although a prisoner is still technically within the custody of the Attorney General while on parole, nevertheless the effect of adding the 4208(a) (2) parole provision to a sentence is to provide the opportunity for the prisoner to be released from imprisonment earlier than was possible under the original sentence being served pursuant to 18 U.S.C. § 4202. As Judge Neville noted in United States v. Rush, supra, 60 F.R.D. at 212, “Certainly this is a reduction in the practical sense as well as the legal sense.” It seems apparent to us that an order reducing the required minimum period of incarceration from one third of the total sentence to zero is a reduction of sentence within the meaning of Rule 35 and not allowed after the 120 day period has expired.

But even if the orders in question were not reductions in sentence pursuant to Rule 35, we have already noted above that the district court is without power to issue an order affecting its judgment absent an express statutory grant of authority. Two of the prisoner-respondents pro se seek to find such a grant of authority in the very language of 4208(a)(2). They point out that 4208 (a) (2) states no specific time limit in granting to the district court the authority to sentence a prisoner to a maximum term and then allow the board of parole to parole the prisoner at the board’s discretion. Consequently, they argue that since the subsection states no time limit, such sentencing pursuant to 4208 (a) (2) may take place at any time.

This argument, however, overlooks the prefatory language of § 4208 (a), which obviously is intended to apply to both 4208(a)(1) and 4208(a) (2):

(a) Upon entering a judgment of conviction, the court having jurisdiction to impose sentence, when in its opinion the ends of justice and best interests of the public require that the defendant be sentenced to imprisonment for a term exceeding one year, may. . . .
[Emphasis added.]

The language of the statute quoted above and a recent Supreme Court opinion strongly suggest that the sentencing options available to the district court pursuant to 18 U.S.C. § 4208(a)(1) and (2) are intended to be exercised only upon entering the judgment of conviction and not subsequently as in the present case. See Bradley v. United States, 410 U.S. 605, 610-611, 93 S.Ct. 1151, 35 L.Ed.2d 528 (1973). Consequently, § 4208(a)(2) cannot be construed as granting the district court authority independent of Rule 35 to modify or reduce sentences after the 120 day period has expired.

We have been referred to no other statutory provision or federal rule which would serve as a grant of authority to the district court to reduce or modify the the sentences in question independent of the power granted the court in Rule 35. In any event, in light of the policy considerations enumerated in Chief Judge Keady’s opinion in Banks v. United States, supra, 365 F.Supp. at 595, we are not inclined to rule that the district court has some broad power, undefined by statute or rule, to subsequently reduce or substantially modify sentences.

Finally, the argument is made that the Bureau of Prisons has so regularly permitted or tolerated such untimely modifications of sentences by district courts in the past that, even if the district court was without authority to issue the June 1974 orders, the government should be estopped from asserting that the orders are invalid for lack of jurisdictional authority by the court. Apparently the Bureau of Prisons did acquiesce in at least some orders of district courts amending sentences after the 120 day limit of Rule 35 to include the provisions of 4208(a)(2) in the sentence. But an affidavit of Eugene N. Barkin, Assistant Director and General Counsel of the Bureau of Prisons, dated September 10, 1974, and submitted to this court at oral argument, indicates that the Bureau is reconsidering this former policy in light of the language in the recent Supreme Court opinion of the Bradley v. United States, supra, suggesting that a sentencing .court is without jurisdiction to employ § 4208(a) except upon entry of judgment of conviction.

In any event, we find nothing in this record to justify application of any principle of estoppel. See generally, 28 Am.Jur.2d Estoppel and Waiver §§ 76-78.

In summary, we hold that the court was without authority to issue the orders which are the subject of this proceeding.

Accordingly, writ of mandamus is ordered to be issued directing the Honorable John K. Regan to vacate his orders of June 21, 1974, amending the sentences of Frank James Tocco, Norris Lee Smith, Ralph Long, and Charles Richmond.

      . A memorandum to the district court from Chief Probation Officer J. A. MacDoniels, written on March 14, 1974, before the district court issued the order modifying the sentences, stated that Long and Smith would be eligible for parole on February 4, 1977, and Tocco would be first eligible for parole on November 19, 1978. Richmond has not yet begun to serve this federal term since he is presently in the custody of the state of Missouri serving a sentence upon a state felony conviction.

      . The motion by Tocco was denied by the court on July 24, 1972. Richmond’s motion was denied on August 14 and Smith’s and Long’s motions on September 12 of the same year.


source: Caselaw Access Project

author: RONEY, Circuit Judge:

license: Public Domain

text:
    DELTA AIR LINES, INC., Plaintiff-Appellant-Cross-Appellee, v. McDONNELL DOUGLAS CORPORATION, Defendant-Appellee-Cross-Appellant.
    No. 73-1799.
    United States Court of Appeals, Fifth Circuit.
    Oct. 31, 1974.
    Rehearing Denied Dec. 17, 1974.

      Frank F. Rox, Robert S. Harkey, Legal Div., Delta Air Lines, Inc., Harts-field Atlanta, Atlanta, Ga., for plaintiff-appellant-cross-appellee.
    J. Arthur Mozley, Atlanta, Ga., for defendant-appellee-cross-appellant.
    Before BROWN, Chief Judge, and RO-NEY and GEE, Circuit Judges.
   RONEY, Circuit Judge:

An aircraft purchased by Delta Air Lines, Inc. from McDonnell Douglas Corporation, the manufacturer, suffered damages when its nose gear collapsed during a landing in Jacksonville, Florida, because a component part was incorrectly installed. There were no personal injuries. Delta seeks to recover from McDonnell the expenses incurred in repair on four theories of liability: (1) negligence; (2) breach of implied warranties of merchantability and fitness for a particular purpose; (3) breach of express warranty; and, (4) strict liability in tort. The District Court dismissed the two counts sounding in negligence and strict liability on the ground that an exculpatory clause in the contract limited McDonnell’s liability to contractual warranty provisions. Delta, in this interlocutory appeal, seeks review of the correctness of the Court’s ruling in this regard. We affirm.

By cross-appeal McDonnell seeks review of the District Court’s refusal to dismiss the counts based on express and implied warranties. The District Court reserved decision as to these two counts pending trial. Accordingly, there is no decision on the attempted cross-appeal for us to review at this time. Assuming without deciding that the allowance of an interlocutory appeal was not improvident under these circumstances, we will review the validity and effect of the exculpatory clause only insofar as it presents a defense against the counts for negligence and strict liability, the issues previously decided by the trial court.

The Purchase Agreement in question was signed at Long Beach, California, on November 18, 1964, and originally related only to the so-called “short”- DC-8 aircraft, or Series 51 DC-8 aircraft. On August 13, 1966, at Long Beach, California, the parties executed Amendment No. 5 to the Purchase Agreement, which amendment provided that additional DC-8 aircraft, of the Series 61 or “stretched” variety, would be delivered to Delta under the terms and provisions of the November 18, 1964, Purchase Agreement. The accident aircraft was one of the aircraft covered by Amendment No. 5.

Article 4 of the Purchase Agreement stated the aircraft would be manufactured and delivered in California, and Article 17 provided: “This agreement shall be construed and performance thereof shall be determined according to the laws of the State of California, U.S. A.” The Purchase Agreement also contained clauses which limited the agreements between the parties to the exact written terms of the contract.

At the time of the accident in question, Delta was operating the aircraft Douglas Finance Corporation, but the lease was contemplated by the parties and they had agreed that the lease agreement would not abrogate or modify under a lease agreement with McDonnell the provisions of the Purchase Agreement.

The Warranty Article in the Purchase Agreement, set forth in full in the margin, contained the following exculpatory clause:

(G) The warranty provided in this article and the obligations and liabilities of seller thereunder are in lieu of and buyer hereby waives all other warranties, guarantees or liabilities, express or implied arising by law or otherwise (including without limitation any obligation of seller with respect to consequential damages) and whether or not occasioned by seller’s negligence and shall not be extended, altered or varied except by a written instrument signed by seller and buyer; provided that in the event the provision relieving seller from liability for its negligence should for any reason be ineffective, the remainder of this paragraph (G) shall remain in full force and effect.

Amendment 5 incorporated the terms of the 1964 agreement, including the Warranty Clause, which terms were the subject of intensive negotiation. There was no substantial imbalance in the bargaining positions of the parties and the Warranty Clause was not dictated by McDonnell on a “take it — or leave it” basis. Due to the California Court of Appeal decision in Delta Air Lines, Inc. v. Douglas Aircraft Co., Inc., 238 Cal.App.2d 95, 47 Cal.Rptr. 518 (1965), rendered several months before the parties entered into the agreement in the instant case, Delta was aware that McDonnell would, under certain circumstances, agree to modification or elimination of the exculpatory clause, albeit for a price which Delta apparently did not wish to pay. See 238 Cal.App.2d at 103 n. 5, 47 Cal.Rptr. at 523 n. 5.

The parties agree with the proposition that in this diversity case, we must follow state, law, including state conflict of law rules, and that the Georgia conflicts rule provides that the law of the state where a contract is made and performed will govern the validity and interpretation of the contract except when the result is contrary to the public policy of the State of Georgia. The Georgia state courts would apply California law in this case not only because the contract was made and performed in California, but also because the parties specifically agreed in the contract that California law would control.

The chief point of disagreement between the parties that we are called upon to settle concerns what a California court would do with this case. This disagreement centers around the precedent established by Delta Air Lines, Inc. v. Douglas Aircraft Co., Inc., 238 Cal.App.2d 95, 47 Cal.Rptr. 518 (1965), in the light of an earlier California Supreme Court case, Tunkl v. Regents of University of California, 60 Cal.2d 92, 32 Cal.Rptr. 33, 383 P.2d 441 (1963), and a California statute dealing with exculpatory clauses, Cal.Civ.Code § 1668 (West 1972).

Delta Air Lines, Inc. v. Douglas Aircraft Co., Inc., supra, involved the validity, as between the same airline and the same manufacturer as the case at bar, of virtually identical warranty provisions in connection with an airplane accident also caused by a malfunctioning nose landing gear. The intermediate California Court of Appeal upheld the exculpatory clause in the contract as precluding a negligence suit brought by the airline against the manufacturer.

Faced with this strong indication of how a California court would decide this case, Delta makes essentially five arguments against that result, which we find unpersuasive. We address the arguments seriatim as presented in Delta’s brief.

First, Delta contends that the exculpatory clause is in clear violation of the public policy of California as specifically set out in the statutes of that state because it would relieve McDonnell of responsibility for the violation of § 21.-165 of the Federal Aviation Administration (FAA) regulations requiring it to determine that the aircraft was in a condition for safe operation. California Civil Code § 1668 makes it against the policy of the law for a contract to exempt anyone from responsibility for violation of the law. Delta asserts that by delivering the plane with the nose gear part incorrectly installed, McDonnell violated the FAA regulation found at 14 C.F.R. § 21.165 (1974), which provides in effect that an airplane manufacturer must determine that any airplane proposed for certification is in a condition for safe operation.

Delta, however, confuses a negligence theory of action, under which violation of a law or a regulation may be evidence of negligence, see Steel v. Downs, 438 F.2d 310, 316 (8th Cir. 1971), with the liability that may be imposed by law. McDonnell is still answerable to the FAA and third parties for any responsibility established by the regulation, and any statutory right of action that might be given to Delta by FAA regulations has not been abrogated. But none of these causes of action are involved in an action based on common law negligence. We are unable to agree that the contract between two industrial giants fixing the dollar responsibility for McDonnell’s alleged negligence would be void under California law, any more than would be an insurance contract which might be written for the same purpose.

Second, and along the same lines as the first argument, Delta contends that this case is distinguishable from Delta Air Lines, Inc. v. Douglas Aircraft Co., Inc., because in that case the court did not consider the issue raised here with respect to the violation of § 21.165. The Douglas court, however, did reject an argument similar to the one asserted first by Delta, by finding that Douglas had not violated the regulations there in question. Delta argues that the clear inference from the case is that had such a violation been proved, the California Court would have held the exculpatory clause void under Section 1668. Since this case is at the pleading stage, Delta contends that it ought to be permitted to prove what it did not prove in the state case.

Although Delta is correct in contending that Douglas did not consider the issue raised here as to a FAA regulation violation, it is incorrect in asserting that the California Court conceded that if a violation of such a regulation had been shown the exculpatory clause would have been invalid under California law. The total comments in the opinion relating to this argument about Section 1668 leave no inference whatsoever as to how the court would have handled the argument had Douglas violated the regulations. See 47 Cal.Rptr. at 525. With the Douglas case providing no guidance, we feel our analysis of Delta’s first point applies equally to this point, and Delta’s argument fails.

Third, Delta argues that even if Delta Air Lines, Inc. v. Douglas Aircraft Co., Inc. were not distinguishable, the court in that case did not correctly apply the law of California as set out in the leading cases of that state. Instead, Delta asserts, that court misinterpreted and incorrectly applies the law, while the duty of the court below in this case was to apply the law of California correctly, and not just to follow the Douglas case. And since that case was not a correct interpretation of the law, the District Court was bound to follow the law set out in the statutes and other decisions of California.

In this argument, Delta stresses the case of Tunkl v. Regents of University of California, 60 Cal.2d 92, 32 Cal.Rptr. 33, 383 P.2d 441 (1963). In Tunkl, the Supreme Court of California held that release from liability for future negligence imposed as a condition for admission to a charitable research hospital was invalid on the ground that the agreement affected the public interest. The court reviewed a variety of exculpatory clause cases and concluded that an exculpatory provision can only be valid if it does not affect the “public interest.” The Douglas court dealt specifically with Tunkl and its analysis of California law, and concluded in a very thorough discussion, that the contract between the airline and the manufacturer was not clothed with the kind of public interest that surfaced in a contract between a patient and a hospital. Based on the reasoning in the Douglas opinion, we are convinced that California law was correctly applied there. What may be more important in addressing the plaintiff’s contention is that under Erie R. R. v. Tompkins, supra, we are bound to follow state law, whether or not we agree with the reasoning upon which it is based or the outcome which it dictates. This is the ultimate significance of the Erie decision. Delta has not cited us to any subsequent California decisions criticizing, distinguishing, or modifying the Douglas case. Therefore, Douglas remains the latest, most authoritative expression of California law applicable to the facts of this case. It is controlling for our purposes. See Ford Motor Co. v. Mathis, 322 F.2d 267, 269 (5th Cir. 1963).

Fourth, Delta contends that even if the court below correctly determined that the exculpatory clause is valid under the law of California, the clause violates the public policy of Georgia and should not be enforceable as a defense to Delta’s complaint by a federal court sitting in Georgia. •»

To support this argument, Delta cites only a Georgia statute similar to Cal. Civ.Code § 1668. The argument fails to carry the point for the same reasons that made the position untenable as a matter of California public policy.

Finally, as to the dismissal of the strict liability count only, Delta makes this argument: The count based upon strict liability in tort is not barred by the exculpatory clause (even if valid) because one of the basic reasons for the development of the theory of strict liability is to transcend technical bases for denying liability where the product involved is unreasonably dangerous to the public. Contractual attempts to restrict liability are therefore immaterial in strict liability cases.

Although McDonnell argues in response to this that strict liability does not apply to factual circumstances such as these, we do not have to rule on this argument because we agree with McDonnell’s contention that the exculpatory clause is broad enough to include the concept of strict liability in tort.

Although the California Court of Appeal did not expressly mention strict liability in the earlier Delta Air Lines, Inc. v. Douglas Aircraft Co., Inc. case, the holding by that Court is broad enough to encompass strict liability. In reaching its decision, the California Court cited and discussed Greenman v. Yuba Power Products, Inc., 59 Cal.2d 57, 27 Cal.Rptr. 697, 377 P.2d 897 (1963), the landmark California case dealing with the concept of strict liability in tort, and expressly held: “Even though disclaimer clauses are to be strictly construed, still we find that this clause covers not only contractual warranty liability but also tort liability.” 238 Cal.App.2d at 101, 47 Cal.Rptr. at 522. The doctrine of strict liability is a tort concept, and the statement by the California Court that the exculpatory clause is broad enough to encompass “tort liability” as well as other forms of liability clearly indicates that strict tort liability has been disclaimed. Any other conclusion would emasculate the basic purpose of the Warranty Article and exelupatory clause.

Finding no persuasive arguments that militate against following this remarkably similar California case, we affirm the dismissal of the two counts in negligence and strict liability as being barred by the exculpatory clause in the contract under the authority of Delta Air Lines, Inc. v. Douglas Aircraft Co., Inc., supra.

Affirmed.

      . 12. WARRANTY.
      (A) Subject to the limitations and conditions hereinafter set forth, seller warrants that the aircraft, accessories, equipment and parts supplied hereunder which have been manufactured by seller, and by other manufacturers if made to detailed design and detailed specifications originated by seller, shall at the time of delivery by seller be free from:
      (1) Defects in material and workmanship furnished by seller and used in the fabrication thereof;
      (2) Defects arising from the selection of material or process of manufacture ;
      (3) Defects inherent in the design thereof in view of the state of the art as of the date of such design ;
      (4) Defects arising from failure to conform to the detailed specifications of this purchase agreement except as to such portions thereof, if any, as are expressly stated to be not guaranteed.
      (B) Defects in material and workmanship, defects arising from the selection of material or process of manufacture and defects arising from failure to conform to the detailed specifications, must become apparent in the aircraft, accessory, equipment or part within one (1) year or two thousand (2,000) flying hours, whichever shall first expire, but not less than eight (8) months after delivery of said aircraft.
      The extent of seller’s liability under this warranty as to defects in material or workmanship, defects arising from the selection of material or the j)rocess of manufacture, and defects arising from failure to conform to the detailed specifications, is limited to the repair at its expense of such defects in the aircraft or to the repair or replacement at its expense (with a similar item free from the defect in question) of any accessory, equipment or part which is defective in any of such respects.
      (C) The extent of seller’s liability under this warranty as to defects inherent in design is limited to the correction at its expense of all such defects becoming apparent in the aircraft ; accessory, equipment or part purchased hereunder within one (1) year or two thousand (2,000) flying hours, whichever shall first expire, but not less than eight (8) months after delivery of said aircraft.
      (D) Seller shall make the foregoing repairs, replacements and corrections with reasonable cafe and dispatch in order that the aircraft, system, accessory, equipment or part involved may not be kept out of service longer than necessary. Disassembly of the aircraft to correct the defect, removal of the defective or faulty structure, system, accessory, equipment, or new part and installation of the corrected or new structure, system, accessory, equipment or new part and re-assembly of the aircraft shall be at buyer’s expense, unless such work is performed by seller at its factory at Long Beach, California, or unless buyer offers to return the aircraft, accessory, equipment or part and buyer and seller thereafter mutually agree that buyer will perform the work and that seller will pay buyer in whole or in part for removal, installation and re-assembly of the aircraft. Cost of temporary or interim repairs, replacements and corrections accomplished by buyer, as well as any consequential cost related thereto, shall likewise be at buyer’s expense, except when seller, in advance, approves in writing such temporary or interim repairs, replacements and corrections and the cost. thereof, which cost seller may agree to pay in whole or in part.
      (E) Seller shall, as to each defect, be relieved of all obligations and liability under this warranty if:
      (1) Tlie aircraft is operated with any accessory, equipment or part not specifically approved by seller and not manufactured by seller or to seller’s design and specification unless buyer furnishes reasonable evidence that such installation was not a cause of the defect; provided that this Xirovision shall not apply to any accessory, equipment or part, the use of which does not affect the safety of the aircraft;
      (2) The aircraft shall not have been operated or maintained in accordance with seller’s instructions furnished under this agreement, unless buyer furnishes reasonable evidence that such operation or maintenance, as the case may be, was not a cause of the defect;
      (3) The aircraft shall not have been operated under- normal airline use, unless buyer furnishes reasonable evidence that such operation was not a cause of the defect ;

        (4) The aircraft shall have been repaired, altered or modified without seller’s approval or if the aircraft shall have been operated subsequent to its involvement in an accident, unless buyer furnishes reasonable evidence that such repair, alteration, modification, operation or accident was not a cause of the defect, provided, however, that this limitation insofar as it relates to repairs and accident shall not be applicable to routine repairs or replacements or minor accidents which normally occur in the operation of aircraft if such repairs or replacements are made with suitable material and according to standard practice and engineering;
      (5) Buyer does not (i) report the defect in writing or by telegram to seller’s warranty administrator at its factory in Long Beach, California, within sixty (60) days following such defect becoming apparent to buyer as provided in paragraphs (B) and (0) above, and (ii) return the defective or faulty aircraft, accessory, equipment or part to said factory (or, if return to seller’s factory is not feasible and seller so agrees in advance in writing, which agreement shall not unreasonably be withheld, to buyer’s base repair shop or other appropriate facility in the United States) within sixty (60) days following the end of the applicable period of time specified in paragraphs (B) and (C) above, or within sixty (60) days following such defect becoming apparent, whichever is earlier, and further provided that if, for reasons beyond buyer’s control, return of the items to seller’s factory is not possible within said sixty (60) day period, and if buyer so notifies seller in writing and seller so agrees in writing, which agreement shall not unreasonably be withheld, the said sixty (60) day period will be waived, but buyer must return the item to seller’s said factory if, as and when said return does become feasible. Buyer also must submit reasonable proof to seller, within sixty (60) days after the defect becomes apparent (except when such period is waived) that the defect is due to a matter embraced within the seller’s warranty hereunder. Seller shall approve or disapprove buyer’s substantiated warranty claim in writing within sixty (60) days of receipt thereof. All such transportation, including return to buyer of the repaired, replaced or corrected aircraft, accessory, equipment or part shall be at buyer’s expense.
      With respect to matters made the subject of seller’s approval under sub-paragraphs (1), (4) and seller’s approval or disapproval of buyer’s warranty claim under (5) of this paragraph (E), seller’s approval or disapproval thereof shall be made in writing to buyer within sixty (60) days after buyer’s written notice requesting approval is received by seller. In the event of disapproval, seller shall set forth the reasons therefor in its statement of disapproval. Seller’s failure to deliver to buyer a _ written statement of approval or disapproval within such sixty (60) day period shall irrevocably and conclusively constitute approval by seller of the subject matter of the particular request involved.
      (F) Xormal wear and tear and the need for regular overhauls shall not constitute a defect or failure under this warranty. Buyer acknowledges that some of the accessories, equipment and parts warranted hereunder have a normal life expectancy that is less than the time period specified under paragraph (B) and (C) above.
      (G) The warranty provided in this article and the obligations and liabilities of seller thereunder are in lieu of and buyer hereby waives all other warranties, guarantees or liabilities, express or implied arising by law or otherwise (including without limitation any obligation of seller with respect to consequential damages) and whether or not occasioned by seller’s negligence and shall not be extended, altered or varied except by a written instrument signed by seller and buyer ; provided that in the event the provision relieving seller from liability for its negligence should for any reason be ineffective, the remainder of this paragraph (G) shall remain in full force and effect.

      . Erie R. R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

      . Klaxon Co. V. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941).

      . Cox v. Adams, 2 Ga. 158, 165 (1847); Goodman v. Nadler, 113 Ga.App. 493, 148 S.E.2d 480, 483 (1966).

      . See Barzda v. Quality Courts Motel, Inc., 386 F.2d 417 (5th Cir. 1967).

      . Cal.Civ.Code § 1668 provides:
      All contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.

      . Section 21.165 reads :
      The holder of a production certificate shall—
      (a) Maintain the quality control system in conformity with the data and procedures approved for the production certificate ; and
      (b) Determine that each completed product submitted for airworthiness certification or approval conforms to the type design and is in a condition for safe operation.

      . Ga.Code Ann. § 20-504 provides:
      A contract which is against the policy of the law cannot be enforced; such are contracts tending to corrupt legislation or the judiciary, contracts in general restraint of tracte, contracts to evade or oppose the revenue laws of another country, wagering contracts, contracts of maintenance or champerty. .


author: EAST, Senior District Judge:

text:
    MARINE FIREMEN’S UNION, and others similarly situated, Appellant, v. OWENS-CORNING FIBERGLASS CORPORATION et al., Appellees.
    No. 72-1936.
    United States Court of Appeals, Ninth Circuit.
    Sept. 12, 1974.
    As Corrected Oct. 23, 1974.

      Joseph M. Alioto (argued), San Francisco, Cal., for appellant.
    John Curran Ladd (argued), of Stein-hart, Goldberg, Feignbaum & Ladar, San Francisco, Cal., for appellees.
   OPINION

Before MERRILL and ELY, Circuit Judges, and EAST, Senior District Judge.

EAST, Senior District Judge:

THE CASE

Marine Firemen’s Union (Marine) instituted this private class antitrust action under §§ 4-16 of the Clayton Act [15 U.S.C. §§ 15-26] on February 18, 1970, alleging in its complaint that the appellees combined and conspired to violate § 1 of the Sherman Act [15 U.S.C. § 1] with resulting treble damage. These allegations were substantially the same charges of violation as contained in the hereinafter mentioned government criminal proceedings.

The District Court granted the appel-lees Rule 56, Federal Rules of Civil Procedure, motion for summary judgment on the grounds that the statute of limitations barred the instant action, and summary judgment was accordingly entered on March 17, 1972.

At the time of the District Court’s hearing on the motion for summary judgment, the truth of Marine’s allegations was presumed and the pertinent undisputed facts were:

On or about December 28, 1964, the United States of America timely instituted a criminal proceeding against the appellees in the United States District Court for the Northern District of California charging that those parties combined and conspired in violation of § 1 of the Sherman Act;
On February 6, 1969, the last of the defendants, appellees herein, entered a plea of “nolo contendere” in those criminal proceedings, and on February 17, 1969, the appellees were orally fined by the District Court; however, the judgment of conviction on those pleas was not signed by the sentencing judge until February 19, 1969, nor entered by the clerk until February 20, 1969; and
As stated above, Marine instituted these proceedings on February 18, 1970.

Here we pinpoint that the commencement date of this cause exceeded by one day the period of one year after the date of the District Court’s oral sentence or judgment to pay fines, but was within one year after the signing of the written judgment by the sentencing judge and a fortiori the date of the clerk’s entry of the judgment.

Also it is noted that the appellees urged to the District Court at the hearing on the motion for summary judgment the legal concept that the “pen-dency” of the criminal proceedings terminated as of the date of the oral sentences and judgments of fine. Marine urged that the, “pendency” of the government’s proceedings extended from the date of the oral pronouncements of sentence through the appeal time following. The District Court adopted the premises of the appellees and ruled that the “pen-dency” of the government’s criminal proceedings against the appellees terminated on February 17, 1969 when the appellees were orally sentenced.

Marine timely moved the District Court, pursuant to Rule 59(a) and (b), Federal Rules of Civil Procedure, to reconsider and set aside its summary judgment aforesaid. The District Court entertained the motion and heard the parties. Marine contended in support of its motion that it had been ill-advised in the date of oral sentence, plus appeal time concept, and that the true, crucial and lawful termination of “pendency” date is the date of the entry of.a signed judgment in the criminal docket, in this case February 20, 1969, plus appeal time, and urged the District Court to reconsider and vacate its ruling fixing February 17, 1969 as the date of the termination of the “pendency” of the related criminal proceeding. The appellees contended that Marine was attempting to untimely interject a new position or issue of law after a full hearing, consideration and adjudication by the District Court on the merits of the motion for summary judgment and flatly reiterated their position in these words:

“And clearly we believe that the cases we have cited indicate that [the criminal proceeding] ceases to be pending when the defendants orally made their pleas and when the judge orally fined them.”

The District Court concluded the hearing with these remarks:

“Well, you [counsel for appellees] may be wrong, I may be wrong, Mr. Alioto [counsel for Marine] may be right, but we will let the Ninth Circuit decide it.
“Motion denied.”

Marine appeals from the summary judgment and the order denying the motion for reconsideration and vacation of the summary judgment. We reverse.

ISSUE

We briefly paraphrase the single issue on appeal as follows;

At which procedural point and date does the “pendency” of a government’s criminal proceedings terminate for the purposes of the operation of the one year additional suspension of the running of the statute of limitations under § 5(b) of the Clayton Act [15 U. S.C. § 16(b)]?

DISCUSSION

Marine’s new or revised position did not raise a new issue of law, but rather a change of its legal view or concept of the crucial and lawful termination of “pendency” date. In any event we are satisfied that the District Court’s denial of the motion for reconsideration and vacation of the summary judgment was not entered in the exercise of judicial discretion for a party’s failure to show an absence of purpose of delay or because of the insertion of a new parallel or contra issue of law not theretofore urged to or considered by the District Court. It is manifest that the motion was timely made to correct an avowed mistake of legal concept which may or may not have misled the District Court in reaching its conclusion in a bona fide attempt to rectify an asserted erroneous judgment; further, that the District Court did entertain the motion and heard the parties on the legal merits in a review of its prior ruling on the summary judgment. We conclude that the District Court’s determination to deny the motion involved a reconsideration of the merits and was an adherence to its prior ruling that the date of oral sentence was the proper termination date and Marine’s class action claim was absolutely barred by the statute of limitations. We hold that determination to be a conclusion of law on the merits and reviewable on this appeal. See American Pipe & Construction Co. v. Utah, (1974) 414 U.S. 538, at 560, 94 S.Ct. 756, 38 L.Ed.2d 713. The holding in Grumman Aircraft Eng. Corporation v. Renegotiation Board, 157 U.S.App.D.C. 121, 482 F.2d 710 (1973) urged by the appellees is not contrary. “In our view, the District Court properly denied the motion for rehearing as untimely without considering its merits.” (Italics supplied), at page 721.

It is fundamental that the court’s oral pronouncement of a sentence to custody or of fine is a due process necessity; however, in and of itself it is not an enforceable adjudication in any given criminal proceeding. The criminal proceeding necessarily continues and pends following the oral sentence until a final enforceable judgment of conviction and sentence is made by the adjudicating court. We conclude that in order to give full effect to the double play of § 16(b) [suspension of the statute of limitations, § 15b], the pendency” of the government’s criminal proceeding continues for a period of one year from and after the date of the entry of judgment of conviction against the last remaining defendant in the related criminal proceeding. Minnesota Mining & Mfg. Co. v. New Jersey Wood Finishing Co., 381 U.S. 311, 85 S.Ct. 1473, 14 L.Ed.2d 405 (1965); Leh v. General Petroleum Corp., 382 U.S. 54, 86 S.Ct. 203, 15 L.Ed.2d 134 (1965); New Jersey v. Morton Salt Company, 387 F.2d 94 (CA 3 1967); Maricopa County v. American Pipe & Construction Co., 303 F.Supp. 77 (D.C.Ariz.1969): see also Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 333-338, 91 S.Ct. 795, 28 L.Ed.2d 77 (1971).

Rule 32(a), Federal Rules of Criminal Procedure, prescribes the formalities to be followed in the imposition of sentence. Section (b) of Rule 32 and Rule 55, Federal Rules of Criminal Procedure, in plain and specific language prescribes the substance and procedures to be utilized in the entry of a final enforceable judgment of conviction in any given criminal proceeding.. Rule 32(b)(1) provides:

“A judgment of conviction shall set forth the plea, . . . findings, and the adjudication and sentence. The judgment shall be signed by the judge and entered by the clerk.” (Italics supplied)
Rule 55 commands, inter alia, that: “Among the records required to be kept by the clerk shall be a book known as the ‘criminal docket’ in which, . . . shall be entered each . . . ' judgment of the court. The entry of [a] judgment shall show the date the entry is made”. (Italics supplied)

Professor Moore points out that the principal importance of the judgment, and its entry [in the criminal docket], is in relation to the taking of an appeal. 8A Moore’s Federal Practice, § 32.06. Case law chaos results if different procedural points and dates thereof are to be for one reason or the other selected as the commencement date of time limits on the myriad of post judgment remedies open to any given party, such as appeal, motions for new trial, reduction of sentence or filing of cost bills, to name a few. Orderly procedural necessity dictates uniformity. We sense no logical reason to differentiate the procedural point or date of final adjudication and termination of the “pen-dency” of a given criminal proceedings for the purpose of computing statute of limitations time from that of calculating appeal time for any given party. Accordingly, we hold that the “pendency” of the related criminal proceeding referred to in § 16(b) terminates at the procedural point and date of the clerk’s notation in the “criminal docket” for the case of the entry of the judge’s signed written judgment of conviction of the last remaining defendant in the criminal proceeding. Since the clerk’s “criminal docket” notation of the entry of the summary judgment was made on February 20, 1969, we conclude that the District Court erred in fixing February 17, 1969, the date of the District Court’s oral pronouncement of sentence of fine, as the date of the termination of the “pendency” of the related criminal proceeding and adjudging Marine’s class action claim absolutely barred by the statute of limitations involved.

In view of the holding above, we do not reach Marine’s contention that the “pendency” of the criminal proceeding continued through appeal time.

The District Court’s order denying Marine’s motion for reconsideration and vacation of the summary judgment is reversed and the cause remanded to the District Court with instructions to vacate the summary judgment dated March 17, 1972, and for further proceedings.

Reversed and remanded.

       Honorable William G. East, Senior United States District Judge for the District of Oregon, sitting by designation.

      . 15 U.S.C. § 15b, Limitation of Actions.
      “Any action to enforce any cause of action under [§] 15 . . . shall be forever barred unless commenced within four years after the cause of action accrued.”
      15 U.S.C. § 16(b), Suspension of Limitations. “Whenever any . . . criminal proceed- ■ ing is instituted by the United States to . . . punish violations of any of the antitrust laws, . . . the running of the statute of limitations in respect, of every private right of action arising under said laws and based in whole or in part on any matter complained of in said proceeding shall be suspended during the pen-dency thereof and for one year thereafter.”


author: SOLOMON, District Judge:

text:
    Jack YBARRA, also known as Isaias M. Ybarra, Individually and as a member of the Confederacion de la Raza Unida, et al., Appellants, v. The CITY OF the TOWN OF LOS ALTOS HILLS, a municipal corporation, et al., Appellees.
    No. 73-2070.
    United States Court of Appeals, Ninth Circuit.
    Sept. 6, 1974.

      Grace M. Kubota (argued), of Community Legal Services, San Jose, Cal., for appellants.
    Robert T. Anderson (argued), of Sturgis, Den-Dulk, Douglass & Anderson, Oakland, Cal., for appellees.
    Before KILKENNY and WALLACE, Circuit Judges, and SOLOMON, District Judge.

       Honorable Gus J. Solomon, Senior United States District Judge for the District of Oregon, sitting by designation.

   OPINION

SOLOMON, District Judge:

Appellants challenge the constitutionality of a large-lot zoning ordinance of the City of the Town of Los Altos Hills [“Los Altos” or “the town”], a California suburban community. The trial court held that the zoning ordinance was constitutional and dismissed the action. We affirm.

Appellants are two Mexican-Americans and the Confederación de la Raza Unida, an unincorporated association of Mexican-American organizations. Neither of the named individual appellants are residents of Los Altos, but both qualify for federally assisted low-income housing. They brought this action on their own behalf and on behalf of all other persons of Mexican descent whose incomes qualify them for federally assisted housing.

In December', 1970, appellants obtained an option to buy certain lots in Los Altos. They paid a nominal amount for the option but agreed to pay $14,000 per acre if the option were exercised. The option could only be exercised if the land were rezoned for multifamily dwellings and if the Federal Housing Administration approved a low-income housing project for that land.

The zoning ordinance provides that a housing lot shall contain not less than one acre and that no lot shall be occupied by more than one primary dwelling unit. Appellants have not applied for a zoning variance to allow construction of their proposed multifamily project.

Appellants brought this action against the town, its city manager, and the members of the town council. Appellants allege that the zoning ordinance prevents them from constructing a housing project and assert that the ordinance violates the supremacy, due process, and equal protection clauses of the United States Constitution. They seek declaratory and injunctive relief.

Appellants allege jurisdiction under 28 U.S.C.' §§ 1331 and mS^). Section 1343 gives federal courts jurisdiction over actions arising under federal civil rights statutes. Here jurisdiction under Section 1343 depends on whether an action may be maintained under 42 U.S.C. § 1983. /The Supreme Court recently held that a city is not a “person” within the meaning of Section 1983 even when only equitable relief is requested. City of Kenosha v. Bruno, 412 U.S. 507, 93 S.Ct. 2222, 37 L.Ed.2d 109 (1973). There is no jurisdiction over Los Altos under Section 1343,

Los Altos also contends that Section 1343 does not confer jurisdiction over the individual appellees since they are sued in their official capacity as officers of the town* We disagree. State and municipal officials whose actions violate constitutional rights are not protected by the state’s sovereign immunity or the Eleventh Amendment.

If the act which the state [official] seeks to enforce be a violation of the Federal Constitution, the officer in proceeding under such enactment comes into conflict with the superior* authority of that Constitution, and he is in that case stripped of his official or representative character and is subjected in his person to the consequences of his individual conduct. Ex parte Young, 209 U.S. 123, 159, 160, 28 S.Ct. 441, 454, 52 L.Ed. 714 (1908).

We hold that a city official is a “person” within the meaning of Section 1983 and that the district court had jurisdiction under 28 U.S.C. § 1343 in an action to enjoin him from enforcing an unconstitutional statute. Cf. Harkless v. Sweeny Independent School District, 427 F.2d 319, 323 (5th Cir. 1970). See also Scheuer v. Rhodes, 416 U.S. 232, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974).

Appellants allege jurisdiction over the town under Section 1331. That section requires that the amount in controversy, exclusive of interest and costs, exceeds $10,000. Appellants did not allege the amount in controversy in their complaint and did not move to amend their complaint to include such an allegation. They did not adequately show the existence of the jurisdictional amount at trial. We hold that the court does not have jurisdiction over the town under Section 1331. Canadian Indemnity Co. v. Republic Indemnity Co., 222 F.2d 601 (9th Cir. 1955).

We conclude that the court has jurisdiction over the individual defendants only.

Appellants’ principal contention is that the Los Altos zoning ordinance denies them equal protection of the laws. They assert that the ordinance discriminates against Mexican-Americans and the poor and that the town must show a compelling state interest to justify discrimination against “suspect classifications” based on ethnic background and wealth.

Appellants’ evidence at trial showed that in Santa Clara County, in which Los Altos is located, there is a high statistical correlation between being Mexican-Ameriean and being poor. Mexican-Americans form only 2.1% of the town’s population but comprise 17.59%-of the county’s population.

The trial court found that the' ordinance prevented poor people from living in Los Altos. He also found that if Mexican-Americans did not live there, it was because of the poverty and not because of their race. Appellants concede that the ordinance does not bar wealthy Mexican-Americans from living in Los Altos. CWe agree that discrimination against the poor does not become discrimination against an ethnic minority merely because there is a statistical correlation between poverty and ethnic backgroundTJ

Appellants also assert that they need not show racial discrimination to void the ordinance and that it is sufficient to show that the ordinance discriminates against the poor. They argue that the town must show a compelling interest to justify the ordinance because wealth is a suspect classification. See Harper v. Virginia Board of Elections, 383 U.S. 663, 86 S.Ct. 1079, 16 L.Ed.2d 169 (1966); Griffin v. Illinois, 351 U.S. 12, 76 S.Ct. 585, 100 L.Ed. 891 (1956).

In San Antonio School District v. Rodriguez, 411 U.S. 1, 93 S.Ct. 1278, 36 L.Ed.2d 16 (1973), the court discussed the conditions under which poverty becomes a suspect classification under the equal protection clause:

The individuals, or groups of individuals, who constituted the class discriminated against in our prior cases shared two distinguishing characteristics : because of their impecunity they were completely unable to pay for some desired benefit, and as a consequence, they sustained an absolute deprivation of a meaningful opportunity to enjoy that benefit. 411 U.S. at 20, 93 S.Ct. at 1290.

In our view these two criteria set forth the threshold requirements before a court using traditional tests may consider whether the classification is constitutionally impermissible.

Appellants meet the first criterion because the ordinance prevents them from living in Los Altos because of their poverty. They failed to meet the second criterion because they did not show that they had no “meaningful opportunity” to obtain low-cost housing. C The evidence showed that no poor people live or work in Los Altos. Appellants failed to show that adequate low-cost housing was unavailable elsewhere in Santa Clara County in areas accessible to appellants’ jobs and social services. In these circumstances the town need not show a compelling interest to justify a zoning ordinance which discriminates against the poor/

Since there is no suspect classification requiring a strict standard of review, the town need only show that the ordinance! bears a rational relationship to a legitimate governmental interest. Id. at 40, 93 S.Ct. 1278. Here the ordinance is rationally related to preserving the town’s rural environment. See Village of Belle Terre v. Boraas, 416 U.S. 1, 94 S.Ct. 1536, 39 L.Ed.2d 797 (1974). The ordinance does not violate the equal protection clause.

Appellants allege that the ordinance violates Section 65302 of the California Government Code, which requires towns to adopt housing plans which “make adequate provision for the housing needs of all economic segments of the community”. We believe that the section requires a town to provide housing for its residents but does not require it to provide housing for non-residents, even though the non-residents may live in the broader urban community of which the town is a part.

Appellants’ other contentions are without merit. The ordinance does not conflict with the National Housing Act, 42 U.S.C. §§ 1401 et seq., and does not violate the supremacy clause. James v. Valtierra, 402 U.S. 137, 140, 91 S.Ct. 1331, 28 L.Ed.2d 678 (1971). The ordinance is not arbitrary and does not deny appellants due process. See Village of Euclid v. Ambler Realty Co., 272 U.S. 365, 47 S.Ct. 114, 71 L.Ed. 303 (1926).

The judgment of the district court dismissing the action is affirmed.

      . Appellants also allege jurisdiction under 28 U.S.C. § 2201 and 42 U.S.C. § 1983. 28 U. S.C. § 2201 allows federal courts to grant declaratory judgments but does not enlarge their jurisdiction. Lear Siegler, Inc. v. Adkins, 330 F.2d 595, 599 (9th Cir. 1964). 42 U.S.C. § 1983 creates a cause of action but does not confer jurisdiction.


author: ELY, Circuit Judge:

text:
    MAR MONTE CORPORATION, Appellant, v. UNITED STATES of America, Appellee.
    No. 72-1698.
    United States Court of Appeals, Ninth Circuit.
    Sept. 5, 1974.

      Barry A. Johnson (argued), of Cotton, Seligman & Ray, San Francisco, Cal., for appellant.
    Carleton D. Powell, Atty. (argued), U. S. Dept, of Justice, Washington, D. C., for appellee.
   OPINION

Before MOORE ELY, and CHOY, Circuit Judges.

ELY, Circuit Judge:

Mar Monte Corporation [hereinafter “Mar Monte”] appeals from the District Court’s summary judgment in favor of the Government. The controversy involved a claim for refund of federal income taxes in the amount of $10,606, plus interest, paid by Mar Monte for its taxable year ending November 30, 1959. Since the facts are undisputed, disposition by summary judgment was appropriate. Fed.R.Civ.P. 56(c).

In August, 1960, Mar Monte timely filed its federal income tax return for its fiscal year of 1959 and paid taxes in the sum of $51,632. The 1959 income upon which the tax was imposed was solely the product of capital gains and thus did not reflect ordinary income. In each of the next three fiscal years Mar Monte sustained net operating losses. Since the 1959 income was the product of capital gains, the carryback provisions of section 172, Int.Rev.Code of 1954, were not applicable. Therefore, Mar Monte was unable to deduct the net. operting losses from its 1959 income.

Thereafter, the Commissioner of Internal Revenue [hereinafter “Commissioner”] determined that there was a deficiency in Mar Monte’s income taxes for its fiscal year of 1959. A notice of deficiency reflecting that determination was mailed to Mar Monte on October 30, 1964. In response, Mar Monte, on February 1, 1965, filed a petition with the Tax Court seeking a redetermination of the deficiency set forth in the statutory notice. Subsequently the Commissioner and Mar Monte entered into negotiations whereby a settlement was effected; Mar Monte agreed that its ordinary income was substantially higher than reported, stipulating that as a result of the increase it owed taxes in the amount of $21,068 on income which was ordinary in character. The Tax Court then entered its decision in accordance with the executed stipulation, and that decision became final on June 8, 1966. Mar Monte paid the final portion of the subject deficiency in April of that year.

Because the Tax Court decision resulted in Mar Monte’s reporting ordinary income for 1959, Mar Monte sought, pursuant to the carryback provisions of section 172, Int.Rev.Code of 1954, to deduct the losses incurred in 1960, 1961, and 1962 from this newly created income. Mar Monte, therefore, on November 23, 1966, filed with the Commissioner a claim for refund of income taxes paid for 1959 in the amount of $10,606, plus interest. After the Commissioner had disallowed the taxpayer’s claim, the present refund suit was instituted in the District Court. There, the Commissioner contended that Mar Monte’s suit was barred by the statute of limitations, Int.Rev.Code of 1954, § 6511(d)(2)(B), 26 U.S.C. § 6511(d)(2)(B) (1958), which was applicable to the relevant tax years. The District Court upheld the Commissioner’s position, and Mar Monte appeals.

Section 6511(a), Int.Rev.Code of 1954, sets forth the general statute of limitations for the filing of claims for refund or credit. The statutory period is three years from the time the return was filed by the taxpayer [hereinafter the “three-year from filing period”], or two years from the time the tax was paid [hereinafter the “two-year from payment period”], whichever period expires later. Another section of the Code, however, establishes a special period of limitation in connection with claims for refund attributable to a net operating loss carryback. Since the existence and extent of operating losses might not be known until the normal limitation period of section 6511(a) had expired, Congress enacted the special limitation period for net operating loss carrybacks in section 6511(d)(2)(A), Int.Rev.Code of 1954, 26 U.S.C. § 6511(d) (2) (A) (1964) [hereinafter “subparagraph (A)”]. See Clare-mont Waste Mfg. Co. v. Commissioner, 238 F.2d 741, 748 (1st Cir. 1956). Sub-paragraph (A) provides that in lieu of the normal three-year from filing period prescribed in section 6511(a), the limitation period for a corporate taxpayer is 38% months from the end of the year in which such net operating loss occurred. The 38% month period prescribed in subparagraph (A) is only in lieu of the three-year from filing limitation period, and the alternative two-year from payment period is unaffected. Rev.Rul. 65-281, 1965-2 Cum.Bull. 444. Mar Monte contends that its refund claim was instituted within two years after it paid the deficiency and was therefore timely.

As Mar Monte concedes, however, other sections of the Code are also relevant to the issue. Since Mar Monte seeks a refund for a year which previously has been the subject of a final Tax Court j'udgment, it must surmount the statutory bar which section 6512, Int.Rev.Code of 1954, erects. Section 6512(a) fixes the normal rule that a final Tax Court determination as to tax liability for a certain year precludes any succeeding claims in connection with that year. There are exceptions to this bar, including the exception that is relevant here, § 6511(d)(2)(B), Int.Rev.Code of 1954, 26 U.S.C. § 6511(d)(2)(B) (1958) (presently § 6511(d) (2) (B) (i) of the Current Code). That section reads in material part:

“If the allowance of a credit or refund of an overpayment of tax attributable to a net operating loss carry-back is otherwise prevented by the operation of any law [e. g., § 6512(a)] or rule of law [e. g., res judicata] other than section 7122 ... . such credit or refund may be allowed or made, if claim therefor is filed within the period provided in subparagraph (A) of this paragraph.” (Emphasis supplied.)

According to the District Court’s interpretation of the foregoing provision, a corporate taxpayer, in order to carry back a loss to a taxable year which previously has been the subject of a final Tax Court determination, must file its claim within the period prescribed by subparagraph (A). Consistent with the plain wording of the statute, the court held that the only period provided by subparagraph (A), and thus the only period applicable to Mar Monte’s claim, was the 38% month period extending from the end of the year in which the net operating loss was sustained. The two-year from payment period was thus held not available to Mar Monte. In light of the fact that the 38% month period had expired since the end of the years in which each of the losses had been sustained, the court held that Mar Monte’s suit was precluded by the limitation period.

Here, Mar Monte first contends that, in the absence of a Tax Court determination, subparagraph (A) provides for the 38% month period in addition to the two-year from payment period afforded by section 6511(a). With this contention we agree. In the instant dispute, if the 1959 tax liability had not been ascertained in a Tax Court proceeding, both the two-year from payment period of section 6511(a) and the 38% month period provided by subparagraph (A) would be applicable. Mar Monte then argues that the reference in subparagraph (B) to the “period provided by subparagraph (A)” encompasses both the 38% month period explicitly contained in subparagraph (A) and the two-year period provided by section 6511(a). In the light of the plain language of the statute, we cannot accept this second contention.

In instances wherein a taxpayer seeks a refund based on net operating loss car-rybacks and the losses are carried back to a taxable year which previously has been the subject of a final decision of the Tax Court, the controlling statutory provision is subparagraph (B). The limitation period encompassed by sub-paragraph (B) is that period provided by subparagraph (A). Clearly section 6511(d)(2)(A) provides only one limitation period. That period extends 38% months from the end of the year in which the loss was sustained. The fact that, in the absence of a Tax Court determination, both the 38% month period and the two-year period are available, cannot operate to the advantage of Mar Monte in the circumstances here presented.

Although Mar Monte contends that the legislative history supports its position, we have concluded that the legislative history reflects the opposite. The statutory predecessor of section 6511(d)(2)(A) was added to the Internal Revenue Code of 1939 by section 5(b) of the Tax Adjustment Act of 1945, 59 Stat. 517, 524. The Report of the House Ways and Means Committee clearly indicates that in the normal situation of an operating loss carryback (i. e., whenever there has not been a Tax Court determination), the new 38% month period was not to affect the two-year from payment period. The committee’s Report specifically states:

“It is to be noted that the period provided in [section 6511(d)(2)(A) of the 1954 Code] is to be in lieu of the 3-year period provided in [section 511(a) of the 1954 Code]. [Section 6511(d)(2)(A)], however, is not to affect any other period, such as the 2-year period after the payment of the tax, within which under present law a claim for credit or refund may be filed . . . .” H.R.Rep.No.849, 79th Cong., 1st Sess. 30 (1945), reported at 1945 Cum.Bull. 566, 586.

As is clear from a reading of the entire committee Report, the quoted portion refers only to the situation in which there has not been a Tax Court decision. Although the Report then directly discusses the statutory predecessor to subpara-graph (B), that discussion omits any reference to the applicability of the two-year limitation period. The only reasonable inference is that the failure to state that the two-year period would remain applicable was intentional and that Congress thus intended that only the 38% month period would apply.

Our interpretation of the statute comports with a previous ruling of the Internal Revenue Service. Rev.Rul. 65-281, 1965-2 Cum.Bull. 444. Furthermore, the holding of the Court of Claims in Brad Foote Gear Works, Inc. v. United States, 288 F.2d 894, 153 Ct.Cl. 267 (1961) supports our conclusion. Although Brad Foote Gear Works did not squarely meet the precise issue here presented, the taxpayer there also failed to surmount the obstacle presented by the statutory predecessor of v subpara-graph (B). The court stated that the only available limitation period for a taxpayer in Mar Monte’s position was the 38% month period, unless an effective extension agreement was extant. See §§ 6511(c), (d)(2)(A), Int.Rev.Code of 1954. In fact, the Brad Foote court concluded that the taxpayer's suit was barred by the statute of limitations even though the claim was filed within the two-year from payment period.

Mar Monte argues that our interpretation of subparagraph (B) would operate so inequitably that Congress could not have intended such a result. Over seventy-five per cent of the refund here sought is directly attributable to the losses incurred in the fiscal year ending November 30, 1960. In order to carry back this loss to offset income in 1959, Mar Monte must have filed its claim for refund on or before February 15, 1964. That date is, of course, eight months prior to the date that the taxpayer received its notice of deficiency for its taxable year 1959. We recognize, as did the District Court, that the result “does not comport with the common notion of equity.” The Congress, when it enacted subparagraph (B), was apparently concerned with affording relief to a taxpayer in a situation wherein, in a year subsequent to a Tax Court decision, and unknown at the time of the Tax Court proceedings, net operating loss has arisen which the taxpayer seeks to carry back to the year previously determined by the Tax Court. In the absence of subparagraph (B), such a deduction is impermissible. Congress simply did not address itself to the situation involved in the present appeal, when the net operating loss occurs prior to the Tax Court proceedings.

Although we can see no reason for Congress having imposed harsher finality limits when the liability of the relevant tax year has been determined by the Tax Court, Congress has done so. Since deductions are allowed solely as a matter of legislative grace, it was Mar Monte’s burden to establish that it was entitled to the claimed deduction. Welch v. Helvering, 290 U.S. 111, 54 S.Ct. 8, 78 L.Ed. 212 (1933); DeMink v. United States, 448 F.2d 867 (9th Cir. 1971). Being without power to disregard or ignore the plain provision of the pertinent statute, we conclude with the District Court that Mar Monte’s claim is barred by the limitation period prescribed in section 6511(d)(2)(B), 26 U.S.C. § 6511(d)(2)(B) (1958).

Affirmed.

       Honorable Leonard P. Moore, Senior United States Circuit Judge, New York, New York, sitting by designation.

      . It is undisputed that Mar Monte sustained the following net operating losses :

        Fiscal Year Ended Amount

      November 30, 1960 $15,511
      November 30, 1961 2,413
      November 30, 1962 2,457
      $20,381

      . Although relevant sections of the Code have been amended since the close of the subject tax years, the modifications do not affect the outcome of the controversy before us. For the purpose of this opinion, however, the former provisions of the Internal Revenue Code of 1954 are cited when those sections have been modified subsequent to the close of the relevant tax years.

      . Section 6511(a), Int.Rev.Code of 1954, provides in part:
      “(a) Period of limitation on filing claim. — ■ Claim for credit or refund of an overpayment of any tax imposed by this title in respect of which tax the taxpayer is required to file a return shall be filed by the taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within 2 years from the time the tax was paid.”

      . Section 6511(d)(2)(A), Int.Rev.Code of 1954, 26 U.S.C. § 6511(d)(2)(A) (1964) provides in part:
      “(A) Period of limitation.—
      If the claim for credit or refund relates to an overpayment attributable to a net operating loss carryback, in lieu of the 3-year period of limitation prescribed in subsection (a), the period shall be that period which ends with the expiration of the 15th day of the 40th month (or the 39th month, in the case of a corporation) following the end of the taxable year of the net operating loss which results in such carryback, or the period prescribed in subsection (c) in respect of such taxable year, whichever expires later.”

      . Since Mar Monte’s final payment of its 1959 income taxes was made in April, 1966, its claim filed with the Commissioner on November 23, 1966 was well within the two-year from payment period.

      . Section 6512(a) of the Code provides in pertinent part:
      “(a) Effect of petition to Tax Court.—
      If the Secretary or his delegate has mailed to the taxpayer a notice of deficiency under section 6212(a) and if the taxpayer files a petition with the Tax Court within the time prescribed in section 6213(a), no credit or refund of income tax for the same taxable year . . . in respect of which the Secretary or his delegate has determined the deficiency shall be allowed or made and no suit by the taxpayer for the recovery of any part of the tax shall be instituted in any court. ...”

      . The 38% month period expired for the relevant tax years respectively on February 15, 1964,' February 15, 1965, and February 15, 1966.

      . The statutory 38% month period had not elapsed, of course, in connection with the losses sustained by Mar Monte during its 1961 and 1962 taxable years.


author: O’SULLIVAN, Senior Circuit Judge.

text:
    INTERNATIONAL MINERALS & CHEMICAL CORPORATION, Plaintiff-Appellee, v. Monroe C. YAGER and Edith Yager, Defendants-Appellants, and Rainbow Farm Service, Inc., and Truman Sawyer, Defendants.
    No. 72-1873.
    United States Court of Appeals, Seventh Circuit.
    Sept. 23, 1974.
    Robert W. Adams, George R. Glass, Shelbyville, Ind., Wilson S. Stober, Indianapolis, Ind., for defendants-appellants.
    Charles T. Gleason and William J. Wood, Indianapolis, Ind., for plaintiff-appellee.
    Before SWYGERT, Chief Judge, HASTINGS, and O’SULLIVAN, Senior Circuit Judges.

       Senior Circuit Judge Clifford O’Sullivan of the Sixth Circuit, sitting by designation.

   O’SULLIVAN, Senior Circuit Judge.

Appellants Monroe C. Yager and Edith Yager, husband and wife, appeal from a judgment whereby they were held liable, as guarantors, for the indebtedness of Rainbow Farm Service, Inc., (Rainbow) to the plaintiff International Minerals and Chemical Corporation (IMC) for goods sold and delivered by IMC to Rainbow on open account. The case was tried to a District Judge in the United States District Court for the Southern District of Indiana who awarded judgment to plaintiff IMC against the Yagers in the amount of $93,009.43 — the open account indebtedness of Rainbow to IMC — and $8,500 for attorney fees.

We reverse.

IMC is a New York corporation with its principal place of business in Skokie, Illinois. It is engaged primarily in selling at wholesale, fertilizer and other farm-related products, and also leases equipment to its retail customers. Rainbow is an Indiana corporation with offices in Shelbyville, Indiana. It was engaged in retail sale of fertilizer and other farm-related products. Rainbow was owned equally by a' Truman Sawyer, it's president, and the Yagers. Although defendant Monroe Yager was secretary of the corporation, he apparently took no active part in conducting its business; its operations were controlled primarily by Truman Sawyer.

Rainbow ceased making payments to IMC on April 26, 1970, and subsequently became insolvent. The present suit was started on September 8, 1970, against Rainbow for the debt owed to IMC, and against Truman Sawyer, Monroe Yager and Edith Yager as alleged guarantors of Rainbow’s debt. Truman Sawyer died during the pendency of the action, and no personal representative was substituted for him or made a party to the action. Judgment was entered only against Rainbow and the Yagers.

Throughout the period from 1966 to 1970, Rainbow purchased fertilizer and other goods and leased equipment from IMC. On February 21, 1967, IMC and Rainbow entered into an agreement, styled an “Agent’s Contract,” whereby IMC was to consign fertilizer to Rainbow. The first paragraph of this form agreement reads:

“We hereby appoint you an agent for the sale, on commission and for our account, of such quantities and brands of Fertilizers as may be mutually agreed upon from time to time on the following terms and subject to the conditions hereinafter mentioned, and you hereby accept the appointment and agree to comply with all the terms and to perform all the conditions hereof.” (Emphasis supplied.)

The remainder of the agreement detailed such items as: prices, commissions and discounts; storage and freight; record keeping; and duration of the agreement. Clause 9 provided that Rainbow would remit proceeds from the sales of fertilizer promptly to IMC, and that such funds were to be kept separate by Rainbow. In addition, the fertilizer was to remain the property of IMC until it was sold by Rainbow. The agreement was signed by Truman Sawyer, as representative of Rainbow.

On the same day that Rainbow entered into the Agent’s Contract, the Ya-gers and Sawyer signed a Guaranty Agreement under which they guaranteed to IMC,

“the full, prompt, faithful and complete performance of all agreements contained in the contract appearing on the reverse side of this sheet [the Agent’s Contract] and hereby further guarantee to said [IMC] or assigns, the prompt payment at maturity, or any time thereafter, of all accounts receivable, acceptances and notes given or taken in connection with sales made under said contract [Agent’s Contract] . . . . ” (Emphasis supplied.)
The agreement further provided that: “This is an absolute and continuing guaranty and any indulgences, renewals, extensions, substitutions or variations in accounting or settlement or changes in price hereafter permitted or agreed upon by the parties to said contract shall not release us as guarantor^) . . . . ”

The Yagers signed this guaranty at the request of IMC’s sales representative, but received no compensation therefrom.

Although the Agent’s Contract and Guaranty covered consignments by IMC to Rainbow, the District Court found, and the parties do not dispute the fact, that all sales, both prior to and after entering the agreement, were not done on a consignment basis. Instead, IMC provided Rainbow fertilizer on open account, and both parties treated such transactions as ordinary sales. Rainbow owned the fertilizer upon delivery by IMC and also bore the risk of price fluctuation in the fertilizer market. The Agent’s Contract was restricted to consignments of fertilizer, but IMC sold both fertilizer and other farm-related products and also leased equipment to Rainbow.

It will seem at once that the Agent’s Contract upon which the involved guaranty was endorsed was never employed in the dealings between IMC and Rainbow. At no time did Rainbow act as “agent for the sale, on commission and for our [IMC] account.”

The indebtedness for which IMC was given judgment did not arise under either the 1967 Agent’s Contract or under another contract made in 1968, called the Transfer Agreement. This latter agreement recited in its first paragraph:

“The company [IMC] has appointed the Contractor [Rainbow] as its special sales agent and consignee to sell fertilizer and fertilizer materials * * * of the Company in the following territory.” (Emphasis supplied.)

IMC’s Indianapolis office manager, who also had the title of Field Accountant, and IMC sales representative for the area involved testified for IMC. Neither of them, however, explained why the business actually transacted with Rainbow was done on a basis in no way covered by the 1967 Agent’s Contract or the 1968 Transfer Agreement. The District Judge recognized this in his opinion:

“Despite the provisions of the agency contract, the undisputed evidence in this case has established that the transactions between IMC and Rainbow were never conducted on a consignment basis. Instead, IMC supplied Rainbow with fertilizer on open account and each party treated these transfers as sales by IMC to Rainbow, passing ownership of the fertilizer to Rainbow. Rainbow, thus, bore all the risks of fluctuations in the fertilizer market as to the fertilizer which it ordered from IMC and which was in its possession.”

The District Judge, however, found reason to impose liability on the Yagers by holding that the method of doing ‘business between IMC and Rainbow— sale and purchase on open account- — was but an alteration of the Agent’s Contract of February 1967, and that the Ya-gers consented to such alteration thereby keeping alive their guaranty. We disagree.

Rainbow never acted as a “special sales agent or consignee” of IMC; no business was ever carried on under the Agent’s Contract of 1967; and no indebtedness ^of Rainbow to IMC ever arose thereunder. Although the District Judge recognized this fact, as evidenced in the above excerpt from his opinion, he found liability in the Yagers by holding that their conduct amounted to consent to what he considered an alteration of the 1967 Agent’s Contract. He said:

“11. Defendants Truman Sawyer, Monroe Yager, and Edith Yager had full knowledge of the alterations in the method of performance of defendant Rainbow Farm Service, Inc.’s obligations from that originally contemplated by the agency contract which they guaranteed.
“12. Defendants Truman Sawyer, Monroe Yager and Edith Yager consented to said alterations in the obligations of Rainbow Farm Service, Inc., from those originally, contemplated by the agency contract.” (Emphasis supplied.)

Respectfully, we observe that there is no testimonial support for the District Judge’s controlling findings. The evidence disclosed that from the beginning of their relationship the only method of doing business between IMC and Rainbow was on a buy and sell — open account • — basis. This was true from 1966 through 1967, and 1968 — the years during which the Agent’s Contract of February 21, 1967, and the Transfer Agreement of October 30, 1968, were executed. Neither of these contracts ever attained viability in the business relations of IMC and Rainbow.

At trial, IMC’s quite meager testimony, provided by its Indianapolis office manager and its sales representative who handled the Rainbow account, failed' to explain why the agency contracts of 1967 and 1968 were executed but never used. Thomas Nelson, the sales representative for IMC from 1965 to 1970 in the territory where Rainbow was located, confirmed the testimony of Monroe Yager, discussed below, that all of his dealings for IMC were with the deceased Truman Sawyer. The following portrays this:

“Q. As far as you know, Mr. Yager had no experience in the fertilizer business; is that correct ?
“A. This is correct.
“Q. But Truman Sawyer did ?
“A. Yes.
“Q. He had been in it for some time?
“A. Yes.”
This witness also said:
“Q. Mr. Nelson, you did not deal with Mr. or Mrs. Yager in the fertilizer sales at any time, did you ?
“A. No.
“Q. Your only contact was with Mr. Sawyer?
“A. Yes, sir.
“Q. So Mr. Yager, as far as you know, did not know the negotiations going on between you and Mr. Sawyer?
“A. No.”

As to his signing of the guaranty agreement, Monroe Yager testified that the document was brought to him by Nelson when Yager was in the hospital undergoing major abodominal surgery. Asked about the circumstances of the execution of the guaranty by Yager, the witness Nelson answered, “to specifically recall, I can’t. * * * I don’t actually remember this thing.”

At the times here involved, Monroe Yager was principally engaged in farming. He had gone to the fifth grade in school. Yager also owned a wholesale beer distributorship the size of which was not disclosed. While Yager and his wife owned half of the stock of Rainbow, he left Sawyer to run the business. Yager’s position as Secretary was formal and did not involve him in running the corporate affairs. He identified his signature on the guaranty and said that, without any explanation of its effect, and without reading it, he signed the guaranty at the request of Nelson. The latter did not challenge this testimony. Monroe Yager’s wife, Edith Yager, was not called as a witness and nothing of the circumstances of her signing the guaranty was given. The evidence also showed that while the Yagers owned 50% of the stock of Rainbow, they received no salary, dividends or other compensation from Rainbow.

The District Judge set out the applicable rule of law under which the Ya-gers could be held liable for an indebtedness, as follows:

“In determining whether there has been a material alteration, a contract of guaranty is to be construed according to the intention of the parties as ascertained from the instrument read in light of the surrounding circumstances. Will[s] v. Ross, 77 Ind. 1 (1881); Hernly [Hernley] v. Bran-num, 23 Ind.App. 388, 55 N.E. 512 (1899). Despite the fact that, in the instant case, the conduct of IMC and Rainbow casts doubt upon whether they ever intended to conduct their transaction on a consignment basis, the language of the contract clearly does not provide for the sale of fertilizer by IMC to Rainbow on open account. Thus, unless defendants Truman Sawyer, Monroe Yager and Edith Yager consented to this alteration from the method of performance of Rainbow’s obligations, as contemplated in the original agreement, [the Agent's Contract of 1967] they should be discharged from their contract of guaranty. See 38 C.J.S. [Guaranty] § 72, note 35, at 1238.” (Emphasis supplied.)

This paragraph is a correct statement of the law. He went on, however, to find a way to apply the guaranty to the Yagers. His opinion sets out:

“It must be noted, however, that Truman Sawyer and Monroe Yager, as officers and stockholders, were in complete control of Rainbow. Sawyer was the President of Rainbow and Monroe Yager was the Secretary, (see Defendant’s Exhibit B) and they each owned 50 percent of Rainbow’s stock. In view of the fact that Sawyer, Monroe Yager and Edith Yager all signed the contract of guaranty and that Sawyer and Monroe Yager were in complete control of Rainbow during the periods of time in question, the Court concludes that all of the guarantors had full knowledge of the aforementioned alterations in the method of performance of Rainbow’s obligations from that contemplated in the agency contract and that the guarantors consented to those alterations. See: Norfolk Mattress Co. Inc. v. Royal Mfg. Co., Inc., 160 Va. 623, 169 S.E. 586 (1933); Andrew v. Austin, 213 Iowa 963, 232 N.W. 79 (1930). The consent necessary to continue the guarantor’s liability need not be made the subject of a formal contract. Knoebel v. Kircher, 33 Ill. 308.” (Emphasis supplied.)

The District Judge recited applicable law. However, his finding that the open account dealing was but an alteration of the contract of 1967 and that such alteration was made with the knowledge and consent of the Yagers was without support in the evidence. We consider, and hold, that the District Judge’s factual findings, discussed above, were clearly erroneous within the contemplation of Rule 52(a) Fed.R.Civ. P. The award of an attorney fee of $8,500 must also be set aside. Such allowance was based on a clause in the 1967 agreement which never came into being.

We reverse and remand for entry of judgment dismissing the complaint as to appellants Monroe Yager and Edith Ya-ger.