text:
    Claude BERNARD, Appellant, v. U. S. LINES, INCORPORATED, Appellee, v. RYAN STEVEDORING CO., INC. and the United States of America, Appellees.
    No. 72-2115.
    United States Court of Appeals, Fourth Circuit.
    Argued Feb. 7, 1973.
    Decided March 13, 1973.

      Stuart V. Carter, Norfolk, Va. (Breit, Rutter, Montagna & Carter, Norfolk, Va., on brief), for appellant.
    Daniel.Lee Brawley, Wilmington, N. C. (Lonnie B. Williams and Marshall, Williams, Gorham & Brawley, Wilmington, N.'C., on brief), for Ryan Stevedoring Co., Inc.
    Ronald R. Glanez, Atty., U. S. Dept, of Justice (Harlington Wood, Jr., Asst. Atty. Gen., Thomas P. McNamara, U. S. Atty., E. D. N. C., and Morton Hollander, Atty., Dept, of Justice, on brief), for the United States.
    Before HAYNSWORTH, Chief Judge, BUTZNER, Circuit Judge, and BRYAN, District Judge.
   PER CURIAM.

We affirm the judgment for the reasons stated by the district court.

Claude Bernard, a longshoreman, brought this suit for pierside injuries caused by a land-based forklift owned by the United States while he was loading a ship. The injuries were not caused by the ship or its gear. Subsequently, the Supreme Court decided Victory Carriers v. Law, 404 U.S. 202, 92 S.Ct. 418, 30 L.Ed.2d 383 (1971), which Bernard concedes forecloses any claim against the ship or its owner for negligence or unseaworthiness. However, he seeks to sustain admiralty jurisdiction against the United States, time charterer of the vessel and terminal owner, which had been named a third party defendant by the owner of the vessel. Bernard bases his allegation of jurisdiction on the theory that he is the third party beneficiary of a maritime contract. The district court held that he was not, and we agree.

Bernard urges two theories, one under the stevedoring contract between Ryan Stevedoring Co. and the United States and the other under the charter party between United States Lines, owner of the vessel, and the United States. However, the warranty of workmenlike performance in the stevedoring contract was made by Ryan, not the United States. It ran to the vessel and its charterer, not the longshoreman. Similarly, the charter party created no contractual duty to the longshoreman on the part of the United States as time charterer. Habrat v. United States, 310 F.Supp. 618, 620 (W.D.Pa.1970); Klishewich v. Mediterranean Agencies, Inc., 302 F.Supp. 712 (E.D.N.Y.1969); Buthusien v. Central Gulf S. S. Corp., 217 F.Supp. 903 (E.D.Pa.1963).

Federal Rule of Civil Procedure 14(c), which allowed the United States Lines, as third party plaintiff, to demand judgment against the United States, third party defendant, in favor of Bernard, the plaintiff, does not create admiralty jurisdiction. Rule 82 expressly negates the extension of jurisdiction by the rules.

Bernard also seeks to assert a claim against the United States under the Federal Tort Claims Act. While Bernard filed his suit within two years of the accident, his failure to file an administrative claim within the statutory period bars his action. 28 U.S.C. §§ 2401 (b), 2675(a).

Affirmed.


source: Caselaw Access Project

author: PER CURIAM:

license: Public Domain

text:
    UNITED STATES of America, Appellee, v. James Francis NEELEY, Appellant.
    No. 72-2321.
    United States Court of Appeals, Fourth Circuit.
    April 9, 1973.

      Michael S. Ferguson, Roanoke, Va. [Court-appointed counsel] on brief for appellant.
    Leigh B. Hanes, Jr., U. S. Atty., on brief for appellee.
    Before WINTER, CRAVEN and BUTZNER, Circuit Judges.
   PER CURIAM:

James Francis Neeley appeals from his conviction by a jury of two counts of armed bank robbery in violation of 18 U.S.C. § 2113(a) (1972). Neeley complains that the district court erred in admitting the testimony of (1) Betsy Trent, whom he claimed was his wife at the time of his trial and (2) Helen Weiss, whom he claimed was his wife at the time he made statements to her which constituted the basis of her testimony. We find no merit in these assignments of error and therefore affirm.

The Agreed Statement of Facts In Lieu of Transcript reveals that Neeley had been married and divorced twice when he married Opal Virginia Palmer on June 15, 1947. No record of a divorce from this marriage was introduced by the prosecution or Neeley. Neeley then married Sara Freeman and on July 8, 1970 he married Helen Weiss. The record is silent as to how the marriage to Sara Freeman was terminated, if at all, but the record does show that Helen Weiss had not yet obtained a final divorce from Mr. Weiss at the time of her purported marriage to Neeley. Neeley was probably aware of this fact. Apparently, he simply disregarded his marriage to Helen Weiss, for on January 28, 1971, he married Betsy Trent.

Neeley argues that Betsy Trent should not have been allowed to testify because of the Virginia rule that one spouse cannot testify against the other without consent. Va.Code Ann. § 8-288 (1972). He then argues that Helen Weiss should not have been allowed to testify as to statements he made privately to her while they were married because of Virginia’s privileged communications rule. Va.Code Ann. § 8-289 (1957).

These rules operate only where there is a valid marriage. Leigh v. Commonwealth, 192 Va. 583, 66 S.E.2d 586 (1951). Neeley challenges the admission of the government’s evidence showing that he married, but failed to divorce, Opal Palmer, and argues that he was entitled to rely on his belief in the validity of his marriage to Helen Weiss. The district court was correct in admitting an exemplified copy of the marriage certificate between Neeley and Opal Palmer, attested to by the clerk of the state court. 28 U.S.C. § 1739 (1966). The district court admitted hearsay testimony concerning Neeley’s failure to obtain a divorce from Opal Palmer. Neeley had sufficient notice of the government’s intent to call witnesses whose testimony would be inadmissible if he could establish that he had divorced Opal Palmer. He not only failed to introduce evidence of having divorced Opal Palmer, but also on cross-examination admitted he could not remember obtaining a divorce from her. Considering this, and considering the other substantial evidence of Neeley’s guilt, we cannot conclude that admission of the hearsay evidence constituted reversible error.

In light of the unchallenged evidence that Opal Palmer still resides at the place of her marital domicile with Neeley, we find his attempt to rely on a presumption of her death after a seven-year absence to be completely frivolous. It was Neeley who was absent, not Opal Palmer.

Since Neeley never divorced Opal Palmer, he could not have entered into a valid marriage with either Helen Weiss or Betsy Trent after the date of his marriage to Opal Palmer. Thus, he cannot now rely on any exclusionary rules based on the existence of subsequent valid marriages. Leigh v. Commonwealth, supra.

Accordingly, we dispense with oral argument and affirm the judgment of the district court.

Affirmed.


text:
    William L. RUSSELL, Petitioner-Appellant, v. J. D. HENDERSON, Respondent-Appellee.
    No. 72-3658.
    United States Court of Appeals, Fifth Circuit.
    March 26, 1973.
    William L. Russell, pro se.
    John W. Stokes, U. S. Atty., Atlanta, Ga., for respondent-appellee.
    Before JOHN R. BROWN, Chief Judge, and DYER and SIMPSON, Circuit Judges.
   PER CURIAM:

Russell, while an inmate of the United States Penitentiary at Atlanta, Georgia, filed a petition for a writ of habeas corpus in the district court, seeking relief from conditions at the prison which he alleged constituted cruel and unusual punishment. Russell contended that his indeterminate confinement in poorly ventilated administrative segregation violated his Eighth Amendment right to be free from cruel and unusual punishment. The district court denied relief, and this appeal was taken.

The Administrative Assistant of the United States Penitentiary at Atlanta, Georgia, has filed an affidavit in this Court certifying that the appellant is no longer incarcerated there. The case is moot. Williams v. U. S. Department of Justice, 5 Cir. 1972, 462 F.2d 1291; McCarroll v. Morrow & Holman, 5 Cir. 1971, 435 F.2d 560; Bryant v. Blackwell, 5 Cir. 1970, 431 F.2d 1203.

Appeal dismissed.

      . It is appropriate to dispose of this pro se case summarily, pursuant to this Court’s local Rule 9(c) (2), appellant having failed to file a brief within the time fixed by Rule 31, Federal Rules of Appellate Procedure. Kimbrough v. Beto, Director, 5 Cir. 1969, 412 F.2d 981.


text:
    Mrs. Barbara Janusa SMITH, Individually and as Natural Tutrix of her minor children, Lee Roy Smith, III and Raymond Smith, Plaintiff-Appellant, v. ASSOCIATED PIPE LINE CONTRACTORS, INC. and Travelers Insurance Company, Defendants-Appellees, Liberty Mutual Insurance Company, Intervenor.
    No. 73-1087
    Summary Calendar.

    United States Court of Appeals, Fifth Circuit.
    April 20, 1973.
    Rehearing Denied May 16, 1973.
    Robert E. Morgan, Lake Charles, La., for plaintiff-appellant.
    Edmund E. Woodley, Lake Charles, La., for Associated Pipe Line Contractors, Inc.
    Bruce J. Borrello, New Orleans, La., Richard A. Chozen, Lake Charles, La., for Liberty Mutual Ins. Co.
    Before THORNBERRY, GOLDBERG and RONEY, Circuit Judges.

       Rule 18, 5th Cir.; see Isbell Enterprises, Inc. v. Citizens Casualty Co. of New York et al., 5th Cir. 1970, 431 F.2d 409.

   PER CURIAM:

Plaintiff’s husband was killed in a two-car collision which resulted from the negligence of defendant’s employee, Nugent. We have previously sustained a summary judgment denying liability of the employer under the Jones Act for the death of a fellow-employee guest passenger riding with Nugent on the ground that the driver Nugent was not in the course of his employment at the time of the accident. Moore v. Associated Pipeline Contractors, 468 F.2d 815 (5th Cir. 1972).

Plaintiff contends that Nugent was acting in the course and scope of his employment, under Louisiana law, at the time of the collision with her husband’s automobile. We affirm the summary judgment for the defendant on the basis of the opinion of the District Court. Smith v. Associated Pipe Line Contractors, Inc., 357 F.Supp. 493 (W.D.La.1972).

Affirmed.

      . Louisiana Civil Code of 1870, Article 2370.
      Masters and employers are answerable for the damage occasioned by their servants and overseers, in the exercise of the functions in which they are employed.
      Teachers and artisans are answerable for the damage caused by their scholars or apprentices, while under their superintendence.
      In the above cases, responsibility only attaches, when the masters or employers, teachers and artisans, might have prevented the act which caused the damage, and have not done it. See O’Brien v. Traders & General Insurance Co., 136 So.2d 852 (La.App.1961).


text:
    NATIONAL LABOR RELATIONS BOARD, Petitioner, v. BUCKEYE FLORAL COMPANY, Respondent.
    No. 72-1826.
    United States Court of Appeals, Sixth Circuit.
    Argued April 10, 1973.
    Decided April 17, 1973.
    Marjorie S. Gofreed, Atty., N. L. R. B., Washington, D. C., for petitioner; Peter G. Nash, Gen. Counsel, Patrick Hardin, Associate Gen. Counsel, Marcel MalletPrevost, Asst. Gen. Counsel, Robert Sewell, Atty., N. L. R. B., Washington, D. C., on brief.

      Edward C. Kaminski, Akron, Ohio, for respondent; Buckingham, Doolitte & Burroughs and Herndon & Bartlo, Akron, Ohio, of counsel.
    Before PHILLIPS, Chief Judge, and KENT and LIVELY, Circuit Judges.
   ORDER

The National Labor Relations Board seeks enforcement of its order issued May 25, 1972 against Buckeye Floral Company as reported at 197 NLRB No. 21.

Upon consideration of the record on appeal, briefs and oral arguments, it appears to the Court that the findings and order of the Board are supported by substantial evidence on the record as a whole.

It is therefore ordered that the order of the Board be, and it is hereby, enforced.


text:
    Harold E. JAHN and Mary Jahn, Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.
    No. 72-1976.
    United States Court of Appeals, Sixth Circuit.
    Argued April 9, 1973.
    Decided April 12, 1973.
    Leonard J. Simasko, Mt. Clemens, Mich., for appellants.
    Wesley J. Filer, Atty., Tax Div., Dept, of Justice, Washington, D. C., for appellee; Scott P. Crampton, Asst. Atty. Gen., Thomas L. Stapleton, Grant W. Wiprud, Attys., Tax Div., Dept, of Justice, Washington, D. C., on brief.
    Before WEICK and PECK, Circuit Judges, and CECIL, Senior Circuit Judge.
   ORDER

Upon consideration, it is ordered that the decision of the Tax Court be and it is hereby affirmed on the opinion of Judge Withey, 58 T.C. 452.


text:
    Jim FAIR and Jim Hinnant, both Individually and as representative of the class of similarly situated residents of of the State of Florida, Flaintiffs-Appellees, v. Jim SEBESTA, as Supervisor of Elections, Hillsborough County, Florida, etc., et al., Defendants-Appellants. Joel Francis WOODMAN, Individually, and Joel Francis Woodman, as representative of the class, etc., et al., Plaintiffs-Appellees, v. James SEBESTA, Supervisor of Elections, Hillsborough County, Florida, et al., Defendants-Appellants.
    Nos. 72-3301, 72-3300
    Summary Calendar.

    United States Court of Appeals, Fifth Circuit.
    April 11, 1973.
    Robert L. Shevin, Atty. Gen., Jerry E. Oxner, Asst. Atty. Gen., Tallahassee, Fla., David W. Thorpe, Asst. County Atty., Tampa, Fla., for James Sebesta. Jim Fair, pro se.
    Leslie Harold Levinson, Gainesville, Fla., Richard P. Condon, Tampa, Fla., for Hinnant.

      Before THORNBERRY, GOLDBERG and RONEY, Circuit Judges.

       Rule 18, 5 Cir.; see Isbell Enterprises, Inc. v. Citizens Casualty Company of New York, 5 Cir. 1970, 431 F.2d 409, Part I.

   PER CURIAM:

We find that these consolidated cases require a three-judge district court, 28 U.S.C. § 2281. We therefore vacate the decision of the lower court, 346 F.Supp. 913, for want of jurisdiction and remand the cases with instructions to convene a three-judge district court pursuant to 28 U.S.C. § 2284.

Vacated and remanded.


text:
    Larry JONES, Petitioner-Appellant, v. STATE OF GEORGIA et al., Respondents-Appellees.
    No. 72-3659
    Summary Calendar.

    United States Court of Appeals, Fifth Circuit.
    April 27, 1973.
    James C. Bonner, Decatur, Ga., (Court-appointed), for petitioner-appellant.
    Arthur K. Bolton, Atty. Gen., Harold N. Hill, Jr., Courtney Wilder Stanton, David L. G. King, Jr., Asst. Attys. Gen., Atlanta, Ga., for respondents-appellees.
    Before BELL, GODBOLD and IN-GRAHAM, Circuit Judges.

       Rule 18, 5 Cir.; see Isbell Enterprises, Inc. v. Citizens Casualty Co. of New York et al., 5 Cir., 1970, 431 F.2d 409.

   PER CURIAM:

Court-appointed counsel for appellant, a Georgia state prisoner habeas applicant, has asserted one principal error on this appeal. In addition, deeming it to be his duty in a habeas case, he has conscientiously catalogued other possible errors for the consideration of the court.

The principal assignment of error, that the state trial court erred in the charge to the jury on voluntary manslaughter (called a due process violation), is, in the context of the total charge, without merit. The additional assignments of error are also without merit.

Affirmed.

      . The additional assignments of error are the following:
      1. Appellant’s conviction for voluntary manslaughter on an indictment charging murder was a violation of due process.
      2. Appellant was denied effective assistance of counsel at trial.
      3. Appellant was arrested in violation of the Fourth Amendment. 4. Appellant’s conviction was obtained by the use of an involuntary confession.
      5. Appellant was denied assistance of counsel at the commitment hearing.
      6. Appellant was denied the right to present witnesses in his behalf because his trial counsel did not call certain witnesses who attended trial under subpoena.
      7. Appellant’s conviction was obtained by the use of improperly suggestive identification procedures.


text:
    ESTATE of Eugene F. McCABE, Deceased (Westport Bank and Trust Company, Administrator, C.T.A.) v. The UNITED STATES.
    No. 115-70.
    United States Court of Claims.
    March 16, 1973.

      Lawrence C. Moore, Washington, D. C., attorney of record, for plaintiff. Walter M. Andrew, Jr., Westport, Conn., of counsel.
    Kenneth R. Boiarsky, Washington, D. C., with whom was Asst. Atty. Gen. Scott P. Crampton, for defendant. Gilbert E. Andrews and Joseph Kovner, Washington, D. C., of counsel.
    Before COWEN, Chief Judge, and DAVIS, SKELTON, NICHOLS, KASHIWA, KUNZIG, Judges. and BENNETT,
   OPINION

PER CURIAM:

This ease was referred to Trial Commissioner David Schwartz with directions to make findings of fact and recommendation for conclusions of law under the order of reference and Rule 134(h). The commissioner has done so in an opinion and report filed on August 2, 1972. Exceptions to the commissioner’s opinion, findings and recommended conclusion of law were filed by plaintiff, defendant filed exceptions to certain findings and the case has been submitted to the court on oral argument of counsel and the briefs of the parties. Since the court is in agreement with the opinion and recommendation of the commissioner, with a modification by the court, it hereby adopts the same, as modified, as the basis for its judgment in this case as hereinafter set forth. Therefore, plaintiff is not entitled to recover and the petition is dismissed.

Commissioner Schwartz’ opinion, with a modification by the court, is as follows :

This is a suit for the recovery of estate taxes and assessed interest, to a total of $30,346.45, paid by the estate of Eugene F. McCabe, who died in 1964. Three questions are pi’esented: (1) what is the proper valuation of decedent’s residence; it is held that the residence had the value fixed by the Commissioner of Internal Revenue; (2) whether a certain inter vivos trust was a transfer with such a retained life estate as made it properly includible in the gross estate under subdivision (1) of § 2036(a) of the 1954 Code; it is held that it was; and (3) whether a testamentary trust of which decedent’s widow was a beneficiary failed to qualify, by virtue § 2056(a)(5) of the 1954 Code, for the marital deduction under § 2056(a); it is held that the trust does not qualify, for the reason that the widow’s power of appointment was not exercisable by her alone and in all events.

A fourth issue sought to be raised is the propriety of the Commissioner’s dis-allowance, as a deduction from the gross estate, of a widow’s allowance paid pursuant to probate court order. This ground for refund was first mentioned in plaintiff’s post-trial brief in this court; it was not raised in the administrative claim for refund and in the petition in this court. The failure to raise it before the Commissioner of Internal Revenue in the claim for refund bars its consideration in this judicial proceeding. Union Pacific R. R. Co. v. United States, 182 Ct.Cl. 103, 389 F.2d 437 (1968); 26 U.S.C. § 7422(a) (1964). True, plaintiff demanded, in both its claim for refund and in its petition in this court, the entire amount of the deficiency which had been assessed and paid, an amount which would be refundable only if the widow’s allowance were a proper deduction. Numbers alone, however, cannot satisfy the rule that a claim for refund must set out the grounds upon which it rests. Plaintiff cannot make out a case, either before the Commissioner or in court, merely by demanding more money than is warranted by the allegations. H. H. Hornfeck & Sons, Inc. v. Anderson, 60 F.2d 38, 41 (2d Cir., 1932).

1. Valuation of Decedent’s Residence

Decedent’s residence, jointly owned with his wife, was valued at $57,500 in the tax return filed by his estate and at $64,500 by the Commissioner of Internal Revenue.

The two appraisers appointed by the probate court testified in support of their valuation of $57,500. The Government’s expert testified to a valuation of $67,000. The qualifications of the respective appraisers, the bases for their valuation and the facts as to what they considered, and how thoroughly, are set out in the accompanying findings.

Plaintiff’s appraisers did a perfunctory job of their appraisal. Notably, they failed to take into account the increase in value which would be gotten by a quite feasible subdivision into three parcels of the 6.8 acre lot on which decedent’s house stands. The Government’s witness, on the other hand, has impressive qualifications, made an industrious appraisal and provided evidence in support of his opinion that the house and lot were worth $67,348 on a cost-reproduction basis and $67,000 on a direct-market-comparison or comparable-sales basis.

On the basis of that witness' testimony, it is found that the property — land and improvements — was worth at least $64,500, the figure accepted by the Commissioner of Internal Revenue. It is unnecessary to determine whether the property was any more valuable than that. Accordingly, plaintiff is not entitled to recover on the issue of valuation.

2. The Inter Vivos Trust

On May 16, 1940, decedent by an indenture created a trust of insurance policies on his life with a total face value of $75,000. His wife thereafter transferred to this trust shares of stock worth $6,300. The trust instrument provided that the income from the trust was to be paid to decedent's wife for life, with a remainder to decedent’s children. The trustees were Russell J. Hopkins, president of the Titusville Trust Co. of Titus-ville, Pennsylvania, and the Trust Company. The value of the assets in the trust as of the date of decedent’s death in 1964, exclusive of any corpus contributed by his widow, Dorothy McCabe, was $18,298.66.

The question for decision is the includibility of this sum in decedent’s gross estate under § 2036(a) of the 1954 Code. More precisely, the question is whether in making the transfer the decedent had in the words of the section, retained for his life “the possession or enjoyment of, or the right to the income from, the property,” within the meaning of subdivision (1) of § 2036(a). The section reads as follows (26 U.S.C. § 2036(a) (Supp. V, 1959-1963)):

§ 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 has 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.

The decision herein is that decedent retained such a life interest as is described in subdivision (1) of § 2036(a). A contention of taxability under subdivision (2) of § 2036(a), based upon the retention in Article Twelfth (note, supra) of the power to substitute the donor as trustee, therefore need not be considered.

At the time the trust was created in 1940, decedent was employed by the Tidewater Associated Oil Company. He retired as a vice president in 1959. Upon his retirement, he ceased to receive his annual salary of $30,000, and became a consultant at a compensation which does not appear.

Following decedent's retirement in 1959, the cash surrender value of the insurance policies in the trust was taken by the trustees, by mutual agreement of decedent, decedent’s wife and the trustees. Substantially all of the dealings with regard to the trust took place between decedent and the individual trustee, Russell J. Hopkins, who was his longtime friend and business associate.

Between 1959 and 1964, the year of decedent’s death, funds from the corpus of the trust were devoted by the trustees as follows:

At the trial, decedent’s widow could not recall ever having seen the 1940 trust agreement, nor could she recall her husband's having explained its terms to her. She was certain that no one at the Trust Company had ever done so.

None of decedent’s children was aware of the 1940 trust agreement except through informal family conversations. With some small exceptions, they did not know the nature or amount of the trust assets, the nature of their respective interests, the identity of the trustees, the taking of the cash surrender value of the life insurance policies or the amounts withdrawn from the trust. They were not consulted with regard to any of the transactions regarding the trust, nor was any evidence presented which would show that any of the four children received money from their parents or from the trust for support, medical assistance or educational purposes during the period 1959-1964.

Prior to decedent’s retirement in 1959 and subsequent to his death on August 23, 1964, no distributions of trust corpus were requested or made. From 1959 until decedent’s death, all requests for cash distributions of trust corpus (set out in the foregoing table) were prepared by and at the direction of decedent, for his wife’s signature. The distributions were deposited in decedent’s cheeking account, by the trustees acting upon Dorothy McCabe’s request, and were applied to the joint and personal use and benefit of decedent and his wife, including the costs of children’s weddings and personal vacations.

There is no question but that decedent did not, by the terms of the instrument of transfer, expressly retain the life interest that would make § 2036(a)(1) applicable. A retained life interest need not, however, necessarily be created by the express terms of the instrument, nor need it be legally enforceable, for § 2036(a) (1) to apply McNichol’s Estate v. Commissioner, 265 F.2d 667 (3d Cir.), cert. denied, 361 U.S. 829, 80 S.Ct. 78, 4 L.Ed.2d 71 (1959). A retention of the “possession or enjoyment of, or the right to the income from, the property” may be inferred from the circumstances attendant upon the transfer and the manner in which the transferred property is used. Skinner’s Estate v. United States, 316 F.2d 517 (3d Cir. 1963); see also Barlow v. Commissioner, 55 T.C. 666 (1971).

Both McNichol and Skinner were factually different flom the instant case. McNichol involved a purported outright gift of income-producing property by a father to his children, coupled with a contemporaneous oral agreement between the donor and the donees that the donor would continúe to receive the income from the property until his death. In Skinner, the trust instrument gave the trustee discretion to pay the income from the trust to the settlor during her lifetime, a discretion which he exercised in her favor until her death.

The facts of the instant case however show as clearly as in those cases a retained life interest. Decedent was not a detached settlor, and the trustee (to all intents the individual trustee was the sole trustee) did not act exclusively for the benefit of the ostensible beneficiary, Mrs. McCabe. The dealings among the three of them — decedent, trustee and wife — in my opinion raise an inference of a prearrangement that decedent should retain control for his benefit so long as he lived. In these dealings, Mrs. McCabe and the trustee recognized and surrendered to the decedent’s interests, throughout.

After decedent retired in 1959 (and his income thereby diminished) substantial cash distributions were at four separate times made from the trust corpus to the decedent, presumably a settlor who had parted with his interest and had no rights. After the first of these distributions, trustee Hopkins requested that decedent have his wife execute “a letter * * * authorizing the $3,000 transfer to your [decedent’s] checking account.” The succeeding cash withdrawals were made pursuant to the written request of decedent’s wife, who additionally directed that these sums be deposited in her husband’s checking account.

The only provision of the trust under which the corpus could be invaded for the benefit of decedent’s wife, Article Fifth (note 1, swpra) was conditioned on her illness or an emergency, and an exercise of judgment by the trustee as to the amount, additional to income, necessary to provide proper care for Mrs. McCabe. This was ignored. The trustee made no inquiry into her situation to determine whether she was beset by illness or emergency when she requested distributions of corpus; and plaintiff provides no basis for any conclusion that the uses to which the distributions were put fall within the provisions of Article Fifth for Mrs. McCabe’s benefit. Rather, it appears that the three parties at all times treated the decedent as having the right to receive the trust corpus, exercisable on the mere formality of his wife’s demand.

Consistent with this conclusion is the language in Mrs. McCabe’s second letter requesting a distribution of corpus to her husband:

In view of the rights and privileges granted to me under the above mentioned trust agreement, I now request that you permit me to withdraw from the trust the cash on hand, namely $3,163.08, depositing it in Titusville Trust Company to the credit of my husband Eugene F. McCabe. In consideration of so doing I hereby agree to protect and save the trustees harmless and free from, any liability or any claim that may be made upon them by reason of releasing the above sum to me.’

Similar language was contained in three of the four such letters she wrote, authorizing the four noted cash distributions. None of the letters contained any statement as to the purposes for which the money was required.

A pretended transfer to a wife, with the retention of a life estate by the husband so apparent from the facts as here, is the archetypal situation reached by subdivision (1) of § 2036(a). The property is includible in the gross estate.

3. The Testamentary Trust

The issue in this last part of the case is whether one of the trusts created by the will, “Trust Fund A,” is such a life estate with power of appointment in a surviving spouse as permits its value to be deducted from the gross estate. The precise questions are whether the power is exercisable by the surviving spouse “alone and in all events” and whether there is a power in any other person to appoint “to any person other than the surviving spouse.” 26 U.S.C. § 2056(b)(5) (1958). Only if the first question is answered in the affirmative, and the second in the negative, is the value of the interest deductible from the gross estate under § 2056(a).

Article Second of the will (set out in the note ) divided the estate equally between two trusts, Trust Fund A and Trust Fund B, and provided that the income of Trust Fund A should go to the widow for her life, she to have power to “use” any part of the principal in her discretion, any balance remaining at her death to be added to Trust Fund B (in which, at that time, the income beneficiaries and remaindermen (at stated ages) would be decedent’s surviving children and issue).

Section 2056(b)(5) of the 1954 Code (note 3, supra) requires, if a life interest with a power to appoint to a spouse is not to be included in the gross estate under § 2056(a), that the power to appoint be exercisable by the spouse “alone and in all events.” Under the regulations the power is not exercisable “alone and in all events” unless it falls within one of three categories, one of which is that the power be “fully exercisable in her own favor at any time following the decedent’s death (as, for example, an unlimited power to invade).” Moreover, the power is not exercisable “in all events” if there be any restrictions on the power to consume the property, as for instance “if a power of invasion is exercisable only for the spouse’s support, or only for her limited use,” or if the trustee has power “to appoint a part of the interest to any person other than the surviving spouse.” Treas.Reg. § 20.-2056(b)-5 (1964).

These conditions are not met, the Government first contends, because the widow’s right, under Article second of the will (note 4, supra), to “use” amounts out of principal is restricted by an implied duty of good faith in favor of the remaindermen, and is thus not “fully exercisable in her own favor.”

The nature of the interests created by the will is of course to be determined under Connecticut law. Treas.Reg. § 20.2056(b)-5(e) (1964). A relatively recent case in the Supreme Court of Errors of Connecticut, the highest court of that state, dealt with the consequences of a clause closely similar to Article Second of the instant will, giving a life tenant apparent power to demand payment of the principal. Connecticut Bank and Trust Co. v. Lyman, 148 Conn. 273, 170 A.2d 130 (1961).

The trust in that case provided for a life interest in the settlor, then to his wife for her life, the trust to terminate on the death of the survivor and “the property constituting the same” to be distributed to the settlor’s issue, per stirpes, and in default of issue to designated institutions. The clause in question permitted payments of principal by the trustee for the benefit of the widow as life tenant, on the widow’s need or “at the written request” of the widow, as follows (148 Conn, at 276-77, 170 A. 2d at 132):

* * * after the death of the * * * [settlor], payments of principal shall be made to or for the benefit of said Katharine R. Lyman either on the judgment of the Trustee as to their being needed because of her illness or absence or other emergency, or at the written request of said Katharine R. Lyman or for both of said reasons.

Soon after the death of the settlor, the widow presented a written request that the entire principal be paid to her forthwith. The trustee petitioned for instructions. On behalf of the remaindermen, it was claimed that while the widow could by a series of requests based on reasonable justification exhaust the principal, she could not do so without a showing of need or other justification.

The court held the will to express a dual intention with respect to invasion of the principal — the first, to allow the trustee on its own initiative to pay over principal on the basis of need, particularly useful in case the beneficiary were so disabled as to impair her judgment, and the second to order the trustee to pay over principal “at the untrammeled, written request of the beneficiary” (148 Conn, at 280, 170 A.2d at 133).

The widow as life income-beneficiary, the holder of an equitable and not a legal estate, was held neither an actual nor quasi trustee for the remaindermen. The presence of a remainder clause, the court said, was no indication of an intention to circumscribe an otherwise apparently unbridled power of invasion, and was at most an indication of the expectations of the settlor as to the use the widow would make of the unrestricted power of invasion.

While standards for a limitation on the exercise of the power of an income beneficiary to invade were, the court said, doubtless enforceable, the power to invade had been given unconditionally and would not be restrained (148 Conn, at 280-81,170 A.2d at 133-134):

* * * Here, the power of withdrawal or invasion is general and unlimited, and is neither expressly, nor by implication, given for the beneficiary’s support, comfortable maintenance or need, or for any similar purpose which would call for the exercise of a reasonable discretion in conformanee with expressed, or necessarily-implied, standards, purposes or limitations. See, for instance, Little v. Geer, 69 Conn. 411, 415, 37 A. 1056. Courts will, of course, protect against an abuse of discretion in any equitable matter. Conway v. Emeny, 139 Conn. 612, 619, 96 A.2d 221. Here, however, no discretion is involved. The power to request payments of principal is neither based on, nor does it call for, the exercise of discretion in conformance with any standards, purposes or limitations, express or implied. The right to invade is left to the defendant’s desires.

This Connecticut decision is conclusive on the nature of the right of the widow under Article Second of the instant will, which gives the widow “the right, in her absolute discretion, to use such amounts out of the principal of said ‘Trust Fund A’ as she may request at any time and from time to time, without restriction.” She is not to be limited, in the exercise of her rights, by any duty to the remaindermen. No conditions having been imposed on “her absolute discretion,” she is entitled under the Lyman case to request payment to her of any or all of the corpus at any time. As the court said, “The right to invade is left to [the widow’s] desires.”

The power is thus “an unlimited power to invade” and is “fully exercisable in her own favor” under § 2056(b)—5 (g) (i) of the regulations, note 5, swpra.

Left for decision is another contention of the Government — that the trustee has the power in certain circumstances to pay out corpus for the benefit of decedent’s children. This argument is based upon Article Fourth of the will, set out in the note which gave the trustee discretionary power to use the portions of the principal deemed necessary to meet any emergency, illness or other similar situation “necessitating any unexpected need of cash for any beneficiary or any respective share herein created.”

The trustees’ power is under Article Fourth exercisable “[d]uring the continuance of the Trusts” in case of need of “any beneficiary or any respective share herein created.” These words of course include the remaindermen, the decedent’s children. Article Second provided that on the death of the widow, the balance in Trust Fund A was to be paid into Trust Fund B, where, the life income-beneficiary (the widow) of Trust Fund B then being dead, the decedent’s children would take the income of Trust Fund B and be entitled to receive distributions of y3 of their respective shares of corpus at the ages of 25, 30 and 40.

The clause is quite clear, and the clarity makes it unnecessary to consider the contention, made with citation of Virginia National Bank v. United States, 443 F.2d 1030 (4th Cir. 1971), that patent ambiguity permits a resort to parol evidence, outside the will, to show the intent of the testator.

Until the widow dies or draws down the entire Trust Fund A by her demands (as permitted by Article Second as heretofore construed), the children remain permissible objects of the trustees’ discretionary powers to invade under Article Fourth and devote to the use of the children any part of the principal of Trust Fund A deemed necessary for the children’s “unexpected need of cash” by reason of an emergency, illness or similar situation. The possibility that the widow can deplete Trust Fund A, end the trust and thereby destroy the remainders does not affect the continued existence of those remainders in the interim.

While the Connecticut court in Lyman did not have before it a clause authorizing invasion for the benefit of remaindermen, it did have occasion to comment on the remainders in the will before it, in terms which are relevant presently. In discussing the effect of the life estate on the remainders, the court stated (citing 2 Scott on Trusts (2d ed.) p. 952) that while the remainder might amount to little or nothing through exercise of the wholly unlimited power of the widow to invade, the gift over was not invalidated. The trust, defendant conceded, “would persist so long as any of the principal remained and would operate to give any principal remaining at her death to the remaindermen.” 148 Conn, at 280, 170 A.2d at 133. Lyman confirms that the remainders to the children, here, continue though the widow may at any time demand payment of all the principal.

The validity of the remainders, and the power of the trustee to pay part of the principal to the children, means that the trustee could in some circumstances “appoint a part of the interest to any person other than the surviving spouse” (Regulations, note 5, supra), and thus that in the words of § 2056(b)(5) (note 3, supra), there is a “power in any other person to appoint any part of the interest * * * to any person other than the surviving spouse.” Therefore, the widow’s rights are not exclusive under § 2056(b)-5, and the interest to her therefore does not qualify under § 2056(a) for the marital deduction.

The several issues having been decided against the plaintiff, the petition should be dismissed.

      . Among the provisions of the instrument were:
      “The Trustees shall take receive and hold the policies of insurance set forth in Schedule “A”, attached hereto and made a part hereof, together with instruments of assignment or change of beneficiaries upon said policies duly executed in duplicate, together with any other securities therein set forth and any policies or other securities which may from time to time be deposited with them under the terms of this Indenture, together with the proceeds of said insurance policies, IN TRUST NEVERTHELESS, for the following purposes and uses, and subject to the terms, conditions, powers and agreements as hereinafter set forth, namely:—
      “Second: To invest and re-invest funds coming into their possession in such securities as they may deem proper and suitable for the investment of trust funds,
      “Fifth: In the event of illness or emergency, should the income not be sufficient to provide proper care and comfort for the Donor’s wife, Dorothy M. McCabe, the Trustees are hereby directed to use so much of the principal of the trust fund as in their judgment may be necessary to properly care for the aforesaid Dorothy M. McCabe. Also, should any of the Donor’s children desire a college or higher education, and the income from the trust be not sufficient to provide such education, the Trustees are authorized, upon the written consent of the Donor’s wife, Dorothy M. McCabe, to use so much of the principal as in their opinion may be needed for such educational purposes. And should Dorothy M. McCabe be not living, then the Trustees may use so much of the principal of the trust fund as in their opinion is necessary and expedient for the education of the Donor’s children.
      “Ninth: The Donor further reserves the right to add at any time other policies of insurance to the trust fund created, and without the consent or approval of the Trustees to add to this trust securities or monies at any time.
      “The Donor understands and agrees that the trust shall be operative only with respect to the proceeds of such policies of insurance as may be due and payable in the event of his death, after the deduction of all charges against said policies by way of advances, loans, or otherwise, either in favor of the Trustees or the insured.
      “Twelfth: The Donor has the right to substitute for Titusville Trust Company and Russell J. Hopkins, as Trustees, anyone whom he desires, except, however, that such substitution of appointment cannot be made during any time in which lie has indebtedness to the within named Titusville Trust Company.”

      . The origin of section 2036(a) is a provision of the Revenue Act of 1918 including in decedent’s gross estate property of which a decedent made a transfer “intended to take effect in possession or enjoyment at or after bis death * * § 402(c), Revenue Act of 1918, 40 Stat. 1097 (1919). The Supreme Court in 1930 held a transfer with a life estate reserved to the donor after the expiration of a life estate to donor’s spouse (remainder to donor’s children) not within the foregoing statute (May v. Heiner, 281 U.S. 238, 50 S.Ct. 286, 74 L.Ed. 826 (1930)), and reaffirmed this decision by announcing per curiam, decisions construing successor statutes, in Burnet v. Northern Trust Co., 283 U.S. 782, 51 S.Ct. 342, 75 L.Ed. 1412 (1931); Morsman v. Burnet, 283 U.S. 783, 51 S.Ct. 343, 75 L.Ed. 1412 (1931); and McCormick v. Burnet, 283 U.S. 784, 51 S.Ct. 343, 75 L.Ed. 1413 (1931). Congress thereupon promptly enacted a provision reversing the holding (46 Stat. 1516 (1931)), which has since evolved into § 2036(a) of the 1954 Code.

      . Section 2056(b)(5) reads as follows:
      “(5) Life estate with power of appointment in surviving spouse.—
      “In the case of an interest in property passing from the decedent, if his surviving spouse is entitled for life to all the income from the entire interest, or all the income from a specific portion thereof, payable annually or at more frequent intervals, with power in the surviving spouse to appoint the entire interest, or such specific portion (exercisable in favor of such surviving spouse, or of the estate of such surviving spouse, or in favor of either, whether or not in each case the power is exercisable in favor of others), and with no power in any other person to appoint any part of the interest, or such specific portion, to any person other than the surviving spouse—
      (A) the interest or such portion thereof so passing shall, for purposes of subsection (a), be considered as passing to the surviving spouse, and
      (B) no part of the interest so passing shall, for purposes of paragraph (1) (A), be considered as passing to any person other than the surviving spouse.
      “This paragraph shall apply only if such power in the surviving spouse to appoint the entire interest, or such specific portion thereof, whether exercisable by will or during life, is exercisable by such spouse alone and in all events.”

      . Article Second provides:
      “Second: I give, devise and bequeath all of my property, real, personal and mixed, of every description and wherever the same may be situate and of which I may die seised or possessed, to the Titus-ville Trust Company, of Titusville, Pa., IN TRUST, NEVERTHELESS, for the following purposes:
      “My said Trustee shall divide my said estate into two equal portions, designating one portion as ‘Trust Fund A’ and the remaining portion as ‘Trust Fund B.’
      “From the said ‘Trust Fund A’ my said Trustee shall pay the net income in at least quarterly installments, to my wife, Dorothy M. McCabe, for and during her natural life, giving and granting, however, to my said wife, the right, in her absolute discretion, to use such amounts out of the principal of said ‘Trust Fund A’ as she may request at any time and from time to time, without restriction. Any balance remaining in the said ‘Trust Fund A’ at the time of her death shall be added to and become a part of ‘Trust Fund B’.
      “From ‘Trust Fund B’ my said Trustee shall pay the income from the said Trust Fund, in at least quarterly installments, to my wife, Dorothy M. McCabe, for and during her natural life, and upon her death, or in the event she shall have predeceased me, to my children, in equal parts, share and share alike. Should any child or children of mine predecease me, the issue of such deceased child or children shall receive the portion of income and principal its or their parent would have received if living. Should any child or children of mine leave no issue then surviving, then in that event, the proportionate share of such child or children shall revert to and become a part of the principal of said ‘Trust Fund B’, to be divided equally among my surviving children and/or the issue of my deceased child or children, if any.
      “As each of my children arrives at the age of twenty-five (25) years, such child shall receive one-third (%) of its proportionate share of the said ‘Trust Fund B’.
      “As each of my children arrives at the age of thirty (30) years, such child shall receive one-third (%) of its proportionate share of the said ‘Trust Fund B\
      “As each child arrives at the age of forty (40) years, such child shall receive his or her remaining proportionate share of the said ‘Trust Fund B.’
      “In the event I should die without child or grandchild me surviving, 1 give, devise and bequeath all of my said ‘Trust Fund B’ to my wife, Dorothy M. Mc-Cabe, absolutely, and in the event my said wife should also predecease me, it is my will that my property go to and be divided in accordance with the Intestate Daws of the State of Connecticut.”

      . Section 20.2056(b)-5 of the Regulations reads in pertinent part as follows:
      “(g) Power of appointment in surviving spouse. (1) The conditions set forth in paragraph (a) (3) and (4) of this section, that is, that the surviving spouse must have a power of appointment exercisable in favor of herself or her estate and exercisable alone and in all events, are not met unless the power of the surviving spouse to appoint the entire interest or a specific portion of it falls within one of the following categories :
      “(i) A power so to appoint fully exercisable in her own favor at any time following the decedent’s death (as for example, an unlimited power to invade) ;
      “ (3) * * * Likewise, if there are any restrictions, either by the terms of the instrument or under applicable local law, on the exercise of a power to consume property (whether or not held in trust) for the benefit of the spouse, the power is not exercisable in all events. Thus, if a power of invasion is exercisable only for the spouse’s support, or only for her limited use, the power is not exercisable in all events. In order for a power of invasion to be exercisable in all events, the surviving spouse must have the unrestricted power exercisable at any time during her life to use all or any part of the property subject to the power, and to dispose of it in any manner, including the power to dispose of it by gift (whether or not she has power to dispose of it by will).

        “(j) Existence of a power in another. Paragraph (a) (5) of this section provides that a transfer described in paragraph (a) is nondeductible to the extent that the decedent created a power in the trustee or in any other person to appoint a part of the interest to any person other than the surviving spouse. * * * ”

      . Article Fourth provided :
      “Fourth : During the continuance of the Trusts hereby created, and at the end thereof, for the purpose of making final distribution, the Trustee shall have and possess the following powers :
      “1. To meet any emergency, accident, sickness, surgical operation, prolonged illness, or any other similar situation which may arise, necessitating any unexpected need of cash for any beneficiary or any respective share herein created, the said Trustee is authorized to use such portions of the principal of these Trust Estates as said Trustee, in its sole discretion, may deem necessary for such purposes, as the particular occasion demands.”


text:
    MATHER CONSTRUCTION COMPANY et al. v. The UNITED STATES.
    No. 481-69.
    United States Court of Claims.
    March 16, 1973.

      Carl J. Felth, Washington, D. C., attorney of record, for plaintiffs. Daniel J. Andersen, Washington, D. C., of counsel.
    Edward J. Friedlander, Washington, D. C., with whom was Asst. Atty. Gen. Harlington Wood, Jr., for defendant.
    Before COWEN, Chief Judge, and DAVIS, SKELTON, NICHOLS, KASHIWA, KUNZIG and BENNETT, Judges.
   OPINION

PER CURIAM:

This ease was referred to Trial Commissioner William E. Day (since retired) with directions to make findings of fact and recommendation for conclusions of law under the order of reference and Rule 134(h). The commissioner has done so in an opinion and report filed on September 12, 1972. Exceptions to the commissioner’s opinion, findings of fact and recommended conclusion of law were filed by plaintiffs and the case has been submitted to the court on oral argument of counsel and the briefs of the parties.

The court has also considered the documents submitted by plaintiffs in their motion for leave to file documents after close of proof but holds that those materials do not have significant bearing on the disposition of the case now in this court and therefore do not require any change in the recommendation of the trial commissioner. The court likewise notes that as of the time of oral argument the plaintiff corporations were still incapacitated to maintain this suit.

Since the court agrees with the trial commissioner’s opinion, findings of fact and recommended conclusion of law, as hereinafter set forth, it hereby adopts the same, together with the paragraph set forth above, as the basis for its judgment in this case. Therefore, the plaintiffs are not entitled to recover and the petition is dismissed.

OPINION OF COMMISSIONER

DAY, Commissioner:

This case grows out of a Capehart Act contract between the plaintiffs and the Department of the Air Force for the construction of 220 military housing units at Mather Air Force Base, California. The plaintiffs are seeking to recover $24,405.77 improperly paid from an escrow of the plaintiffs’ funds set aside at the closing of the construction project. This payment was made upon the request and authorization of the Department of the Air Force and the Federal Housing Administration.

The case was before the court on the defendant’s motion for summary judgment. That motion was denied on October 22, 1971, and the case was returned here for trial. The court further ordered the clerk of the court to issue notice to the Continental Casualty Company and the Fidelity and Casualty Company of New York under Rule 41, those parties apparently having an interest in the disputed claim. Neither company chose to appear at the trial.

At the trial on the merits, the defendant made a motion to dismiss the case based upon lack of jurisdiction. The facts upon which this motion was based were discovered shortly prior to the trial, consequently the issue was not before the court at the time the defendant moved for summary judgment. A ruling on the motion was reserved, and the parties introduced evidence consisting primarily of documentary exhibits. By pretrial agreement, the entire file of Continental Casualty Co., et al. v. American Security Corporation, et al., Civil Action No. 2226-65, in the United States District Court for the District of Columbia and the papers relating to that case as the case was the subject of an appeal to the United States Court of Appeals for the District of Columbia Circuit were admitted into evidence as a court exhibit. [143 U.S.App.D.C. 234, 443 F.2d 649 (1970), cert. denied, 402 U.S. 907, 91 S.Ct. 1378, 28 L.Ed.2d 647 (1971).]

Prior to reaching a resolution of the merits, I will first address this opinion to the defendant’s motion to dismiss.

Motion to Dismiss

The rights and privileges of all three plaintiff corporations have been suspended in California, the State of their incorporation, for failure to pay corporate franchise taxes pursuant to the California Revenue and Tax Code, § 23301 (West 1970). That section of the code provides that:

Except for the purpose of amending the articles of incorporation to set forth a new name, the corporate powers, rights and privileges of a domestic taxpayer shall be suspended, and the exercise of the corporate powers, rights and privileges of a foreign taxpayer in this state shall be forfeited if any of the following conditions occur:
(b) If any tax, penalty or interest, or any portion thereof, other than jeopardy of fraud assessments, due and payable upon notice and demand from the Franchise Tax Board, is not paid on or before 6 o’clock p.m. on the last day of the 11th month following the due date of said tax.

Plaintiff Mather Construction Company (hereinafter referred to as Mather) was suspended on February 1, 1962; plaintiff J. D. Bradley, Inc. (hereinafter referred to as Bradley) was suspended on August 1, 1966; and plaintiff D & L Construction Company (hereinafter referred to as D & L) was suspended on December 1, 1969. Section 23305 of the code provides for reinstatement of corporations suspended under section 23301 by the payment of all taxes, interests, and penalties due, and upon the issuance of a certificate of revivor by the Franchise Tax Board. None of the plaintiffs have produced a certificate of revivor, and have, in fact, indicated that at the present time they are not in a position to comply with section 23305.

The defendant contends that by virtue of such suspensions and the subsequent failure to secure reinstatement, the three plaintiff corporations lack the capacity to sue in this court.

The capacity of a corporation to sue is governed by Rule 61(b) which provides, in pertinent part, that :

The capacity of a corporation to sue or be sued shall be determined by the law under which it was organized.

The court has never had occasion to pass directly on the interpretation to be accorded this part of Rule 61(b), however, the rule was adopted from Rule 17 (b) of the Federal Rules of Civil Procedure, and decisions relating to that rule provide adequate guidance.

In Chicago Title & Trust Co. v. Forty-one Thirty-Six Wilcox Bldg. Corp.,

302 U.S. 120, 124-125, 58 S.Ct. 125, 127, 82 L.Ed. 147 (1937), the Supreme Court stated that:

The decisions of this court are all to the effect that a private corporation in this country can exist only under the express law of the state or sovereignty by which it was created * * *. There must be some statutory authority for the prolongation of its life, even for litigation purposes.

The court’s decision was rendered in the same year as the promulgation of Rule 17(b), and although not addressed to the rule itself, has been uniformly interpreted as requiring that federal courts apply the law of the state of incorporation when determining corporate capacity under Rule 17(b). McGinnis Theatres & Pay T.V., Inc. v. Video Independent Theatres, Inc., 386 F.2d 592 (10th Cir. 1967), cert. denied, 390 U.S. 1014, 88 S.Ct. 1265, 20 L.Ed.2d 163 (1968); Southern Land, Timber & Pulp Corp. v. United States, 322 F.Supp. 788 (N.D.Ga.1970); Joseph Muller Corp. v. Societe Anonyme De Gerance, 314 F.Supp. 439 (S.D.N.Y.1970); American Optical Co. v. Philadelphia Electric Co., 228 F.Supp. 293 (E.D.Pa.1964). The capacity of the plaintiffs to sue in this court under Rule 61(b) must therefore be determined by the law of the State of California.

Under the law of California, a corporation which has been suspended for failure to pay franchise taxes is prohibited from suing, from defending a suit, or from appealing from an adverse decision. Boyle v. Lakeview Creamery Co., 9 Cal.2d 16, 68 P.2d 968-970 (1937); Baker v. Ferrel, 78 Cal.App.2d 528, 177 P.2d 973-974 (Dist.Ct.App. 1947); Graceland v. Peebler, 50 Cal.App.2d 545, 123 P.2d 527-528 (Dist.Ct.App.1942); Ocean Park Bath House & Amusement Co. v. Pacific Auto Park Co., 37 Cal.App.2d 158, 98 P.2d 1068 (Dist.Ct.App.1940). Furthermore, suspension is a defense that may be asserted so long as the corporation is under the disability. Diverco Constructors, Inc. v. Wilstein, 4 Cal.App.3d 6, 85 Cal.Rptr. 851 (Ct.App.1970); Laurel Crest., Inc. v. Vaughn, 272 Cal.App.2d 363, 77 Cal.Rptr. 538 (Ct.App.1969). The purpose of the statute is to exert pressure on delinquent corporations in order to force the payment of overdue taxes. California courts have been liberal in permitting corporations to avoid the effect of suspension by allowing them to secure reinstatement at the time the issue of capacity is raised. A motion for a continuance is normally granted when corporate incapacity is brought to the attention of the court so as to permit the party to cure his disability. See, e. g., Schwartz v. Magyar House, Inc., 168 Cal.App.2d 182, 335 P.2d 487-492 (Dist.Ct.App.1959). The plaintiffs in this case were given 30 days to secure reinstatement at the close of the trial, but have been unable to do so for lack of financial resources.

Finally, it is observed that plaintiff D & L was suspended for nonpayment of taxes on December 1, 1969, approximately 20 days after its petition was filed. D & L, therefore, had capacity at the time the action was commenced. Capacity, however, is not only the power to bring an action, but is also the power to maintain it. Corporate suspension, rather than precipitating the “death” of the corporation, renders the corporation powerless or “incompetent” to perform certain acts. Just as an individual who is rendered incompetent in the course of a trial may not proceed without substitution (see Rule 66(b)), incapacity of a corporation will render it powerless to proceed and therefore may be raised as a defense at any time prior to final judgment.

For the foregoing reasons, I find that the three plaintiff corporations lack the capacity to sue in this court, and therefore their action must be dismissed for lack of jurisdiction.

In view of my findings as to the plaintiffs’ capacity, it is not necessary to reach a conclusion on the merits of their case. However, since a trial was ordered by the court in its order of October 22, 1971, I have prepared findings of fact and a recommended conclusion of law pursuant thereto.

Plaintiffs’ Claim

The plaintiffs in this case, seeking to recover $24,405.77, claim that the defendant was unjustly enriched in that amount when it ordered an improper payment from funds escrowed by the plaintiffs at the closing of a military housing construction contract. The defendant admits that the payment was improperly authorized, but argues that the plaintiffs are not entitled to recover it by virtue of a prior decision in the United States District Court for the District of Columbia. The facts are set forth in the findings and will be summarized here.

On September 4, 1958, plaintiffs D & L and Bradley, a joint venture, were awarded Air Force Contract No. AF 04(612)-1032 as the “eligible builder” for the construction of 220 military housing units at Mather Air Force Base, California. D & L and Bradley subcontracted the entire contract, for the full contract price, to Mather Construction Company. The contract was to be financed in accordance with the Capehart Act, 42 U.S.C. §§ 1594-1594f; 12 U.S.C. §§ 1748-1748g (1970) and the builder was required to secure performance and payment bonds in the full amount of the contract price. For the purposes of financing and administration, the contract was divided into three “mortgage areas” or projects which shall be referred to as projects “Air 3”, “Air 7”, and “Air 8”. Together, the three plaintiffs secured separate performance and payment bonds for each project from the Continental Casualty Company and the Fidelity and Casualty Company of New York (hereinafter referred to as sureties). Construction was financed through a mortgage loan from the American Security Corporation of Washington, D. C. (hereinafter referred to as American or escrow agent), and payments were to be made to the plaintiffs from disbursements of the mortgage proceeds as authorized by the Federal Housing Administration (hereinafter referred to as FHA) and the Department of the Air Force.

As performance neared completion, the three projects were closed, and moneys were placed in escrow with American by agreement of the parties. At the closing of project Air 7, $23,950.00 was escrowed. This sum was subsequently reduced to a balance of $21,958.00. Two separate escrows were established at the closing of project Air 8, one of $31,532.-40 for estimated uncompleted items of work (subsequently reduced by authorized payments to $28,498.00) and one of $144,007.95. This last escrow represented the final payment of mortgage proceeds for project Air 8 and is the source from which the disputed disbursement was made.

The funds escrowed in this account were admittedly those of the plaintiffs, however, as evidenced by the agreement establishing the account, the funds were:

* * * subject to payment of any judgments obtained against Mather Construction Co., or any of its subcontractors, or the eligible builder, for or on behalf of parties furnishing labor or materials in connection with the prosecution of the work of this project, or subject to the order of Mather Construction Co. for the payment of such parties upon presentation of a proper release of claims signed or executed by the said parties. . It is understood by the parties hereto that the American Security Corporation may request the Federal Housing Administration to approve of such form of release of claims, in writing, prior to disbursement of any proceeds of this escrow.

On May 4, 1960, $42,177.53 was paid to Mather, and on August 16, 1960, $5,107.65 was paid to D & L and Bradley. At that time these sums were represented to be amounts then due certain creditors on the project.

A final payment of $24,405.77 was made on November 22, 1963, to N. P. Van Valkenburgh & Co. reducing the final balance of the third escrow to $72,317.00. Van Valkenburgh was a subcontractor of Mather, and the payment was made pursuant to an award by the Armed Services Board of Contract Appeals for “extra” work done over and above the terms of the original contract. The defendant admits that this payment should not have been made from the escrow of the plaintiffs’ funds, but rather should have been reflected by an increase in the total contract price.

The defendant does not dispute the foregoing facts, including the erroneous payment. Its defense is based upon the outcome of litigation instituted by the sureties in the United States District Court for the District of Columbia and subsequently appealed to the United States Court of Appeals, for the District of Columbia Circuit.

The suit in question was commenced by the sureties on September 14, 1965, against the three plaintiffs in this case, the American Security Corporation, the FHA, and the Air Force.

The sureties sought to recover the moneys in the three escrow funds (a total remaining balance of $122,413.00) and the three payments, as mentioned above, that were made out of the last escrow account. The sureties claimed that they had been required to pay out over $400,000 of creditors’ claims on the three bonds agreements executed with the plaintiff construction companies, and by virtue of these payments against the bonds, were subrogated to, and also, under the terms of their indemnity and assignment agreements, entitled to whatever interest the contracting companies had in the escrowed funds. Plaintiffs D & L and Bradley counterclaimed for the funds remaining in escrow.

The sureties’ claim against the three plaintiffs was made the subject of a motion for summary judgment which was granted by the district court on March 15, 1969. The district court’s order reads in part as follows:

1. That such defendants indemnify and reimburse plaintiffs, Continental Casualty Company and The Fidelity and Casualty Company of New York, out of the mortgage proceeds or funds escrowed by them at the final closing of mortgage areas Mather AFB Housing No. Two, Inc. (Capehart FHA Project No. 136-81007, Air 7), and Mather AFB Housing No. Three, Inc. (Capehart FHA Project No. 136-81008, Air 8), pertaining to Housing Contract No. AF-04(612)-1032 dated September 4, 1958, among defendants D & L Construction Company and J. D. Bradley, Inc. (a joint venture), eligible builder; Mather AFB Housing, Inc., Mather AFB Housing No. Two, Inc. and Mather AFB Housing No. Three, Inc., mortgagor builders, and the United States (through the Department of the Air Force) for construction of 220 units of military housing at Mather Air Force Base, California;
2. That, as against defendants Mather Construction Company, D & L Construction Company and J. D. Bradley, Inc., plaintiffs are entitled to the sums so escrowed with defendant American Security Corporation — • namely, the amounts of $97,728.44, $28,498.00 and $21,598.00, or a total of $147,824.44, together with any lawful interest which may be payable thereon.

The three plaintiffs sought an appeal to the United States Court of Appeals for the District of Columbia Circuit, and while that appeal was pending, the sureties and the remaining defendants settled their case, paying over to the sureties the escrowed funds less $2,500 in attorney fees to American. In satisfaction, the sureties released the other defendants of all claims arising out of the suit. This settlement was embodied in a consent order issued by the district court on December 4, 1969.

The plaintiffs were unsuccessful in their appeal, and the court of appeals affirmed the summary judgment order in Continental Casualty Company, et al. v. American Security Corporation, et al., 143 U.S.App.D.C. 234, 443 F.2d 649 (1970), cert. denied, 402 U.S. 907, 91 S.Ct. 1378, 28 L.Ed.2d 647 (1971).

The defendant argues that by virtue of these decisions the entitlement to all funds escrowed was established in the sureties. This includes not only the sums remaining in escrow, but also those paid out prior to judgment. By the consent order of December 4, 1969, the sureties released their claims against the defendant for the improper payment, and the defendant asserts that it cannot now be held to account to the plaintiffs.

The plaintiffs, on the other hand, contend that the rights to the $24,405.77 were not adjudicated in the district court action. They claim that the sureties were seeking the funds then remaining in the escrows, and that the awards of the district court and court of appeals were limited specifically to those funds. The sureties have failed to appear to assert any interest in the improper payment, and therefore it is rightfully the property of the plaintiffs.

A review of the records in the district court and court of appeals reveals that entitlement to the improper escrow payment was made an issue in that case. Although there is some substance to the plaintiffs’ claim that the decisions rendered do not specifically vest the right to recover the payment in the sureties, there is also language in those decisions which supports the position of the defendant. Regardless of which party’s narrow interpretation of these decisions is correct, however, there can be little doubt, even construing the decisions in the light most favorable to the plaintiffs, that had those courts been presented with the precise question here, they certainly would have ruled in favor of the sureties.

In support of their assertions, the plaintiffs point to the fact that the sureties’ original complaint sought “the balance of $72,317.00 remaining in the hands of the escrow agent.” It is also true that the complaint was titled “Complaint to Obtain Escrow Funds and Other Declaratory Relief.” Nowhere did the complaint request relief concerning the erroneous payment, and no reference to the sum in controversy may be found in the district court order. Further, the court of appeals stated that: “ * * * the appellees [sureties] were entitled to the escrow funds held by American Security Corporation * * 443 F.2d at 653. Again, no specific reference was .made to the Van Valkenburgh payment.

The defendant, in response, directs our attention to the portion of the district court order which holds that the sureties were entitled to “ * * * the sums so escrowed with defendant American Security Corporation — -namely the amounts of $97,728.44, $28,498.00 and $21,598.00 * * The $97,728.44 figure does not represent the balance of the third escrow account (all agree that that was $72,317), but rather represents the outstanding indebtedness to which the plaintiffs admitted being obligated at the time the final escrow account was established. Since the award was over $25,000 more than the final balance of the account, the defendant argues that the order indemnified the sureties to at least that amount more than was remaining in the third account. The sureties were therefore entitled to assert any claims of the plaintiffs up to $25,000.

Briefly reviewing the course of the litigation in the district court, it is not difficult to understand why a precise decision on this issue was not rendered. While the sureties did not specifically claim the erroneous payment in their complaint, their failure to do so may be attributed to the fact that they apparently were not aware of it until approximately one year after the action had commenced. The first reference by any party to the payment was made on October 21, 1966, when the sureties filed a request under Rule 36 for admissions of fact. Once discovered, however, they laid claim to entitlement throughout the proceedings. In answer to the plaintiff construction companies’ Interrogatory Number 4 filed February 23, 1967, the sureties stated:

Plaintiffs state that on or about November 22, 1963, defendant American Security Corporation paid from the special escrow deposit to A. M. Van Valkenburgh & Company the sum of $24,405.77 * * * which plaintiffs consider and state was improperly paid and must be restored by defendants American Security Corporation, Mather AFB No. 3 and the Federal Housing Commissioner.

The record reveals that in the pretrial proceedings, Statement of the Nature of the Case, the plaintiffs (D & L and Bradley) were seeking to have the payment redeposited in the account, and the sureties were claiming entitlement against the escrow agent and the Government.

The theory of the sureties’ case was simple; they based their rights to the escrow funds on the indemnity and assignment agreements and claimed that when the plaintiffs defaulted on the bonds there was an assignment of claims that related back and took effect as of the date of the bonds, namely, August 1968. This being the case, a court determination that the sureties were entitled to be subrogated or assigned to the rights of the plaintiffs in the funds would vest the claim in the sureties. The sureties sought to recover, of course, not from the plaintiffs, but rather from the Government and the escrow agent.

When the motion for summary judgment was granted, this was exactly the interpretation placed upon it by the remaining parties. The sureties and the other co-defendants then entered into the settlement and consent order. It is clear from the record that the sureties released their claim for the improper payment in order to effect an immediate recovery of the escrowed funds.

When the consent order was subjected to review in the district court on a motion to vacate, the following statement was made by counsel for the sureties:

The United States Government here stands a chance, if we are required to try it [the remaining claims] against our will, of losing $47,000 plus twenty-four [the Van Valkenburgh payment] or $71,000, which we say they improperly paid out.

The attorney representing the Government stated at that hearing:

The second motion is to vacate a consent judgment. To that consent judgment the Government was a party, there was a claim against the Government, the Government in its own best interests settled the claim, and the case has been dismissed * * *.

With this background in mind it becomes clear why entitlement to the erroneous payment was not specifically passed upon. The sureties were pressing this claim against the escrow agent and the Government, not against the plaintiffs, and once their rights were established against the plaintiffs, they then sought settlement of the improper payment. In view of their main claim— subrogation and assignment — the precise determination of entitlement was of minor consequence.

Whether the plaintiffs’ or defendant’s interpretation of the narrow wording of the decisions is to be accepted makes little difference. The court of appeals accepted the sureties basic argument, stating:

Under the established law of subrogation, appellees would be entitled to claim through appellants whatever rights the appellants had to these es-crowed funds [citing Pearlman v. Reliance Insurance Co., 371 U.S. 132, 83 S.Ct. 232, 9 L.Ed.2d 190 (1962)].
Appellants could not assert a right to these funds superior to that of the surety appellees, on the uncontradicted facts here. Furthermore under the indemnity agreement and the assignments executed in regard to each project, the rights of the appellants in each and all of these escrows funds, whether derived from the same or a different project, were assigned to the appellee surety companies to the full amount of any and all sums paid by the sureties in settlement of any claims arising under the bonds, if such claims were paid “in good faith under the belief that they or any of them were liable therefor, whether liable or not.”
Appellees asserted under oath, and it appears highly likely, even if not absolutely certain, from the bare outline of facts we have given in this opinion, that the appellees did pay claims totalling in excess of all amounts es-crowed on each of such areas, not only a grand total greatly in excess of the totalled escrowed amounts. 443 F.2d at 652.

The Court of Appeals could not “conceive of any theory by which on a trial on the merits appellants could possibly prevail,” and I cannot conceive of any theory by which the plaintiffs in this case could possibly have asserted a claim to the erroneous payment superior to that of the sureties. The sureties provided affidavits which reflected that they had paid out over $400,000 of claims against the plaintiffs. Those affidavits were not contradicted by the plaintiffs then, nor are they now, and the total recovery from all three escrows amounted to only $122,413. The sureties were obliged to pay over $250,000 of claims against the plaintiffs for which they will never be reimbursed. The plaintiffs’ demand for $24,405.77 pales in insignificance in comparison with the amount in which they were indemnified by their sureties. That a specific reference to the erroneous payment is not found in either decision does not require, as the plaintiffs would wish, that we close our eyes to the clear implication of those decisions. The plaintiffs may not now come into this court and claim relief for which they have no right.

Finally, it is not inappropriate to note that the plaintiffs have stipulated that had the funds not been paid, they would have remained in the escrow account at the time the district court action was commenced. Had that been the case, the plaintiffs undoubtedly would not be here today. Under the circumstances it is evident that the sureties would have collected whatever moneys remained in the escrow up to the sum they paid out under the agreements. I am mindful that, as the defendant points out, the court did in fact award a sum in excess of the three escrows, but for the reasons stated, this opinion need not rest on that fact alone.

As to the plaintiffs’ concern that the Government will be receiving a windfall as a result of this decision, I have already noted that the same claim was pressed against the defendant by the sureties, and those parties chose to settle it. As a result of that settlement the sureties have released the defendant, and that is undoubtedly why they did' not choose to appear in this action. Such a settlement and release cannot be construed as a windfall to the Government.

It is unnecessary to consider the Government’s other defenses to this claim, the plaintiffs not being entitled to recover for the reasons set forth above.

      . The provision of the present Rule 61(b) dealing with corporate capacity was adopted as Rule 20(b) by the court in its rules revision of May 15, 1951. It subsequently became Rule 24(b) on March 1, 1964, and Rule 61(b) on September 1, 1969. The pertinent language of the rule is identical to that of Rule 17(b) F.R.C.P., and neither rule has been altered since its original adoption.

      . For a discussion of the Capehart system of financing, see Anthony P. Miller, Inc. v. United States, 161 Ct.Cl. 455, 457, cert. denied, 375 U.S. 879, 84 S.Ct. 149, 11 L.Ed.2d 111 (1963).

      . The correct name of the company is N. P. Van Valkenburgh & Company.