Most of the money for retired general William C. Westmoreland's libel suit against CBS Inc. came from Richard Mellon Scaife, one of the country's richest men and a leading financier of New Right causes.

Westmoreland's chief defense lawyer, Dan M. Burt, said in an interview this week that Scaife, a great-grandson of the founder of the Mellon oil and banking empire, was the "real funder" of the Westmoreland case.

Burt said Scaife put up more than $2 million of the approximately $3 million that it cost Burt's Capital Legal Foundation to pursue the lawsuit. This week, Scaife interests approved another "large grant" to help reduce the deficit, Burt said.

"He provided more than 70 percent of the case," Burt said of the Pittsburgh millionaire. "I have a lot of respect for the guy."

Neither Scaife, who rarely speaks to the press, nor his administrative aide, Richard Larry, could be reached for comment. But according to Burt, Larry sent word this week that additional funds had been approved.

Larry "said that even though they paid over $2 million for the case . . .this was money well spent and 'we just voted Capital another large grant,' " Burt said. He said the latest donation was in "six figures" but declined to be more specific.

"It won't cover our debt, but it will help," Burt said.

The case was settled last week in a Westmoreland-CBS agreement that many conservatives regarded as a surrender by Westmoreland. Some speculated that perhaps he had run out of money. But Burt said money was "never an issue, not really."

Burt denied reports that Scaife or any other donor had forced Westmoreland to drop the case.

He also expressed confidence that his Capital Legal Foundation is here to stay, to fight on behalf of people he considers "underdogs," ranging from Vermont knitters who want to work at home despite Department of Labor rules to lemon growers in California who object to being told how much they may ship to market.

"If you're going to kill a king, you make sure he's dead," Burt told a reporter. "You guys [in the press] really tried to kill me."

Established in 1977, the Capital Legal Foundation is one of a network of business-sponsored public interest law firms that took root in the 1970s in response to a wave of reaction across corporate America to antagonists such as consumer activist Ralph Nader.

According to the July 1984 issue of the Yale Law Journal, Tulane University law professor Oliver Houck found that the new firms all qualified as "public charity" organizations under Internal Revenue Service regulations, making contributions to them tax-exempt.

The Scaife foundations and Scaife-controlled family trusts contributed about $3 million to these firms between 1973 and 1980, the Columbia Journalism Review reported several years ago.

Burt became president of Capital Legal Foundation in May 1980. He was a combative attorney and self-described "libertarian" who had established a law firm with offices in Marblehead, Mass., and Saudi Arabia, and was making more than $400,000 a year when he decided to let his partners buy him out.

Burt said he felt the foundation filed too many friend-of-the-court briefs and intervened too often on behalf of well-heeled corporate interests. He set about fashioning its reputation as "a public policy law firm promoting free markets."

He filed suit against the Federal Communications Commission to keep "several wealthy New England radio station owners" from obtaining a valuable FM radio license held by a 65-year-old Gloucester, Mass., man who used it to run a one-man classical music station. He sued the Census Bureau on behalf of a small computer software company. He published a book, "Abuse of Trust," accusing Nader and his network of many of the practices Nader had criticized in others.

The Westmoreland case, Burt said, came to his attention when Larry, Scaife's administrative aide at the Scaife Family Charitable Trusts, put him in touch with David Henderson, a friend of the general who also served as his spokesman during the trial.

"I said I'd talk, I'd listen," Burt recalled. "It sounded to me like the guy was getting a hosing." He said Westmoreland also sounded out "his Washington buddies, all the big-time lawyers, and they wouldn't take the case because they couldn't make any money . . . . But I took it and I took a lot of grief for it."

In addition to the Scaife money, Burt said, contributions came from the Olin Foundation, the New York-based Smith Richardson Foundation, various "neoconservatives" and small donors responding to mass-mail appeals by retired high-ranking military officers. Westmoreland himself put up $20,000.

Back in Washington, Burt must now address a Nader associate's complaint to the D.C. Court of Appeals that Burt has been practicing law here illegally because he is not a member of the D.C. Bar. Burt said he has since applied for membership.

During his absence, an irate federal judge in California dismissed "with prejudice" a Capital Legal Foundation suit in the lemon growers' dispute because the foundation, "apparently understaffed and/or inexperienced," repeatedly had missed deadlines.

There is also the lingering question, raised by the Yale Law Journal, of whether the foundation violated IRS rules governing public interest law by taking on the Westmoreland case, in effect giving the general "tax-exempt counsel to litigate a civil damage claim."

To call the general an "underdog" in his battle against CBS, Houck said in a telephone interview, simply isn't good enough. Rather, he has said, the test is whether the case is not "economically feasible" for the private bar.

"This isn't like the representation of, say, the NAACP in Selma, Alabama, in 1951, or of the Ku Klux Klan in Illinois," Houck said. "You're not dealing with a guy so unpopular that conventional legal resources won't spring to his aid . . . . It seems to me that . . . the most famous libel cases in history have been brought by people no more impecunious than general Westmoreland."