B-134163, NOVEMBER 15, 1957, 37 COMP. GEN. 332

B-134163: Nov 15, 1957

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MAY HAVE SUCH SETTLEMENT REGARDED AS AN ALLOWABLE ITEM OF COST UNDER THE CONTRACT NOTWITHSTANDING LACK OF PRIVITY BETWEEN THE CONTRACTOR AND THE THIRD PARTY. 1957: REFERENCE IS MADE TO YOUR LETTER OF OCTOBER 18. THE ORIGINAL CONTRACT WAS BASED UPON ESTIMATED COSTS OF $50. ALTHOUGH A CERTIFICATE OF DISCOVERY OR DEVELOPMENT WAS ISSUED BY THE GOVERNMENT ON SEPTEMBER 16. THE CONTRACT WAS TERMINATED EFFECTIVE AS OF JUNE 1. IT APPEARS THAT NO ROYALTIES ON PRODUCTION ARE DUE AT THIS TIME. THE ESTIMATED COST OF THE PROJECT WAS INCREASED FROM $50. NO FURTHER WORK ON THE PROJECT WAS ACCOMPLISHED UNTIL AFTER THE ASSIGNMENT OF THE CONTRACT TO THE AMERICAN EXPLORATION AND MINING COMPANY ON JANUARY 24.

B-134163, NOVEMBER 15, 1957, 37 COMP. GEN. 332

CONTRACTS - PRIVITY - THIRD PARTIES - DEBT TO SUBCONTRACTOR A GOVERNMENT DRILLING CONTRACTOR WHO, AFTER EXECUTION OF A STOCK TRANSFER AGREEMENT TO INSURE THE AVAILABILITY OF FUNDS FOR PERFORMANCE OF THE MINING AND EXPLORATION WORK, MADE A PAYMENT, IN CONSIDERATION OF A RELEASE, TO A THIRD PARTY, WHO HAD LOANED MONEY ON ACCOUNT OF DEBTS TO THE SUBCONTRACTOR IN RETURN FOR STOCK, MAY HAVE SUCH SETTLEMENT REGARDED AS AN ALLOWABLE ITEM OF COST UNDER THE CONTRACT NOTWITHSTANDING LACK OF PRIVITY BETWEEN THE CONTRACTOR AND THE THIRD PARTY.

TO THE SECRETARY OF THE INTERIOR, NOVEMBER 15, 1957:

REFERENCE IS MADE TO YOUR LETTER OF OCTOBER 18, 1957, REQUESTING OUR ADVICE AS TO WHAT AMOUNT MAY BE CONSIDERED AS HAVING BEEN OVERPAID TO ARIZONA COPPER MINES, INC., OR TO ITS ASSIGNEE, THE AMERICAN EXPLORATION AND MINING COMPANY, UNDER EXPLORATION PROJECT CONTRACT IDM E254, DATED OCTOBER 27, 1952, AS AMENDED ( DOCKET NO. DMEA-2314).

THE ORIGINAL CONTRACT WAS BASED UPON ESTIMATED COSTS OF $50,000 FOR DRILLING OF APPROXIMATELY 5,000 FEET IN 17 HOLES RANGING IN DEPTH FROM 200 TO 500 FEET EACH. THE GOVERNMENT AGREED TO REIMBURSE THE OPERATOR FOR 50 PERCENT OF ITS ALLOWABLE COSTS, WITH SUCH CONTRIBUTION BEING LIMITED TO A MAXIMUM OF $25,000. THE OPERATOR AGREED TO PAY THE GOVERNMENT ROYALTIES ON PRODUCTION IF THE OPERATION PROVED SUCCESSFUL IN THE DISCOVERY OF ORE WHICH COULD BE MINED, FOR A PERIOD OF 10 YEARS FROM THE DATE OF THE CONTRACT OR UNTIL THE GOVERNMENT'S ADVANCES HAD BEEN FULLY REPAID. ALTHOUGH A CERTIFICATE OF DISCOVERY OR DEVELOPMENT WAS ISSUED BY THE GOVERNMENT ON SEPTEMBER 16, 1953, THE CONTRACT WAS TERMINATED EFFECTIVE AS OF JUNE 1, 1955, AND IT APPEARS THAT NO ROYALTIES ON PRODUCTION ARE DUE AT THIS TIME.

BY AMENDMENT NO. 1, THE ESTIMATED COST OF THE PROJECT WAS INCREASED FROM $50,000 TO $100,000. PREVIOUSLY, THE ORIGINAL CONTRACT WORK HAD BEEN SATISFACTORILY COMPLETED AND THE CONTRACTOR HAD SUBMITTED STATEMENTS OF COSTS AMOUNTING TO $47,735.36. NO FURTHER WORK ON THE PROJECT WAS ACCOMPLISHED UNTIL AFTER THE ASSIGNMENT OF THE CONTRACT TO THE AMERICAN EXPLORATION AND MINING COMPANY ON JANUARY 24, 1955. THE ORIGINAL OPERATOR WAS GIVEN CREDIT FOR HAVING DRILLED 4,906 FEET AND IT APPEARS THAT THE ASSIGNEE COMPLETED 2,405 FEET OF DRILLING BEFORE TERMINATION OF THE CONTRACT. THE ASSIGNEE SUBMITTED STATEMENTS OF COSTS AMOUNTING TO $16,098.77 OF WHICH THE GOVERNMENT AUDITOR CONSIDERED $15,760.21 TO BE ALLOWABLE COSTS UNDER THE CONTRACT.

BY LETTER DATED APRIL 18, 1956, THE ORIGINAL OPERATOR AND THE ASSIGNEE WERE REQUESTED TO REMIT THE SUM OF $5,177.25 COMPUTED AS FOLLOWS:

ALLOWABLE COSTS WORK PERFORMED BY ORIGINAL CONTRACTOR ------------------- --- $28,864.51 WORK PERFORMED BY ASSIGNEE -------------------------------- - 15,760.21

TOTAL ALLOWABLE COSTS ---------------------------------- 44,624.72 CONTRIBUTIONS PAYABLE BY THE GOVERNMENT --------- 50 PERCENT 22,312.36 CONTRIBUTIONS PAID BY GOVERNMENT:

PAID TO ORIGINAL CONTRACTOR ------------------ $21,563.38

PAID TO ASSIGNEE ----------------------------- 5,926.23

---------- 27,489.61

EXCESS CONTRIBUTIONS ----------------------------------- 5,177.25

THE QUESTION PRESENTED INVOLVES AN ADJUSTMENT OF $5,750 CLAIMED IN THE $28,864.51 FIGURE, WHICH WOULD RESULT IN REDUCING THE AMOUNT OF THE DETERMINED INDEBTEDNESS OF THE CONTRACTOR AND ITS ASSIGNEE BY THE SUM OF $2,875. THE RECORD SHOWS THAT WHEN THE AUDIT OF THE ORIGINAL OPERATOR'S BOOKS AND RECORDS WAS BEING PERFORMED THE OPERATOR HAD NOT SETTLED AN ACCOUNT WITH ITS SUBCONTRACTOR, R. V. WILSON, JR., OF CRANE, TEXAS, WHO WAS ENGAGED TO PERFORM THE DRILLING UNDER THE ORIGINAL CONTRACT AT A PRICE OF $10 PER FOOT. THE GOVERNMENT AUDITOR ALLOWED ACTUAL PAYMENTS OF $21,768.51 TO THE SUBCONTRACTOR AND $78 FOR SAMPLING AND ANALYSIS PERFORMED BY THE OPERATOR. THE TOTAL OF $21,864.51 ALLOWED WAS INCREASED BY THE SUM OF $7,000 WHEN IT APPEARED THAT A SUIT BROUGHT AGAINST THE OPERATOR BY R. V. WILSON, JR., AND JACK LAUGHLIN HAD BEEN SETTLED FOR THAT AMOUNT. HOWEVER, THE OPERATOR, THROUGH ITS ATTORNEYS, ALLEGES THAT IT PAID A TOTAL OF $12,750 (INCLUDING THE $7,000 ABOVE MENTIONED) IN THE SETTLEMENT OF THREE SUITS WHICH DIRECTLY RELATED TO PAYMENT FOR WORK PERFORMED UNDER THE SUBCONTRACT.

THE OPERATOR, BY PAYMENT OF THE TOTAL SUM OF $12,750, SETTLED THREE SUITS, THE FIRST OF WHICH WAS FILED BY R. V. WILSON, JR., AND JACK LAUGHLIN AGAINST ARIZONA COPPER MINES, INC., FOR RECOVERY OF THE AMOUNT ALLEGED TO BE DUE UNDER THE SUBCONTRACT. THE SECOND SUIT WAS FILED BY R. V. WILSON, SR., AND JACK LAUGHLIN UNDER A CONTRACT WHICH INVOLVED A PROPOSED TRANSFER OF STOCK IN THE CORPORATION IN RETURN FOR WORK TO BE PERFORMED ON CERTAIN MINING CLAIMS AND PAYMENT OF CERTAIN OBLIGATIONS RESPECTING SUCH CLAIMS. THE THIRD SUIT WAS FILED BY ONE AL ROGERS AGAINST R. V. WILSON, JR., JACK LAUGHLIN, R. V. WILSON, SR AND ARIZONA COPPER MINES, INC., ON NOTES EXECUTED BY R. V. WILSON, JR., AND JACK LAUGHLIN WITH THE UNDERSTANDING THAT ROGERS WOULD RECEIVE 50,000 SHARES OF THE COMMON STOCK OF ARIZONA COPPER MINES, INC., AS COLLATERAL SECURITY FOR THE NOTES.

R. V. WILSON, JR., AND R. V. WILSON, SR., EXECUTED A SEPARATE RELEASE OF CLAIMS IN CONSIDERATION OF PAYMENT OF THE SUM OF $7,000. JACK LAUGHLIN EXECUTED A SEPARATE RELEASE OF CLAIMS IN CONSIDERATION OF PAYMENT OF THE SUM OF $1,750. ALDEN ROGERS EXECUTED A RELEASE OF HIS CLAIM IN CONSIDERATION OF PAYMENT OF THE AMOUNT OF $4,000.

IT IS STATED IN YOUR LETTER THAT IT APPEARS FROM THE CONTENTS OF THE RELEASE EXECUTED BY LAUGHLIN THAT IT WAS GIVEN IN SETTLEMENT OF THE SUIT FOR PAYMENT FOR THE WORK PERFORMED UNDER THE SUBCONTRACT, IN WHICH HE HAD AN INTEREST APPARENTLY AS A PARTNER OF WILSON, JR. YOU STATE, HOWEVER, THAT THE ROGERS' SETTLEMENT IS NOT SO APPARENT.

THERE EXISTED NO PRIVITY OF CONTRACT BETWEEN ALDEN ROGERS AND ARIZONA COPPER MINES, INC., BUT IT IS APPARENT THAT THE OPERATOR ATTEMPTED THROUGH AGREEMENT WITH JACK LAUGHLIN AND R. V. WILSON, SR., TO INSURE THAT SUFFICIENT FUNDS WOULD BE AVAILABLE FOR PROSECUTION OF THE WORK UNDER THE CONTRACT IDM-E254, AS WELL AS FOR THE FUTURE DEVELOPMENT OF OTHER MINING PROPERTIES WHICH WERE BEING PURCHASED BY THE CORPORATION. JACK LAUGHLIN WAS A COSIGNER OF TWO NOTES IN THE TOTAL SUM OF $6,000 EXECUTED IN FAVOR OF ALDEN ROGERS AND HE ALSO SIGNED THE AGREEMENT TO TRANSFER 50,000 SHARES OF THE COMMON STOCK OF ARIZONA COPPER MINES, INC., TO ROGERS AS COLLATERAL SECURITY FOR NOTES IN THE AGGREGATE OF $11,000. ROGERS' COMPLAINT SHOWS THAT HE ASSERTED NO INDEPENDENT CLAIM AGAINST THE CORPORATION BUT JOINED IT AS A DEFENDANT FOR THE PURPOSE OF ENFORCING THE LIEN WHICH HE CLAIMED AGAINST ANY STOCK TO WHICH WILSON WAS ENTITLED. AN AFFIDAVIT BY ROGERS' COUNSEL STATES THAT THE $4,000 PAYMENT WAS MADE SOLELY ON ACCOUNT OF THE CORPORATION'S INDEBTEDNESS TO WILSON. IN THE CIRCUMSTANCES, AND CONSIDERING THAT ALL THE RELEASES HERE INVOLVED WERE EXECUTED WITHIN A WEEK, WE FIND NO SUBSTANTIAL BASIS FOR QUESTIONING THE OPERATOR'S CONTENTION THAT THE TOTAL SUM OF $12,750 WAS PAID IN SATISFACTION OF ITS OBLIGATIONS UNDER THE SUBCONTRACT WITH R. V. WILSON, JR.

ACCORDINGLY, YOU ARE ADVISED THAT ON THE PRESENT RECORD WE ARE OF OPINION THAT THE OVERPAYMENT UNDER THE CONTRACT MAY PROPERLY BE CONSIDERED AS AMOUNTING TO $2,302.25, OR $5,177.25 LESS $2,875.