B-136129, JUN. 12, 1958

B-136129, JUN. 12, 1958

TO THE SECRETARY OF THE INTERIOR:

REFERENCE IS MADE TO YOUR LETTER OF MAY 8, 1958, WITH ENCLOSURES, REQUESTING ADVICE AS TO WHETHER THE GOVERNMENT IS REQUIRED TO PROCEED FURTHER AGAINST R. N. PYLLIAM AND THE N. J. CROWLEY TAR PRODUCTS COMPANY, AS GUARANTORS THAT THE GOVERNMENT WOULD BE PAID ROYALTIES, AS SPECIFIED IN DEFENSE MINERALS EXPLORATION ADMINISTRATION CONTRACT NO. IDM-E 468 WITH THE AMERIMEX MINING COMPANY, ALPINE, TEXAS,"UPON ANY AND ALL ORE DISCOVERED OR DEVELOPED AS A RESULT OF SAID CONTRACT AND ANY AMENDMENT THEREOF, WHICH IS MINED WITHIN 10 YEARS FROM THE DATE OF SAID CONTRACT.'

THE CONTRACT COVERED A PROJECT OF EXPLORATION FOR MERCURY ORE DEPOSITS ON CERTAIN LAND IN THE COUNTY OF PRESIDIO, TEXAS, LEASED BY THE AMERIMEX MINING COMPANY FROM E. G. BLEDSOE AND ELIZABETH BLEDSOE OF BIG BEND NATIONAL PARK, BREWSTER COUNTY, TEXAS. R. N. PULLMAN WAS THE PRESIDENT OF THE CORPORATION KNOWN AS THE AMERIMEX MINING COMPANY AND HIS WIFE, L. M. PULLIAM, WAS ITS SECRETARY. L. M. PULLIAM ALSO SIGNED THE GUARANTEE INSTRUMENTS WHICH WERE EXECUTED IN CONSIDERATION OF THE WAIVER BY THE UNITED STATES OF THE REQUIREMENT OF THE OWNER'S CONSENT TO LIEN.'

THE GOVERNMENT AGREED, UNDER ARTICLE 8 OF THE CONTRACT TO PAY 75 PERCENT OF THE ALLOWABLE COSTS OF THE EXPLORATION WORK IN AN AGGREGATE TOTAL AMOUNT NOT IN EXCESS OF $60,000 (75 PERCENT OF THE ESTIMATED COST OF $80,000 FOR THE PROJECT). UNDER THE PROVISIONS OF ARTICLE 9 (A), IF THE GOVERNMENT CERTIFIED IN WRITING THAT A DISCOVERY OF DEVELOPMENT FROM WHICH PRODUCTION MAY BE MADE HAS RESULTED FROM THE EXPLORATION WORK, THE OPERATOR OR ITS SUCCESSOR IN INTEREST WAS REQUIRED TO PAY TO THE GOVERNMENT A PERCENTAGE ROYALTY ON THE VALUE OF ANY MINERALS MINED OR PRODUCED FROM THE LAND DESCRIBED IN ARTICLE 2 OF THE CONTRACT WITHIN 10 YEARS FROM THE DATE OF THE CONTRACT "UNTIL THE TOTAL AMOUNT CONTRIBUTED BY THE GOVERNMENT, WITHOUT INTEREST, IS FULLY REPAID, OR SAID 10 YEARS HAVE ELAPSED, WHICHEVER OCCURS FIRST.'

THE CONTRACT HAD BEEN ENTERED INTO ON DECEMBER 18, 1952, BUT ITS EFFECTIVE DATE WAS CHANGED TO JANUARY 11, 1953, BY AMENDMENT NO. 1. THE OPERATOR STARTED WORK ON JANUARY 10, 1953, AND CEASED OPERATIONS ON AUGUST 19, 1953. IT APPEARS THAT AT SUCH TIME THE OPERATOR HAD INCURRED EXPENSES OF MORE THAN $61,000 ON THE PROJECT AND THAT THE WORK WAS DISCONTINUED BECAUSE OF FINANCIAL DIFFICULTIES AND THE BELIEF THAT NO SUBSTANTIAL AMOUNT OF MERCURY ORE DEPOSITS WOULD BE DISCOVERED UNLESS THE GOVERNMENT AUTHORIZED AN INCREASE IN THE ESTIMATED COST OF THE PROJECT. THEREAFTER, THE OPERATOR REQUESTED THAT THE ESTIMATED COST BE INCREASED BY $96,900 BUT SUCH REQUEST WAS DENIED BY LETTER DATED DECEMBER 24, 1953, FOR THE STATED REASON THAT THE PROPOSED ADDITIONAL EXPLORATION WORK WAS NOT SUFFICIENTLY PROMISING TO JUSTIFY FURTHER GOVERNMENT PARTICIPATION. THE OPERATOR FORFEITED ITS LEASE ON THE LAND ABOUT JANUARY 2, 1954, AND THE CONTRACT WAS TERMINATED BY THE GOVERNMENT ON JANUARY 5, 1954.

A CERTIFICATE OF DISCOVERY OR DEVELOPMENT WAS ISSUED BY THE GOVERNMENT ON JANUARY 8, 1954, AND THE VALIDITY OF THE CERTIFICATE WAS QUESTIONED BY THE OPERATOR ON THE GROUND THAT COMMERCIAL PRODUCTION WAS NOT FEASIBLE THEN OR IN THE FORESEEABLE FUTURE.

WHILE THE GOVERNMENT WAS ATTEMPTING TO NEGOTIATE A SETTLEMENT WITH THE OPERATOR, R. W. PULLIAM ATTEMPTED TO OBTAIN A NEW LEASE AND EVENTUALLY BECOME PRESIDENT OF THE TERLINGUA MERCURY CORPORATION, A NEW COMPANY TO WHICH THE LATE RAYMOND A. WAGNER HAD ASSIGNED A LEASE ON THE BLEDSOE PROPERTY. MINING OPERATIONS WERE CONDUCTED BY THE TERLINGUA MERCURY CORPORATION FROM NOVEMBER 1954 UNTIL SEPTEMBER 1956. THIS VENTURE RESULTED IN A PRODUCTION OF 278 FLASKS OF MERCURY WHICH WERE SOLD FOR $77,331, AS COMPARED WITH AN EXPENDITURE OF ABOUT $246,000 INCURRED IN SUCH PRODUCTION.

ON THE BASIS OF APPLYING CERTAIN RATIOS TO THE TONNAGES OF ORE MINED TO THE SALES PRICES, IT WAS CONSIDERED THAT THE GOVERNMENT WAS ENTITLED TO RECEIVE FROM THE GUARANTORS ROYALTY PAYMENTS IN THE AMOUNT OF $1,631.34, REPRESENTING 5 PERCENT OF THE DETERMINED VALUE OF THE ORE MINED BY THE TERLINGUA MERCURY CORPORATION. THE SUM OF$179.80, FOUND DUE THE GOVERNMENT ON PRODUCTION MADE BY THE AMERIMEX MINING COMPANY, HAD, IN THE MEANTIME, BEEN SET OFF AGAINST THE AMOUNT OTHERWISE PAYABLE TO THAT COMPANY UNDER CONTRACT NO. IDM-E 468.

DEMANDS WERE MADE UPON R. N. PULLIAM AND THE N. J. CROWLEY TAR PRODUCTS COMPANY FOR PAYMENT OF THE AMOUNT OF $1,631.34. MR. PULLIAM HAD CONTENDED BEFORE THESE DEMANDS WERE MADE THAT HE WAS NOT LIABLE ON HIS GUARANTEE. IN A LETTER DATED DECEMBER 17, 1957, FROM THE N. J. CROWLEY TAR PRODUCTS COMPANY, IT WAS INDICATED THAT, ON ADVICE OF COUNSEL, THE COMPANY WOULD NOT RECOGNIZE ANY LIABILITY FOR PAYMENT OF THE SUM CLAIMED BY THE GOVERNMENT.

ALTHOUGH IT APPEARS THAT THE FACTS OF THE PRESENT CASE HAVE BEEN FULLY ASCERTAINED, THE GOVERNMENT DOES NOT CONTEND THAT THERE WAS ANYTHING IRREGULAR ABOUT THE ABANDONMENT OF THE PROJECT BY THE AMERIMEX MINING COMPANY AND THE FACT THAT MR. R. N. PULLIAM, ITS PRESIDENT, HAD ACQUIRED A SUBSTANTIAL FINANCIAL INTEREST IN THE NEW COMPANY, THE TERLINGUA MERCURY CORPORATION. THE EXPLORATION CONTRACT DID NOT REQUIRE THE OPERATOR TO ENGAGE IN MINING OPERATIONS OR TO MAINTAIN ITS LEASEHOLD INTEREST IN THE LAND, AND IT IS APPARENT THAT THE OPERATOR DID NOT VIOLATE THE PROVISIONS OF ARTICLE 10 OF THE CONTRACT WHICH HAVE REFERENCE TO ASSIGNMENTS, TRANSFERS, OR LOSS OF THE OPERATOR'S INTEREST.

THE GOVERNMENT DETERMINED THAT THE OPERATOR WAS ENTITLED TO BE RELIEVED FROM ANY OBLIGATION TO PAY ROYALTIES ON THE ORE PRODUCED AND MINED BY THE TERLINGUA MERCURY CORPORATION. IT WAS BELIEVED, HOWEVER, THAT THIS WOULD NOT AFFECT THE GOVERNMENT'S RIGHT TO REQUIRE THE GUARANTORS, R. N. PULLIAM, L. M. PULLIAM AND THE N. J. CROWLEY TAR PRODUCTS COMPANY, TO MAKE SUCH ROYALTY PAYMENTS. THE GUARANTORS HAVE CONTENDED THAT ORE PRODUCED BY OTHERS, FOLLOWING AN ABANDONMENT OF THE PROJECT BY THE ORIGINAL OPERATOR, SHOULD NOT BE CONSIDERED AS "ORE DISCOVERED OR DEVELOPED AS A RESULT OF" THE CONTRACT BETWEEN THE GOVERNMENT AND THE AMERIMEX MINING COMPANY.

WE ARE ADVISED THAT, UPON REEXAMINING THE ISSUE OF THE OBLIGATION OF THE GUARANTORS IN THE LIGHT OF POSSIBLE LITIGATION, YOU BELIEVE THAT, SINCE THE GOVERNMENT DRAFTED THE GUARANTY INSTRUMENTS AND SINCE A DOUBT EXISTS AS TO THE NATURE OF THE OBLIGATION, THE DOUBT SHOULD BE RESOLVED IN FAVOR OF THE GUARANTORS. YOU STATE THAT, HAD THE GOVERNMENT OBTAINED A CONSENT TO LIEN IN THIS CASE, THE LANDOWNER WOULD HAVE BEEN RELIEVED OF ALL OBLIGATION WHEN THE OPERATOR WAS RELIEVED.

THE LANGUAGE OF THE GUARANTY INSTRUMENTS, WHEN CONSTRUED LITERALLY IN RELATIONSHIP TO THE PROVISIONS OF ARTICLE 9 OF THE CONTRACT AND THE FACT THAT THE GOVERNMENT CONTRACT WAS PRINCIPALLY CONCERNED WITH EXPLORATION WORK AS DISTINGUISHED FROM MINING OPERATIONS, WOULD APPEAR TO COVER ALL MINERALS MINED OR PRODUCED FROM THE PARTICULAR LAND WITHIN 10 YEARS FROM THE DATE OF THE CONTRACT. WHERE THE GOVERNMENT ISSUED A CERTIFICATE OF DISCOVERY OF DEVELOPMENT, ARTICLE 9 OF THE CONTRACT CLEARLY SUGGESTS THAT THE MINING OR PRODUCTION OF ANY MINERALS FROM THE LAND DESCRIBED IN ARTICLE 2 WOULD BE CONSIDERED AS HAVING RESULTED FROM THE EXPLORATION WORK.

HOWEVER, AT THE TIME OF THE EXECUTION OF THE GUARANTY INSTRUMENTS, IT DOES NOT APPEAR THAT THE PARTIES CONTEMPLATED OTHER THAN THAT ROYALTY PAYMENTS DUE FROM THE CONTRACTOR OR ITS SUCCESSOR IN INTEREST, INCLUDING ROYALTY PAYMENTS REQUIRED TO BE PAID IN THE EVENT OF A VIOLATION OF THE PROVISIONS OF ARTICLE 10 OF THE CONTRACT, SHOULD BE GUARANTEED. THIS SAME KIND OF PROTECTION WOULD HAVE BEEN AFFORDED TO THE GOVERNMENT BY AN OWNER'S CONSENT TO LIEN AND THERE IS NO EVIDENCE THAT THE GOVERNMENT SOUGHT TO OBTAIN ANY GREATER RIGHTS UNDER THE GUARANTY INSTRUMENTS.

THUS, IF THE LANDOWNERS HAD CONSENTED TO A LIEN UPON THE LAND AND ANY PRODUCTION OF MINERALS THEREFROM DURING A 10-YEAR PERIOD, AND THEY WOULD HAVE BEEN RELIEVED FROM ANY OBLIGATION WHEN THE PROJECT WAS ABANDONED BY THE ORIGINAL LESSEE, THERE WOULD SEEM TO BE NO REASONABLE BASIS FOR NOT GRANTING SIMILAR RELIEF TO THE GUARANTORS. IN THIS CONNECTION, IT HAS BEEN HELD THAT, WHERE WORDS IN A CONTRACT, IF CONSTRUED LITERALLY, WOULD PRODUCE AN UNFAIR,UNUSUAL OR IMPROBABLE RESULT, SUCH CONSTRUCTION IS TO BE AVOIDED IF POSSIBLE. A. E. WEST PETROLEUM COMPANY V. ATCHISON, T. AND S.F.RY. CO., 212 F.2D 821.

ACCORDINGLY, YOU ARE ADVISED THAT, IN OUR OPINION, THE GOVERNMENT IS NOT REQUIRED TO PROCEED FURTHER AGAINST THE GUARANTORS. THE FILE OF DOCUMENTS AND CORRESPONDENCE ENCLOSED WITH YOUR LETTER IS RETURNED HEREWITH.