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exchange of rights to Colorado River water. Respondent's
contention that the transfer of funds from HID to the partnership
did not constitute a sale or exchange but was based on some
indemnification commitment or windfall distribution of surplus
funds ignores the substance of the transaction by which the
partnership relinquished its water rights in return for the
$1,088,132.
The mere reference in the 1993 Distribution Agreement to a
boilerplate and routine indemnification commitment and to the
possibility that the landowners might be required to return to
HID some portion of the funds received does not control the
treatment of the transaction.
The funds were labeled "relinquishment funds”, and that is
what the funds constituted. The funds were received in exchange
for relinquishment of the water rights. They were not labeled
and they did not constitute indemnification funds, surplus funds,
or windfall funds.
Respondent argues that HID was not required to distribute
any of the funds to the partnership. Assuming arguendo that
respondent is correct, the significant facts are that HID did
distribute those funds to the partnership and that HID did so
only in exchange for relinquishment of the partnership’s water
rights.
Respondent notes that the partnership and other Harquahala
Valley landowners were not named parties to the Master Agreement,
that under the Master Agreement no third-party beneficiaries were
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