Carl J.D. Bauman and Margaret A. Bauman - Page 22

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               Petitioners also contest respondent’s argument that McIntyre           
          disregarded evidence of comparable minimum royalty obligations in           
          use at the time ERL entered into the lease with JAD.  Petitioners           
          restrict their attack on this argument to a challenge of                    
          respondent’s expert’s ability to appreciate the nature and                  
          quality of the transaction.  Respondent’s argument, however, is             
          convincing.  JAD leased a portion of the same property in October           
          1979 to an independent company.  The terms of that agreement                
          required the lessee to pay an annual minimum royalty of just                
          under $25,000.  Furthermore, ERL’s manager of mining operations,            
          a person possessing a thorough knowledge of the coal mining                 
          industry, testified that the largest minimum royalty with which             
          he was familiar, excluding those in which McIntyre was a party,             
          involved a lease which required an annual minimum royalty of                
          $200,000 on an 80,000-acre tract of land.  This witness did,                
          however, attempt to justify the disparity by noting that while              
          ERL’s minimum royalty obligations were considerably higher than             
          the minimum royalty obligations with which he was familiar, they            
          were justified because ERL could defer each payment for up to 30            
          years.  We reject this attempted justification and, based upon              
          the record, conclude that ERL’s minimum royalty obligations were            
          not reasonably comparable to those provided under similar leases            
          in the geographic region.                                                   
               Respondent next argues that petitioners have failed to                 
          establish that ERL had an actual and bona fide objective to                 

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