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whether the 1982 agreement is a valid, enforceable modification
of the 1979 sales agreement, and if so, whether the amount paid
for all the patents was reasonable. See Champayne v.
Commissioner, 26 T.C. 634, 643 (1956) (Court's finding that 5-
percent royalty was reasonable did not make contract to pay 20-
percent royalty one made in bad faith, a fiction, or a sham).
The 1982 Agreement Is a Valid Enforceable Modification
Default
It is clear from the facts that in 1982 Cascade was in
default on its payment obligation to Lea. The facts do not
support respondent's argument on brief that Cascade intentionally
defaulted because Lea did not want to be paid. Lea made repeated
demands for payment. Cascade's failure to meet its contractual
obligation was due to excessive demands on its cash-flow from
operations and its inability to obtain cost-effective financing
to satisfy its unmet cash requirements.
Cascade's decision to use the corporation's available
financial resources primarily to build its finished goods
inventory and to expand its manufacturing capabilities was a
business judgment. The Court is very reluctant to substitute its
judgment for that of the persons operating a company, unless the
facts and circumstances require us to do so. See Malone & Hyde,
Inc. v. Commissioner, 49 T.C. 575, 578-579 (1968).
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