The Parol Evidence Rule. Carlin Krieg owned a dairy farm in St. Joe, Indiana, that was appraised at $154,000 in December 1997. In August 1999, Krieg told Donald Hieber that he intended to sell the farm for $106,000. Hieber offered to buy it. Krieg also

Question

told Hieber that he wanted to retain a "right of residency" for life in the farm. In October, Krieg and Hieber executed a purchase agreement that provided Krieg "shall transfer full and complete possession" of the farm "subject to

Answer 1

The parol evidence rule
The court considered evidence of the parties' negotiations, determined from that evidence that Krieg's alleged "right of residency" had not been part of the deal, and ruled in Hieber's favor. Krieg appealed to a state intermediate appellate court, arguing in part that the lower court should not have considered evidence of the parties' negotiations. The appellate court held that the lower court did not err in considering this evidence. The appellate court recognized that "where the parties to an agreement have reduced the agreement to a written document and have included an integration clause that the written document embodies the complete agreement between the parties, as Krieg and Hieber did in this case, the parol evidence rule prohibits courts from considering parol or extrinsic evidence for the purpose of varying or adding to the terms of the written contract." The court added, however, that parol evidence may be considered if it is not being offered to vary the terms of the written contract," but "to show the nature of the consideration supporting a contract." In this case, the "evidence was not intended to vary any of the terms of the written Purchase Agreement. Rather, it was offered to show one factor in the formation of the contract—i.e., consideration. * * * Krieg explained that the consideration * * *behind executing the Purchase Agreement at such a reduced price, i.e., a price that constitutes an approximate 31% reduction in the value of the Farm, was his right of residency." The court determined that the lower court misinterpreted this evidence, however, reversed the ruling in Hieber's favor, and remanded the case for a determination of Krieg's damages.