FOR PUBLICATION
ATTORNEY FOR APPELLANT: ATTORNEY FOR
APPELLEE:
WM. JOSEPH CARLIN JR. ROBERT OWEN VEGELER
Kruse & Kruse P.C. Vegeler Law Office LLC
Auburn, Indiana Fort Wayne, Indiana
IN THE
COURT OF APPEALS OF INDIANA
CARLIN KRIEG, )
)
Appellant-Plaintiff, )
)
vs. ) No. 17A05-0306-CV-311
)
DONALD HIEBER, )
)
Appellee-Defendant. )
APPEAL FROM THE DEKALB SUPERIOR COURT
The Honorable Norman E. Baker, Senior Judge
Cause No. 17D01-0105-CP-154
February 3, 2004
OPINION – FOR PUBLICATION
BAILEY, Judge
Case Summary
Appellant-Plaintiff Carlin Krieg (“Krieg”) appeals the trial court’s
judgment in favor of Appellee-Defendant Donald Hieber (“Hieber”). We
reverse and remand.
Issues
Krieg raises two issues, which we restate as:
I. Whether the trial court erred by considering parol or extrinsic
evidence in making its determination that the contracting
parties did not negotiate the contract price in contemplation of
Krieg’s right of residency; and
II. Whether the trial court erred by concluding that the holder of a
life estate is not entitled to insurance proceeds from an
insurance policy procured by the reversioner.
Facts and Procedural History
In 1999, Krieg owned a dairy farm located at 7721 State Road 8 in St.
Joe, Indiana (the “Farm”), which consisted of approximately eighty-two
acres of real estate. On December 23, 1997, the value of the Farm was
appraised at $154,000.00. In August of 1999, Krieg asked Hieber if he
wanted to purchase the Farm, and Hieber responded in the negative. Krieg
then informed Hieber that he intended to sell the Farm at a price of one
hundred and six thousand dollars, with an additional twenty-four thousand
dollars for the machinery and one thousand dollars per cow for the cattle.
Hieber told Krieg that he was interested in purchasing the Farm, machinery,
and cattle. Indeed, that same day, Hieber went to the bank to inquire
about financing the purchase. Because Hieber was only able to secure
financing for the Farm and machinery, he told Krieg that he would purchase
the Farm and machinery, but not the cattle. Subsequently, however, Krieg
and Hieber reached an agreement concerning the sale of the cattle. Krieg
orally informed Hieber that he wanted to retain a “right of residency” in
the Farm. Tr. at 25. On September 14, 1999, Krieg executed a hand-written
statement (“Statement”), which Hieber signed, whereby Krieg agreed to sell
the Farm for one hundred and six thousand dollars, the machinery for twenty-
four thousand dollars, and the cattle for forty-five thousand dollars. The
Statement provides, in part, that: “I [Krieg] have the privilege of living
in home for life time.” Appellant’s App. at 11.
On October 6, 1999, Krieg and Hieber executed a Purchase Agreement
regarding the sale of the Farm, the machinery, and the cattle. The
Purchase Agreement provides that Krieg “shall transfer full and complete
possession at the time of closing, subject to [his] right of residency.”
Ex. 1. The Purchase Agreement also contains an integration clause as
follows:
Upon acceptance, this offer shall become binding upon and inure to the
benefit of [Hieber] and [Krieg] and their respective heirs, executors,
administrators[,] successors, and assigns, and shall be deemed to
contain all the terms and conditions agreed upon, it being agreed that
there are no conditions, representations, warranties or agreements not
stated in this instrument.
Id. In addition, pursuant to the Purchase Agreement, Hieber requested that
Krieg maintain fire and extended coverage insurance on any improvements to
the Farm until the date of closing. At closing, on November 5, 1999,
Krieg, i.e., the Grantor, executed a Warranty Deed to Hieber, i.e., the
Grantee, for the Farm, “[s]ubject to right of residency of the Grantor in
the house, garage, apartment, and land thereto, including use of the
driveway.”[1] Appellant’s App. at 54. The Warranty Deed was recorded on
November 9, 1999.
Prior to December 6, 1999, Krieg carried insurance on the Farm.
However, on December 6, 1999, Krieg cancelled insurance coverage on the
Farm in the amount of $189,000.00 and only retained insurance coverage in
the amount of $5,000.00 for his personal property. On or about December
10, 1999, Hieber purchased insurance coverage on the Farm.
On November 19, 2000, the house located on the Farm was partially
burned in an accidental fire, rendering it uninhabitable. Because the fire
loss was covered by Hieber’s insurance policy, Hieber filed an insurance
claim and received the insurance proceeds. Hieber did not repair the
house, but rather, used the proceeds to reduce his mortgage debt on the
Farm.
On May 23, 2001, Krieg filed a Complaint for Right of Residency
against Hieber, alleging estoppel and breach of contract. In his
complaint, Krieg argued that his right of residency served as consideration
for the reduced purchase price in the Purchase Agreement between himself
and Hieber and, thus, Hieber breached the contract by not using the fire
insurance proceeds to reconstruct the house wherein Krieg resided. As
relief, Krieg requested that the trial court: (1) impose a constructive
trust over the insurance proceeds; (2) require Hieber to use the insurance
proceeds to rebuild the damaged portion of the residence; (3) award damages
for loss of use of the residence until such time as it is rebuilt; and (4)
award attorney fees. At trial, Krieg’s request for relief changed in that
he no longer wished to live in the “rebuilt” house on the Farm. Instead,
Krieg asked the trial court to determine, with the help of life expectancy
tables, the value of his life estate and award damages accordingly. Tr. at
18. After conducting a bench trial, the trial court entered a judgment in
favor of Hieber. In so doing, the trial court issued findings of fact and
conclusions thereon. In relevant part, the trial court issued Finding 14
and Conclusions 5 and 6, as follows:
FINDINGS OF FACT
* * * * *
14. Krieg initiated the conversation concerning the sale of the Farm and
set the price which was accepted by Hieber before Krieg ever mentioned
and before Hieber ever knew that Krieg wanted to reserve a right of
residency. At the time that Krieg made the offer which was accepted
by Hieber for the Farm, Hieber had no knowledge of Plaintiff’s Exhibit
3 which was an appraisal of the Farm made several years earlier for
Krieg’s refinancing and which indicated a fair market value of
$154,000.00 for the Farm. At no time did Hieber know of the appraisal
set forth in Plaintiff’s Exhibit 3 and did not believe that the Farm
was worth $154,000.00 and would not have purchased the Farm for
$154,000. At no time was Hieber interested in buying the Farm until
he was approached by Krieg with a volunteered, fixed price.
* * * * *
CONCLUSIONS OF LAW
* * * * *
5. The price paid by Hieber in accepting the offer of Krieg was fair
under the circumstances and was not discounted in order to recognize a
right of residency in Krieg.
6. The price paid for the Farm by Hieber was reasonable and was accepted
by Hieber, subject to financing, before Hieber was knowledgeable of
the right of residency, and therefore, Hieber could not have
discounted the price based upon such.
7. Krieg acted knowingly and voluntarily in changing the insurance after
the sale had closed, acknowledging that he was only insuring the
personal property and that he did not wish to insure a right of
residency.
8. Both parties had an insurable interest in the Farm in that a life
tenant and a [reversioner] each has an insurable interest. A right of
residency, although not the same as a life estate, is similar.
* * * * *
11. Krieg had more than adequate time and ability to insure his interests
in the Farm and to protect his interests both individually and through
his attorney. Such is shown by the Purchase Agreement which stated
that Hieber could receive insurance proceeds for any preclosing loss.
12. Krieg voluntarily placed himself in the position of losing his right
of residency, or the value thereof.
13. Krieg has failed to meet his burden of proof on the relevant issues in
this cause.
Appellant’s App. at 5-7. It is from the trial court’s order that Krieg now
appeals.
Discussion and Decision
I. Standard of Review
In challenging the trial court’s judgment, Krieg, i.e., the party
carrying the burden of proof at trial, is appealing from a negative
judgment. A party appealing a negative judgment must establish that the
evidence is without conflict and leads to but one conclusion and that the
trial court did not reach that conclusion. OVRS Acquisition Corp. v. Cmty.
Health Serv., Inc., 657 N.E.2d 117, 125 (Ind. Ct. App. 1995), trans.
denied. The appellant may attack the trial court’s judgment only as
contrary to law. Id. On appeal, we will affirm the trial court’s judgment
unless all evidence leads to the conclusion that the trial court’s findings
are clearly erroneous and against the logic and effect of the facts. In re
Estate of Banko, 622 N.E.2d 476, 480-81 (Ind. 1993). In determining
whether the findings of fact are clearly erroneous, we may neither reweigh
the evidence nor judge the credibility of the witnesses. Id. at 481.
Instead, we will consider only the evidence most favorable to the judgment
together with all reasonable inferences that may be drawn therefrom.
Maddox v. Wright, 489 N.E.2d 133, 134 (Ind. Ct. App. 1986).
II. Analysis
A. Parol Evidence
Krieg first argues that the trial court erred by considering certain
parol evidence at trial.[2] In particular, Krieg challenges the trial
court’s consideration of evidence regarding the “negotiations” between the
contracting parties on the purchase price of the Farm. In general, 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. Millner v. Mumby, 599 N.E.2d 627, 629 (Ind.
Ct. App. 1992). However, the prohibition against the use of parol
evidence is by no means complete. Indeed, parol evidence may be considered
if it is not being offered to vary the terms of the written contract, and
to show that fraud, intentional misrepresentation, or mistake entered into
the formation of a contract. Id. Moreover, our supreme court has held
that parol evidence may be considered to show the nature of the
consideration supporting a contract. Kentucky & I.B. Co. v. Hall, 125 Ind.
220, 224, 25 N.E. 219, 220 (1890). In addition, parol evidence may be
considered to apply the terms of a contract to its subject matter and to
shed light upon the circumstances under which the parties entered into the
written contract. Millner, 599 N.E.2d at 629.
Here, the trial court did not err in considering parol evidence at
trial. The extrinsic 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.[3] The evidence
reveals that in December of 1997, the Farm was appraised at $154,000.00.
The testimony further demonstrates that, between December of 1997 and
November of 1999, nothing substantial occurred that would have altered the
Farm’s value. Nevertheless, Krieg agreed to sell the Farm to Hieber for
only $106,000.00. At trial, Krieg explained that the consideration or
bargained-for-exchange 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. As such, this
extrinsic evidence demonstrated the nature of the consideration supporting
the Purchase Agreement and, thus, was not barred by the parol evidence
rule.
In addition, the evidence shed light upon the circumstances under
which Krieg and Hieber entered into the Purchase Agreement. It explained,
for example, why Krieg, a man of sound mind, would agree to sell the Farm
for such a reduced price. Because this testimony regarding the parties’
pre-contractual negotiations did not serve to vary any term of the
contract, the trial court properly admitted it into evidence and considered
it in reaching a judgment. See, e.g., id.
However, in light of this parol evidence, the portions of the trial
court’s Finding 14 and Conclusions 5 and 6 that pertain to whether Krieg
and Hieber negotiated the purchase price of the Farm are clearly erroneous,
as they are against the logic and effect of the facts. In ascertaining the
terms of the contract between Krieg and Hieber, the trial court appears to
have focused upon the parties’ pre-contractual negotiations instead of the
actual Purchase Agreement itself. The fact that Krieg initially fixed the
purchase price of the Farm at $106,000.00 and Hieber, apparently unaware of
Krieg’s reservation of a right of residency, immediately applied for
financing without negotiating further, does not support the trial court’s
findings and conclusions that Hieber accepted Krieg’s offer to sell the
Farm before he knew that Krieg wanted a right of residency. Rather, the
Purchase Agreement, which comprises Krieg’s offer and Hieber’s acceptance,
expressly provides that Krieg “shall transfer full and complete possession
at the time of closing, subject to [his] right of residency.” Ex. 1.
Moreover, one can easily infer from the record that Hieber did not
attempt to negotiate for a better purchase price because he knew that the
Farm was worth more than $106,000.00.[4] Indeed, the evidence demonstrates
that when Krieg first approached Hieber about purchasing the Farm, Hieber
was not interested. However, after Krieg informed Hieber that the purchase
price of the Farm would be one hundred and six thousand dollars, Hieber was
so interested in purchasing the Farm that he went to the bank to secure
financing that same day. In addition, the record reveals that prior to the
execution of the Purchase Agreement, Krieg informed Hieber about his
intention to retain a right of residency. After hearing Krieg’s intention,
Hieber understood that the fixed price contemplated Krieg’s right of
residency. Yet, Hieber did not negotiate a price reduction presumably
because the purchase price of $106,000.00 was still acceptable to Hieber,
even with Krieg’s right of residency. Accordingly, to the extent that the
trial court’s findings and conclusions suggest that Hieber accepted Krieg’s
offer to sell the Farm before he knew of Krieg’s desire to reserve a right
of residency, they are clearly erroneous.
B. A Life Tenant’s Right to Insurance Proceeds
Second, Krieg maintains that the trial court erred by concluding that
the holder of a life estate is not entitled to insurance proceeds from an
insurance policy procured by the reversioner. Before we address this
issue, we note that, at the conclusion of the bench trial, the trial court
found that Krieg does not have a life estate, but rather, a right of
residency that is similar to a life estate. However, the evidence reveals
that Krieg has a life estate in the house, garage, apartment, and land
thereto, including use of the driveway. Indeed, the Purchase Agreement
provides that the sale of the Farm is contingent upon Krieg’s right of
residency. In addition, the Statement provides that Krieg should have the
privilege of living in the house for his lifetime.[5] The use of the term
“life estate” is not necessary to create such an estate, but the intention
to create a life estate may be expressed in any equivalent and appropriate
language. Pointer v. Lucas, 131 Ind. App. 10, 22, 169 N.E.2d 196, 202
(Ind. Ct. App. 1960). Here, Krieg’s “right of residency” for life is
equivalent language to express a life estate. See, e.g., Gladden v. Jolly,
655 N.E.2d 590, 592 (Ind. Ct. App. 1995) (holding that in the context of
wills that a “devise for or during the devisee’s lifetime, or for as long
as the devisee shall live, or until the devisee’s death, or such similar
phrase, creates a life estate in the devisee, unless other provisions show
another intent”). Unlike other life estates, however, Krieg’s life estate
is limited to residing in the residence. Krieg may not sell his life
estate, lease the residence to others, or permit others to live there
without him. See, e.g., id. at 593. Thus, we hold that Krieg has a
limited life estate in the house and premises.
The next question regards the proper disbursement of the fire
insurance proceeds, as between Hieber, i.e., the reversioner, and Krieg,
i.e., the life tenant. We confronted the inverse situation in Ellerbusch
v. Myers, 683 N.E.2d 1352, 1354 (Ind. Ct. App. 1997). There, we were asked
to determine the rights of remaindermen to fire insurance proceeds
collected by the life tenant after the house was totally destroyed by fire.
Id. at 1353. In Ellerbusch, the remaindermen requested an order that the
life tenant hold the remaindermen’s share of the insurance proceeds in
constructive trust. Id. at 1354. Another panel of this court adopted the
majority rule, which holds “that where a life tenant insures the property
in his own name and for his own benefit and pays the premiums from his own
funds, the life tenant is entitled to the entire proceeds of the insurance
upon a loss to the property, even if the insurance covers the full worth of
the property.” Id. (citing 51 Am. Jur. Life Tenants and Remaindermen § 158
at 415-16 (1970)).
The Ellerbusch court also adopted the following exceptions to the
majority rule: “A life tenant must provide insurance for the benefit of
the remainderman if the instrument creating the estate expressly so
provides, if the life tenant and remainderman so agree, or if a fiduciary
relationship exists between the life tenant and the remainderman apart from
the incidents of the tenancy.” Id. By adopting the majority rule, with
its exceptions, we expressly rejected the minority view that “a life tenant
is entitled to all of the insurance proceeds only when the policy of
insurance merely covers the life tenant’s interest.” Id. We likewise
expressly rejected the view that “insurance proceeds collected by the life
tenant, regardless of the amount, stand in place of the destroyed property
and must be used to rebuild the property.” Id. at 1355 (internal citations
omitted).
The Ellerbusch court ultimately held that, without an agreement or
separate duty, a life tenant is not required to insure the property for the
remainderman’s benefit or hold insurance proceeds in trust for the
remainderman.” In so holding, we recognized that: “Despite the apparent
inequity of the rule, a remainderman may protect his interest through an
agreement with the life tenant that the latter carry insurance for the
remainderman’s benefit.” Id. We also acknowledged that “both the life
tenant and the remainderman have insurable interests, and each can insure
for himself.” Id.
However, the present case is distinguishable from Ellerbusch in that,
by purchasing the insurance coverage on the Farm for his own benefit,
Hieber, i.e., the future interest holder, necessarily insured the property
for the benefit of Krieg’s limited life estate. Indeed, Krieg has a
present possessory interest in the Farm by virtue of his limited life
estate. Despite this distinction, we observe that the record supports the
inference that Hieber agreed to provide insurance on the Farm to ensure his
future interest in the Farm. In so doing, he gave Krieg the impression
that he was also ensuring the limited life estate. Indeed, the Purchase
Agreement provides:
[Hieber] requests [Krieg] to maintain fire and extended coverage
insurance on improvements on the above real estate in the amount of
present insurable value . . . until the date of final closing.
Ex. 1 (emphasis added). This language demonstrates that Krieg was only
required to maintain fire insurance on the Farm until November 5, 1999,
i.e., the date of closing, which he did.
Further, at trial, Hieber testified on direct as follows:
Q: Did you at all discuss with Mr. Krieg, uh, gee, Mr. Krieg,
maybe, you oughta have insurance if this deal goes through?
A: Well, I told him he oughta have insurance on the, on, he oughta
keep some insurance for his personal stuff, if nothin’ else.
* * * * *
Q: Now could you explain to the Judge what Mr. Baughman’s
relationship is to this transaction?
A: Prior to me purchasing this, Carlin Krieg had insurance at
DeKalb Mutual. And when we went to, we left Mr. Kruse’s office,
we went on over. And I said that I needed to get insurance on
the premises up there for the equipment and the ground and
liability. So, I talked with Dave Baughman, and he ended up
writin’ me up a new policy.
* * * * *
Q: . . . Now, did you specifically tell Mr. Krieg on November 5th
that he should have renter’s insurance?
A: I told him that he should have insurance on the, at least, if
nothing’ else, on the, his items in the house.
Tr. at 28-32.
From this testimony, one may discern that Hieber gave Krieg the
impression that Krieg only needed to insure his personal property, and not
the real estate or improvements. As such, the notion that Hieber insure
the premises, equipment, ground, and liability and that Krieg insure his
personal property is tantamount to a tacit agreement between the parties.
Krieg relied upon this tacit agreement to his detriment when he converted
his insurance policy to cover his personal property only. Accordingly, to
the extent that the trial court concluded that Hieber was not required to
insure the Farm for the benefit of Krieg, the life tenant, its judgment is
contrary to law, on these facts.
Because Krieg changed his prayer for relief at trial, we remand this
case to the trial court to conduct an evidentiary hearing regarding the
appropriate amount to compensate Krieg for the value of his reserved life
estate. In so doing, the trial court should be guided by our holding that
Krieg has a life estate interest—i.e., a right of residency—in the
premises. The trial court should also be mindful of the following: (1)
that the market value of Krieg’s right of residency, at the time the
parties executed the Purchase Agreement, was calculated by Krieg to be
approximately $48,000.00, i.e., the appraised value of the property less
the purchase price; (2) Krieg’s life expectancy in 1999; and (3) that Krieg
resided in the premises for approximately one year before the fire.
For the foregoing reasons, we reverse the trial court’s judgment in
favor of Hieber and remand for proceedings consistent with this opinion.
Reversed and remanded.
RILEY, J., and DARDEN, J., concur.
-----------------------
[1] The Warranty Deed identifies “Carlin Mack Krieg” as the Grantor and
“Donald L. Hieber” as the Grantee and incorporates by reference Exhibit A.
Appellant’s App. at 53. However, Exhibit A contains numerous errors. For
example, it identifies “Michael Bruce Krieg” as the Grantor and “Calvin
Mack Krieg” as the Grantee. Id. at 54. Exhibit A also purports to have
been notarized on November 5, 1998, as opposed to November 5, 1999.
Because the parties do not dispute that the Warranty Deed and Exhibit A
apply to the transaction in dispute, we will assume that the
inconsistencies contained in Exhibit A are errors that do not render the
Warranty Deed invalid.
[2] Hieber argues that Krieg has waived this argument because he failed to
object contemporaneously to the admission of parol evidence at trial.
However, we note that: “‘[t]he parol evidence rule is a rule of preference
and of substantive law’ which prohibits both the trial court and appellate
court from considering such evidence even though it was admitted to trial
without objection.” Hancock v. Kentucky Cent. Life Ins. Co., 527 N.E.2d
720, 725 (Ind. Ct. App. 1988) (quoting Franklin v. White, 493 N.E.2d 161,
165-66 (Ind. 1986)), trans. denied.
[3] We have held that “[a]n offer, acceptance, consideration, and a
manifestation of mutual assent establish the existence of a contract.”
Homer v. Burman, 743 N.E.2d 1144, 1146-47 (Ind. Ct. App. 2001). The
concept of consideration is often encapsulated by the phrase “bargained for
exchange.” DiMizio v. Romo, 756 N.E.2d 1018, 1022 (Ind. Ct. App. 2001),
trans. denied. To constitute consideration, the promisor must receive a
benefit and the promisee must receive a detriment. Id. at 1022-23. A
benefit is a legal right given to the promisor to which the promisor would
not otherwise be entitled. Id. Whereas, a detriment is a legal right the
promisee has forborne. Id.
[4] At trial, Hieber testified that he had not observed or reviewed the
1997 appraisal of the Farm. However, Hieber did not have to see the
appraisal itself to know that the Farm was worth more than $106,000.00.
Indeed, at the time of the sale at issue, Hieber owned his own farm and
worked as a field man for “Schenkels,” ensuring that farmers keep their
farms at “Grade A status.” Tr. at 22.
[5] The Statement is not barred by the parol evidence rule because it was
not offered to vary the terms of the Purchase Agreement. Rather, the
Statement simply clarifies the duration of Krieg’s “right of residency.”
