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estate at trial sought to introduce testimony directed towards
the intent of the signatories to the settlement agreement.
Respondent raised a continuing objection to such testimony under
the parol evidence rule. The Court reserved ruling on the matter
and will now overrule respondent’s objection.
Stemming from the well-established principle that State law
creates legal rights and property interests while Federal law
determines how the rights and interests so created shall be
taxed, Morgan v. Commissioner, 309 U.S. 78, 80-81 (1940), this
Court looks to the relevant State’s parol evidence rule in
deciding whether to exclude extrinsic evidence concerning the
rights created under a written instrument. Estate of Craft v.
Commissioner, 68 T.C. 249, 263 (1977), affd. per curiam 608 F.2d
240 (5th Cir. 1979). The settlement agreement here was executed
in Michigan and provides in paragraph 12.0 that it is to be
“construed and interpreted in accordance with the law of the
State of Michigan.” Hence, we look to Michigan’s parol evidence
rule.
Use of the parol evidence rule to ascertain the intent of
the parties to a contract has long provenance in Michigan. As
early stated by the Supreme Court of Michigan:
We must look for the intent of the parties in the words
used in the instrument. This court does not have the
right to make a different contract for the parties or
to look to extrinsic testimony to determine their
intent when the words used by them are clear and
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