Fair market value

“Fair market value” is a phrase used not only in ordinary business parlance but in law and jurisprudence where it has already acquired a settled meaning. This case of the Public Estates Authority (PEA), now the Philippine Reclamation Authority (PRA) gives us the meaning of said phrase.

The case involves a Compromise Agreement (CA) entered into by PEA with Gerry and the estate of Jessie represented by Benny as their attorney-in-fact (second party) which settled the issue on the overlapping parcels of land between PEA and the second party in the reclaimed area. The CA which has already been approved by the court and has become the final judgment between the parties, provides among others: (1) that second party has the option to purchase additional 7.6 hectares of PEA’s land within three years from the date the CA has been approved by the court in a judgment that has become final; and (2) that the value of the land subject of the option shall be based on the fair market value as determined by PEA on the date of the exercise of the option.

On January 26, 1999, second party informed PEA that they are exercising the option to purchase. No reply was heard from PEA. So on June 6, 2002, second party moved that the trial court issue an order for the appointment of three licensed real estate appraisers to determine the fair market value on the date of the exercise of the option, and for the suspension of the three-year period until the trial court’s approval of the appraisal report.

By letter of March 26, 2004 however, PEA set the terms and conditions for the second party’s exercise of the option by: (1) specifying the parcels of land comprising the 7.6 hectares; (2) fixing the purchase price at P60,000 per square meter or a total of P4.560 billion; and (3) imposing a period of 122 days within which to exercise the option and to pay the purchase price in cash.

Second party did not heed PEA’s imposition of the 122-day period to exercise the option and instead filed a Supplemental Motion in the trial court asking for the implementation of the option to purchase it has exercised on January 26, 1999, which was well within the three year period, by fixing the fair market value based on the actual condition of said 7.6 hectares as well as the prevailing real estate market price on or about said date.

The trial court however denied the second party’s motion on January 11, 2005, holding among others that it is PEA which has the exclusive right to determine the fair market value of the land that second party want to purchase pursuant to the CA. Was the trial court correct?

No. The proper interpretation of the stipulation in the CA is that PEA is given the right to determine the price of the subject land, provided it can substantiate that the same is the fair market value as of the date of the exercise of the option. The term fair market value in the stipulation cannot be ignored without running afoul of the intent of the parties. Since it is not disputed that second party exercised the option to purchase on January 26, 1999, the valuation should thus be based on the fair market value of the property on said date.

Fair market value is the price at which a property may be sold by a seller who is not compelled to sell and bought by the buyer who is not compelled to buy taking into consideration all uses to which the property is adapted and might, in reason, be applied.

Given this yardstick, the proper valuation of the property should be arrived at through the market data approach, which is based on the sales and listings of comparable property registered within the vicinity; and that the property was classified as raw land because there were yet no houses and facilities like electricity, water and others at the time of the exercise of the option.

PEA’s bad faith is abundantly clear. It did not respond to the second party’s notification of their intention to exercise the stipulated option to purchase until after four years, or on March 26, 2004 when it surprised second party with an exorbitant price for the property and gave them only 122 days within which to purchase the same. Undeniably it is enfeebling the CA under the guise of enforcing it. This cannot be sanctioned (Public Estates Authority etc. vs. Estate of Yujuico etc. G.R. 181847, May 5, 2010).

Note: Books containing compilation of my articles on Labor Law and Criminal Law (Vols. I and II) are now available. Call Tel. 7249445.

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