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Virginia Supreme Court: The Term “Fair Market Value” In Codicil Provides No Certainty As To Price

Real property is routinely bequeathed to people in a decedent’s will or codicil.  In the December 10, 2020 opinion of Wilburn v. Mangano, the Virginia Supreme Court considered whether an option to purchase decedent’s real property at “fair market value” provided sufficient certainty as to the sale price to warrant specific performance of a contract for sale.

The Facts of Wilburn v. Mangano

Jeanne Mangano executed a will where she left her residence to her three daughters — Ann, Mary, and Carol (the “Sisters”).  Jeanne granted her son, Anthony, an option to purchase the Property from his Sisters (the “Option”).  Under the terms of the will, Anthony could exercise the Option within one year from the probate of Jeanne’s will, and at a purchase price equal to the Property’s real estate tax assessment in the year of Jeanne’s death.

Jeanne then executed a codicil to her will which revised the purchase price “to an amount equal to the fair market value at the time of my death.”  Jeanne died in November 2005, a resident of Virginia.

Anthony chose to exercise the option to purchase, and sent a letter to his sisters “to serve as legal notice of his intent to exercise the option to purchase” under the terms of the will or the codicil, whichever was valid.  A jury determined that the codicil was valid after Anthony challenged its validity.  The Sisters then filed suit to compel Anthony to purchase the property in accordance with his exercise of the option.  The Sisters obtained two appraisals of the fair market value of the Property as of Jeanne’s death — one valuing the property at $311,000, and the other at $270,000.

The sisters requested in their suit that Anthony be compelled to specifically perform regarding the purchase of the property pursuant to the terms of the option that he exercised.  Anthony filed a demurrer contending that there was no enforceable contract concerning his purchase of the property because fair market value as of the date of Jeanne’s death is not a sufficiently specific term to establish mutual assent to the Property’s purchase price.

The circuit could sustained Anthony’s demurrer, and entered an order dismissing the case with prejudice.  The court held that there was no enforceable contract because “the will, codicil, and notice of acceptance did not determine the purchase price and did not provide a method of determining the purchase price.”

The Sisters appealed.

What Does “Fair Market Value” Mean In Virginia?

The term “fair market value” generally means the price that a seller is willing to accept and a buyer is willing to pay on the open market and in an arm’s-length transaction.

Applying the usual, ordinary, and popular meaning of “fair market value” to Jeanne’s codicil, the Virginia Supreme Court recognized that “it appears that Jeanne gave Anthony the option to purchase the Property at a price that the Sisters are willing to accept and that Anthony is willing to pay on the open market and in an arm’s-length transaction.”

Jeanne’s codicil gave Anthony the option to purchase at fair market value at the time of Jeanne’s death, but was that directive specific enough to provide a mode for ascertaining a sale price with certainty so that specific performance could be compelled? Anthony argued no, and the Virginia Supreme Court agreed.

Price Must Be Certain For Specific Performance Of a Contract (Or Option To Purchase In a Codicil)

In all contracts of sale, mutuality of assent, which is the meeting of the minds of the parties or “a distinct intention common to both [parties],” is an essential element.  Moorman v. Blackstock, Inc., 276 Va. 64, 75 (2008) (quoting Phillips v. Mazyck, 273 Va. 630, 636 (2007)). Price is a material term, and it must be either “fixed by the agreement itself” or the agreement must provide a mode “for ascertaining it with certainty,” in order for a court to enforce specific performance. The essential term of price must have been agreed upon before a court will grant an action for specific performance.

Here, there was no certainty as to price in the Virginia codicil — just the general term “fair market value.”  The Virginia Supreme Court stated:

Absent a more precise specification in Jeanne’s codicil regarding the particular approach to be applied to determine the Property’s fair market value as of Jeanne’s death, the codicil does not provide the price of the Property, or a means of ascertaining the price with certainty, without subsequent agreement between the parties. By its very nature, what is meant by the term fair market value—what a buyer is willing to accept and what a seller is willing to pay for something on a given day—cannot be known with certainty absent a more specific means for determining it being provided in the codicil. In this instance, the language in the codicil lacks the precision required to produce a “certainty” as to price, which would allow a court to equitably compel a party to specifically perform a contract for the purchase of real property.

Because there was no certainty as to price set forth in the codicil, and no mode for ascertaining the price with sufficient certainty, the circuit court correctly sustained Anthony’s demurrer, and the Virginia Supreme Court affirmed the judgment.  Anthony was able to “exercise” the option, then challenge the validity of the codicil (in order to pay the lower real estate tax assessment value for the Property), and, after losing, refuse to exercise the option.   If the terms of the Virginia codicil had been more certain, litigation could have been avoided.

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