Court Opinion

ID: 8941411
Source: CourtListenerOpinion
Date Created: 2022-11-27 08:00:25.381286+00
Date Added: 2024-06-11T17:09:45.209173
License: Public Domain

WILKINSON, Circuit Judge:
This case involves one scoundrel and several innocent parties. The scoundrel, Malcolm Devers, conveyed his substantial interest in a property without the knowledge or consent of his wife, and with the intent to deceive the purchasers as to his marital status. The question, as it often is in commercial conveyances, is how to do justice among the innocents. Here, that path lies in assessing as accurately as possible the value of that to which the wife’s admitted dower rights attach and the true nature of what Malcolm Devers held during coverture.
Doris Devers brought this action for assignment of her dower rights in a piece of property known as Radnor Heights against Chateau Corporation, C.F. Prospect, Inc., and the individual owners of apartments built on the land (hereinafter “Chateau”). The district court found that the greatest interest held by Malcolm Devers during his marriage to Doris was a fee simple subject to a 99-year lease. We agree with that characterization of Doris Devers’ dower interest. The second question raised by the lawsuit concerns the value of the reversion at the end of that lease, in 2062. The district court valued the reversionary interest in 1974 at $8,000,000. We believe this figure substantially overstates the worth of the long-term reversionary interest in the property, and we reverse that portion of the judgment of the district court.
I.
Malcolm Devers owned a piece of real estate in Arlington County, Virginia, known as Radnor Heights. In 1962, Devers leased the property for 99 years to Congressional Apartments, Inc. for $5,000 a month. Congressional Apartments assigned the lease to Lawrence Brandt and Donald Brown, who built an apartment building on the land. Devers retained a reversionary interest in both the land and the apartment building.
In 1963, Malcolm married Doris. In 1971, he conveyed the Radnor Heights property to Devers Properties, Inc., a Virginia corporation in which he was the sole stockholder. In 1972, Devers Properties conveyed the property to Brandt and Brown for $705,000, and cancelled the 99 year lease. Doris was not a party to, and *1281was not aware of, either the 1971 or the 1972 conveyance. Brandt and Brown later conveyed the Radnor Heights property to Chateau Corporation and C.F. Prospect, Inc., which subsequently converted the apartment building to condominiums.
Malcolm Devers died in 1974. In Virginia, a surviving spouse is entitled to a dower interest in one-third of any real estate of which his or her spouse was seised during coverture. Va.Code § 64.1-19 (1973). When Doris married Malcolm in 1963, he had a fee simple interest subject to the lease in the Radnor Heights property, or in practical terms, the right to receive $5,000 in rent every month, and the reversion of the land and the building in 2062.
II.
We wish to make clear at the outset the interest to which dower attached. Doris Devers contends that Malcolm had a fee simple absolute interest in the property during coverture. She claims it was improper for the district court to limit her dower to the right to receive rents and the right to the reversion. We disagree. After 1963, Malcolm Devers had no greater estate than the fee simple subject to the 99 year lease.
Under Virginia law, a “surviving spouse shall be entitled to a dower or curtesy interest in fee simple of one-third of all the real estate whereof the deceased spouse ... was at any time seized during coverture of an estate of inheritance.” Va.Code § 64.1-19. In 1963, Malcolm was seised of the Radnor Heights property in fee simple absolute; a lease for a term of years does not interrupt a landowner’s seisin for purposes of determining dower. 1 R. Minor, The Law of Real Property § 261 at 330 (2d ed. Ribble 1928). However, the description of seisin does not define the interest in which the surviving spouse has dower. Minor continues with the following illustration at 331:
[Sjhould the man lease only for a term of years, then marry and die before the term has expired, the wife is dowable, for the husband has never parted with the freehold or with the inheritance. She does not indeed oust the tenant for years whose claim is paramount to hers, but she is dowable in the reversion of which the husband is seised during the coverture, and as the owner of one-third of the reversion for her life she has one-third of the rent, which follows the reversion.
See also C. Scribner, A Treatise on the Law of Dower, Vol. 2 at 776 (1883); Campbell v. Lynch, 81 W.Va. 374, 94 S.E. 739, 744 (1918).
Had Malcolm died without conveying the property to Brandt and Brown, Doris would thus have been entitled to a life estate in one-third of the reversion and the rent. If the husband had, for example, placed a mortgage upon the land before marriage, one would deduct the amount of the mortgage from the reasonable sales value of the unencumbered fee for the purpose of determining the amount of the wife’s dower interest. These results suggest that the ascertainment of the estate in which the deceased spouse had seisin does not necessarily determine the dower interest of the surviving spouse. A prior encumbrance, in this case a lease, will reduce the amount of dower. A court that sets out to define a dower interest, therefore, cannot stop with seisin; it must proceed to determine the greatest interest held by the deceased spouse during coverture. In this connection, we cannot look at the fee apart from the lease. The fee was subject to the lease, and the encumbrance of the lease materially affects the interest in which the surviving spouse has dower.
We thus agree with the district court that
the only thing of which Mrs. Devers was endowed was what Mr. Devers had, and what he had at the time of his death and at the time of the alienation of ’71 or ’72 was the right to receive $5000 a month____ That is what he then undertook to divest himself of if you will in ’71 or ’72. He could not do so without Mrs. Devers joining in the deed. She did not join the deed, so, therefore, she retained her dower interest in what he undertook *1282to give away. But she only has dower in what he had to give away.
The most during coverture that Malcolm ever had to give away was the right to receive rents from the lease and the reversion.
Doris argues that when Brandt and Brown cancelled the lease in 1972, Malcolm held a fee simple absolute, however fleetingly. This argument is at best a formalism. The cancellation of the lease and the sale of the property occurred on the same day; they should be regarded as interdependent and contemporaneous. See 2 R. Powell, The Law of Real Property ¶ 209[1] (1985); Minor, Real Property, §§ 256-57; Hurst v. Dulaney, 87 Va. 444, 12 S.E. 800 (1891). The extinction of the leasehold and the transfer of the fee were dependent parts of one transaction. One cannot imagine Brandt and Brown agreeing to cancellation of the lease without Malcolm’s conveyance of the fee. After the lease was can-celled, Malcolm could not lawfully have reneged on his promise to convey the fee. Since we regard the two parts of the transaction as having occurred simultaneously, Malcolm never had an estate during coverture greater than the fee subject to the lease. Therefore, Doris is entitled to dower in one-third of the rents and the reversion.
Doris Devers’ next contention, that the district court erred in allowing Chateau a right of election under Va.Code § 64.1-39, is also meritless. Section 64.1-39 permits alienees to elect to keep the property and pay the surviving spouse interest on one-third of the value of the deceased spouse’s interest in the realty. Doris argues that § 64.1-39 applies only to innocent third parties, and that Brandt and Brown knew or should have known that Malcolm Devers was actually married. We see nothing in the record that indicates an attempt to defraud Doris Devers by Chateau, Brandt and Brown, Prospect House, or the property owners. Furthermore, there is no mention of Doris Devers in the Radnor Heights chain of title; the relevant deeds in fact recited that Malcolm was divorced and not remarried. Section 64.1-39 was the correct section to apply in such circumstances. Its purpose was to assist innocent and unwitting owners. We therefore affirm the district court both with respect to the characterization of Malcolm Devers’ interest and the application of § 64.1-39.
III.
We cannot accept, however, the district court’s valuation of the reversion. We note preliminarily that neither party has challenged the valuation of the rental stream at $755,000, a computation of the present value of $60,000 per year for 88 years, using a discount rate of eight percent. The district court should have used the same method to calculate the present value of the reversion. The question is what a reasonable investor would pay in 1974 — the year of Malcolm’s death — for a reversionary interest in the year 2062. The district court valued the reversion at $8,000,000. Because the figure of $8,000,-000 does not comport with the established method of valuing reversions, with reasonable investment behavior, or with commentary or case precedent, we reverse.
Before the district court, the parties offered wildly divergent valuations of the reversion. Both parties agreed that the market value of Radnor Heights in 1974 was $8,000,000. There the agreement ended. Vincent Marcum, the expert called by Doris Devers, testified that the Radnor Heights property would appreciate over the term of the lease at or above the rate of inflation. That is, the value of the property would remain the same in 1974 dollars or increase. From this, Doris Devers concluded that in 1974 the value of the right to the reversion should be $8,000,000.
Scott Humphrey, the expert called by Chateau, took a different approach. Assuming that the value of Radnor Heights would be $8,000,000 in 2062, Humphrey then asked what someone would pay today to receive the reversion in 2062. Using a discount rate of ten percent, applied to the *1283assumed $8,000,000 value for Radnor Heights in 2062, Chateau countered that the 1974 value of the reversion was $1,600.1
The district court accepted Doris Devers’ figure, and found that the value of the reversionary interest was $8,000,000.
We cannot agree. To begin with, a reasonable investor in 1974 would have no idea what she would be getting in 2062. The chief ingredient of modern life is change. The one certain thing about the future is uncertainty. While an investment, of course, is a bet on the future, the investor seeks to hedge that bet by maximizing knowledge and minimizing risk. In the present situation, neither course is possible. While Radnor Heights is resplendently described by appellees as “the crown jewels,” convenient to Rosslyn and other major employment centers, with a “virtually unequalled” view “directly across a national park and the Potomac River,” there is no assurance that it will remain so past the middle of the next century. By then, the improvements on the property will have run their useful life, and the “jewel” of 1974 may by 2062 be set in a slum.
The implausibility of a reasonable 1974 investor taking an $8,000,000 chance on a 2062 reversion is thus readily apparent. The owner receives no income from the reversion for the long duration of the lease. Nor can the owner of the reversion enjoy it in her lifetime; she would not have it until 2062. In fact, the property would be unlikely to benefit anyone she knew. It is further difficult to believe that anyone would buy a 2062 reversion for $8,000,000 when she could buy the fee simple absolute in 1974 for the same sum. See Department of Public Works and Buildings v. Metropolitan Life Insurance Co., 42 Ill.App.2d 378, 192 N.E.2d 607, 614 (1963).
Given the disincentives to invest in long-term reversionary interests, both real estate appraisers and courts commonly employ the method used by Humphrey to establish the value of a reversion after a long term lease. Humphrey assumed the property would be worth $8,000,000 in 2062. Such an assumption of the constant face value of a fee in a long-term lease is acceptable, not as a forecast of the actual value of the property 88 years hence, but as an indication of the inability to make such a forecast, with all its attendant effects upon investment decisions. Using this constant value, Humphrey next calculated how much one would need to invest in 1974 at the market interest rate to receive $8,000,000 in 2062. Real estate appraisers commonly use this approach to calculate the present value of a leased fee that will revert to the lessor after a given number of years. See, e.g., S. Kahn and F. Case, Real Estate Appraisal and Investment, 2d ed. at 161 (1977). Using the eight percent discount factor applied by the district court, the present value of a 2062 reversionary interest in 1974 amounts to approximately $8,800.2
*1284This method parallels valuations of reversions following a long term lease in condemnation proceedings and in tax cases. In both situations, courts have approved valuations based on an estimate of the value of the reversion at the end of the lease, discounted to present value. See, e.g., Odend’hal v. Commissioner, 80 T.C. 588, 607-08 (1983), affd 748 F.2d 908 (4th Cir. 1984), cert. denied, — U.S.-, 105 S.Ct. 3552, 86 L.Ed.2d 706 (1985); United States v. Certain Property Located in the Borough of Manhattan, City, County and State of New York, 306 F.2d 439 (2d Cir. 1962); In re Parking Field at West Hempstead in Unincorporated Area of Town of Hempstead, 232 N.Y.S.2d 100 (N.Y.Sup.Ct. 1962). “Since the landlord has only a reversionary interest 95 years after the condemnation date, the determination is predicated upon establishing a sum which, if deposited now at compound interest in an expressed amount, would eventuate, upon termination of the leasehold, in his receipt of the amount established as his loss.” Department of Public Works, 192 N.E.2d at 612.
It is true that if one uses this method, and an eight percent discount rate, the value of a reversion after an 88 year lease is quite small. Commentary on the value of reversions after long-term leases supports this result: the value of a reversion in such a case is negligible. 4 Nichols’ The Law of Eminent Domain § 12.42[3] (3d ed. 1985). The rental stream, not the reversion, is the item of worth. Awards to landlords in condemnation proceedings make the respective values clear. “In a long-term lease (say ninety nine years) on which the danger of default is negligible, the landlord’s entire interest in the property can be valued by treating it as a mere secured right to a permanent annuity, the amount of the annuity being measured by the net rentals. Here the reversionary interest has so little present value that it may be disregarded in estimating the compensation to be paid the landlord.” 1 L. Orgel, Valuation Under the Law of Eminent Domain, § 122 at 529 (2d ed. 1953).
While there is no dispositive Virginia holding, case law from other jurisdictions reiterates that the possibility of a reversion after a long term lease is not to be considered in determining the market value of the property. James Blackstone Memorial Library Association v. Gulf, Mobile and Ohio Railroad Co., 264 F.2d 445, 452 (7th Cir.1959). See, e.g., Chicago and N. W. Ry. Co. v. Chicago Mechanics’ Institute, 239 Ill. 197, 87 N.E. 933, 943 (1909). In New York condemnation proceedings, the holder of a reversion after a long term lease is in a similar position. “In a long term lease, having over 90 years to run, where the danger of default by the lessee is minimal because of extensive improvements made on the property, the reversionary interest has little present value, and the lessor is entitled to a very minor part of the proceeds of an appropriation.” Airport Lodge of Rochester, Inc. v. Brooks-Buell, Inc., 40 A.D.2d 1077, 339 N.Y.S.2d 220, 221 (1972). See also Mayor and City Council of Baltimore v. Latrobe, 61 A. 203, 101 Md. 621, 640 (1905). The present value of the reversioner’s rights when a lease has 88 years to run is negligible. See United States v. Benning Housing Corp., 276 F.2d 248, 251 (5th Cir.1960).
The fee can thus be considered as a bundle of interests, in this case, the leasehold, the reversion, and the right to receive rents. The parties agree that the fee simple absolute was worth $8,000,000 and the rental stream was worth $755,000. The reversion is the least valuable of the rights in the lease fee bundle; one would not expect it to be worth more than the rental stream, nor would one expect the reversion and the fee simple absolute to be equal in value. The district court’s valuation of the reversion at $8,000,000 thus produces an anomalous result, one that cannot be allowed to stand.
IV.
For the foregoing reasons, we reverse the district court’s valuation of the present worth of the reversion. We see no merit in remanding for a second valuation *1285by the district court. “Although there are many cases in which it would be quite irresponsible for the court of appeals to direct entry of judgment, ... it is a great hardship to litigants and district judges to have a case sent back to the district court again and again, as happens all too often. If a case has been once before in the court of appeals, the court should make every effort to assure that its second coming is its last.” R. Posner, Federal Courts, 244 (1985).
This case has been proceeding almost three years; it has now been to the court of appeals twice in as many years, see 748 F.2d 902 (4th Cir.1984); the legal talent that has been invested in it is already quite prodigious; and there remains time to resolve this aspect of it fairly before Radnor Heights becomes the subject of a modern-day Bleak House. Testimony on the value of the property in the year 2062 would necessarily be extremely speculative. Given the hopeless divergence of the parties the first time around, we do not believe that additional testimony would be helpful. The courts and the commentators agree that the value of a reversion after a long term lease is slight. In the face of this substantial body of opinion, supported as it is by light of reason, we direct the district court to calculate the present value of the reversion in the manner it employed to calculate the rental stream, with the appropriate discount rate of eight percent.
AFFIRMED IN PART, REVERSED IN PART AND REMANDED FOR PROCEEDINGS CONSISTENT WITH THIS OPINION.

. Humphrey’s method was as follows:
The present value of $1 due in n periods can be calculated by using the equation PV = 1/(1 + i)n where i is the market interest rate. Jones & Laughlin Steel Corp. v. Pfeifer, 462 U.S. 523, 537 n. 21, 103 S.Ct. 2541, 2551 n. 21, 76 L.Ed.2d 768 (1983). In this case, the periods are years. The calculation can be simplified by using a present value table, such as the Inwood coefficient table, which gives the discount factor for a given interest rate and a given period of time. One multiplies the discount factor by the sum to be received at a future date to obtain the present value of that sum. Here the question is what someone would pay for the right to receive $8,000,000 in 88 years. Using the equation above, the present value of $8,000,000 = 1/(1 + i)88 times $8,000,000.
Humphrey used a market interest rate of 10%. Plugging 88 years and 10% into the Inwood coefficient tables, Humphrey found a rate of .0002, which he then multiplied by $8,000,000 to reach the value of $1,600.

. In its brief, Chateau calculated the present value, $8,800, by multiplying $8,000,000 by a discount factor of .0011, the factor from the Inwood coefficient tables. That discount factor is rounded to the nearest ten thousandth. If one calculates the present value without the table, (1/(1+ .08) 88) X $8,000,000 = $9,157.98. The district court may determine the appropriate value, using the figures that are consistent with its earlier calculation of the present value of the rental stream.