ADDY et al.
SHORT et al. (two cases).
[47 Del. 158] Everett F. Warrington and Caleb M. Wright, both of Georgetown, for plaintiffs, plaintiffs in error.
James M. Tunnell and Samuel R. Russell, of Tunnell & Tunnell, Georgetown, for defendants, defendants in error.
Before SOUTHERLAND, Chief Justice, WOLCOTT, Justice, and SEITZ, Chancellor.
SOUTHERLAND, Chief Justice.
The essential question presented is whether, after voluntary dissolution of a Delaware corporation and after the expiration[47 Del. 159] of the statutory three-year winding-up period, the corporation is yet sufficiently alive to retain title to that species of interest in land known as a possibility of reverter.
The facts are these:
The Bethany Beach Improvement Company (hereinafter called 'the Improvement Company') was incorporated under the laws of this State in November, 1900, to do a general real estate business. It subsequently acquired title to a tract of land in Baltimore Hundred, Sussex County, Delaware. By deed dated August 31, 1905, it conveyed to the United States a portion thereof, being a tract of 2.86 acres on Bethany Beach. The recitals in the deed indicate that the land was acquired by the United States for use as a site for a lifesaving station. The deed granted the right to erect upon the land such structures as the United States might see fit to erect and to remove them at any time when the premises might cease to be used and occupied for the recited purpose. The deed also contained the following covenant:
'And it is further agreed on behalf of the United States that in the event that the land hereby conveyed should hereafter cease to be used and occupied for life saving purposes, the said lot of land shall then revert to the party of the first part, or its assigns.'
Thereafter the United States entered into possession of the land so conveyed.
On November 28, 1940, The Bethany Beach Improvement Company was voluntarily dissolved by consent of all its stockholders pursuant to the provisions of Section 39 of the General Corporation Law, Revised Code of 1935, Par. 2071.
On December 19, 1945, the Secretary of the Treasury, pursuant to statutory authority, executed and delivered a declaration of abandonment of the right, title and interest of the United States acquired under the deed of August 31, 1905. After reciting the fact that the Bethany Beach Lifeboat Station had been [47 Del. 160] discontinued and that the United States no longer used or needed the premises so acquired, the instrument of abandonment provided:
'Now, therefore, I, James Forrestal, Secretary of the Navy, pursuant to and
For some years past the defendants Short and The Bethany Beach Improvement Company  have been in possession of the land abandoned by the United States as above stated.
By order of the Court of Chancery dated November 3, 1949, the plaintiffs Addy and Errett were duly appointed Trustees in dissolution of the Improvement Company and thereafter qualified and entered upon their duties.
On August 1, 1950, plaintiffs filed in the Superior Court of Sussex County a suit in ejectment against (inter alios) the defendants above referred to, claiming that the Improvement Company was the owner in fee simple and as such entitled to the immediate possession of the land so abandoned by the United States and occupied by the defendants. They demanded judgment for delivery of possession, together with damages.
The defendants answered, admitting the facts above set forth, with the exception of the Improvement Company's chain of title, of which proof was demanded. This defense, we assume, [47 Del. 161] was waived by defendants' motion for summary judgment upon the pleadings and upon the affidavits, one of which set forth the plaintiffs' chain of title. The substantial defense asserted (and, as we understand it, the only defense now relied upon) was that the title conveyed to the United States by the deed of August 31, 1905, was in law a fee simple determinable; that at the time of dissolution the only interest in the land held by the Improvement Company was that of a possibility of reverter; that such an interest, because of its nature and attributes in the law of real estate, was extinguished by dissolution, or at least by the expiration of the statutory three-year period for winding up the corporate affairs; and that the Improvement Company therefore acquired no title from the abandonment and its trustees could not maintain the action.
Both plaintiffs and defendants filed motions for summary judgment.
Upon the hearing of these motions all parties appear to have assumed that the estate conveyed to the United States by the deed of August 31, 1905, was that of a fee simple determinable. The court below so found. The court then upheld defendants' contention that upon dissolution of the Improvement Company (and in any event upon the expiration of the three-year period) the possibility of reverter became extinguished, and the Improvement Company took nothing from the abandonment of the land by the United States in 1945. Accordingly, judgment was entered for defendants.
From this judgment plaintiffs have appealed. Before filing this appeal, however, plaintiffs sought by a motion directed to the court's decision to review the question of the title of the United States, urging that the deed of August 31, 1905, had granted only the right of use and occupancy. This motion was denied by the court after the taking of the first appeal, and plaintiffs have filed another appeal directed to such denial.
Accepting for the purpose of this appeal the conclusion of the court below that immediately prior to dissolution the only [47 Del. 162] right or interest of the Improvement Company in the land in question was that of a possibility of reverter, we consider defendants' first contention, that this right or interest was extinguished by dissolution.
Section 42 of the General Corporation Law, as existing on November 28, 1940, Revised Code of 1935, Par. 2074, provides:
'Sec. 42. Continuation of Corporation After Dissolution For Purposes
of Suit, Etc.:--All corporations, whether they expire by their own limitation, or are otherwise dissolved, shall nevertheless be continued for the term of three years from such expiration or dissolution bodies corporate for the purpose of prosecuting and defending suits by or against them, and of enabling them gradually to settle and close their business, to dispose of and convey their property, and to divide their capital stock but not for the purpose of continuing the business for which said corporation shall have been established; provided, however, that with respect to any action, suit or proceeding begun or commenced by or against the corporation prior to such expiration or dissolution and with respect to any action, suit or proceeding begun or commenced by the corporation within three years after the date of such expiration or dissolution, such corporation shall only for the purpose of such actions, suits or proceedings so begun or commenced be continued bodies corporate beyond said three-year period and until any judgment, orders, or decrees therein shall be fully executed.'
The section above quoted is in effect a statutory expansion of the equitable doctrine that upon dissolution of a corporation its property, notwithstanding the technical rules of the early common law, does not escheat to the sovereign or revert to the original grantor, and will be administered in Chancery for the purpose of winding up the corporate affairs and distributing the assets to those equitably entitled to them. Cf. Diamond State Iron Company v. Husbands,8 Del.Ch. 205, 68 A. 240; [47 Del. 163] Washington Fire Co. v. Yates,13 Del.Ch. 32, 115 A. 365. During the three-year period of winding up, the corporation functions exactly as it had functioned before dissolution, with the important qualification that its powers are limited to closing its affairs and do not extend to carrying on the business for which it was established. But as concerns the property it had at the time of dissolution, its title and possession are unimpaired. Whatever rights it had, of whatever nature, are preserved in full vigor during the three-year period. Any other ...