STATE EX REL. THOMSON, Attorney General, Petitioner, vs. GIESSEL, Director of Budget and Accounts, Respondent. [Office Building Case.] *
Wisconsin Supreme Court
June 17—July 28, 1954.
Motion for rehearing denied, without costs, on October 5, 1954.
267 Wis. 331
For the respondent there was a brief by Louis Quarles, special counsel, and Charles S. Quarles and Laurence E. Gooding, Jr., all of Milwaukee, and oral argument by Mr. Louis Quarles and Mr. Charles S. Quarles.
A brief amicus curiae was filed by Beggs & Lawton of Madison, for the Wisconsin State Employees Association, Wisconsin State Association of Firefighters, Wisconsin Paid Firemen‘s Association, and Wisconsin Council of County and Municipal Employees.
CURRIE, J. While in the relief prayed for by the attorney general a peremptory writ of mandamus is sought to compel the respondent to honor the $974,499.40 voucher, we deem the prayer for a declaratory judgment on the questions raised of constitutionality to be determinative of all issues necessary to be considered by us. Such issues are as follows:
- (1) Is the Wisconsin State Public Building Corporation an agency or instrumentality of the state or is it a private corporation?
- (2) If it is a private corporation, do not
secs. 14.86 and14.88 , Stats., authorizing its creation, constitute the enactment of a special or private law granting corporation powers and privileges contrary topar. 7, sec. 31, art. IV of the Wisconsin constitution ?
(3) Is the plan for constructing the addition to the state office building a work of internal improvement which creates a debt contrary to sec. 10, art. VIII of the Wisconsin constitution ?- (4) Does not the present plan of financing the construction of the addition to the state office building under the provisions of
secs. 14.86 and14.88 , Stats., amount to the loaning of the credit of the state to the Wisconsin State Public Building Corporation contrary to the provisions ofsec. 3, art. VIII of the Wisconsin constitution ? - (5) Do not
secs. 14.86 and14.88 , Stats., by authorizing the corporation to pledge an interest in an existing state building and the land upon which it is situated as collateral for the loan to finance the construction of the new addition create a state indebtedness in violation ofsec. 4, art. VIII of the Wisconsin constitution ?
Under our prior decisions in State ex rel. Wisconsin Development Authority v. Dammann (1938), 228 Wis. 147, 277 N. W. 278, 280 N. W. 698, and State ex rel. Thomson v. Giessel (1953), 265 Wis. 185, 60 N. W. (2d) 873, it seems clear that the Wisconsin State Public Building Corporation is not an agency or instrumentality of the state, but a private corporation organized for a public purpose.
In State ex rel. Thomson v. Giessel, supra, we were faced with the issue of whether a turnpike corporation organized by the members of the Wisconsin turnpike commission under
In the instant case, the Wisconsin State Public Building Corporation was incorporated by three of the members of the state building commission pursuant to the authority granted therefor by
Having held that the corporation is a private one not constituting an agency or instrumentality of the state, the next issue which confronts us is whether
Counsel for the respondent rely upon the decision in State ex rel. Church Mutual Ins. Co. v. Cheek (1890), 77 Wis. 284, 46 N. W. 163, in support of their contention that the provisions of
The insurance corporation in the Cheek Case was organized under such special act while the Wisconsin State Public Building Corporation was organized under the general corporation statutes of the state. We construe
It is, therefore, our conclusion that
“The state shall never contract any debt for works of internal improvement, or be a party in carrying on such works; . . .”
The question of what is considered to be a work of internal improvement within the meaning of
“In Rippe v. Becker, 56 Minn. 100, 117, 57 N. W. 331, the precise question we now have under consideration was carefully considered. As we have heretofore said the result there was fully approved here. The opinion of the court, written by MITCHELL, J., is well abridged, as to the principle declared, in the syllabus:
” ‘Works of internal improvement,’ as used in the constitution, means, not merely the construction or improvement of channels of trade and commerce, but any kind of public works, except those used by and for the state in performance of its governmental functions, such as a state capitol, state university, penitentiaries, reformatories, asylums, quarantine buildings, and the like, for the purposes of education, the prevention of crime, charity, the preservation of public health, furnishing accommodations for the transaction of public business by state officers, and other like recognized functions of state government.” (Emphasis supplied.)
By adopting the foregoing definition of “internal improvement” by the Minnesota court we are committed thereby to hold that any structure which is used by the state in the performance of its governmental functions is excluded from being a work of internal improvement. Thus the state office building, including the proposed addition thereto, is not an
The fourth issue raised is whether the method of financing the construction of the new addition does not necessarily involve the giving or loaning of the credit of the state for the benefit of the corporation in violation of
“The credit of the state shall never be given, or loaned, in aid of any individual, association, or corporation.”
Counsel for the respondent maintain that inasmuch as the loan from the investment board, or from Allstate if the latter takes over the loan commitment, will have to be repaid from the future rentals of the building payable by the state, the state is thereby giving and loaning its credit to the corporation. The commission, as an agency of the state, under the lease back to it by the corporation, will be obligated to pay the rental fixed in such lease for the entire term of thirty-four years, or until the corporation‘s loan to the investment board, or its assigns, shall have been paid or retired. Our first inquiry with respect to this issue is whether such obligation of the state to pay the future rentals under the lease constitutes a debt.
While in one sense any contract to pay money in the future creates a debt, state and municipal governments might be unable to function except under severe handicap if all such contracts were held to create debts within the meaning of constitutional and statutory prohibitions relating to governmental indebtedness. Because of this there is a tendency upon the part of courts to exclude contracts payable by a government in instalments in the future when the consideration which the payor is to receive in return for such payments is also to be provided in the future. Contracts for services or materials to be supplied at periodic intervals in the future are of this category. 38 Am. Jur., Municipal Corporations,
Historically the common-law principles governing the landlord-tenant relationship did not recognize future rent as a presently existing debt or liability. See 1 Tiffany, Landlord and Tenant, p. 1010, sec. 166. As Tiffany points out, although there be a lease, which may result in a claim for rent, which will constitute a debt, yet no debt occurs until enjoyment of the land has been had. “The obligation to pay rent is contingent upon the lessee‘s continued enjoyment of the land, and hence his liability is analogous to that of one who has agreed to pay for a building to be erected in the future, or for goods to be delivered, and not that of one who has promised to pay a sum unconditionally.”
Similarly, the Minnesota court in Ambrozich v. Eveleth (1937), 200 Minn. 473, 483, 274 N. W. 635, 112 A. L. R. 269, stated:
“There is no obligation to pay until the rent is due according to the terms of the lease. Rent to be paid in the future is not a debt or liability for the recovery of which a present action will lie. The duty to pay rent may never arise by the happening of events which by the laws of property relieve a tenant from payment. Because the obligation to pay rent may never arise, it is regarded as contingent and not an absolute liability.” See also the recent case of Protsman v. Jefferson-Craig Consolidated School Corp. (1953), 231 Ind. 529, 109 N. E. (2d) 889.
We deem that the legislature would have the power to authorize the state to enter into leases for office space to house state agencies performing the governmental functions of the state without contravening any constitutional prohibition against state indebtedness. If a lessor of such premises leased to the state would mortgage the premises in order to pay for improvements or additions required under the lease with the state we would not consider that the credit of the state was be-
In the instant case the objective of the lease between the lessor corporation and the commission is to benefit the state, and the arrangement is one highly advantageous to it. We conclude, therefore, that
This brings us to the consideration of the last issue raised, viz., whether the provision of
“The state shall never contract any public debt except in the cases and manner herein provided.”
The exceptions referred to are to be found in
The attorney general concedes that, if the corporation should default on the note and mortgage to the investment board (or to Allstate in the event the latter should take over the loan commitment) as a result of the state failing to pay the rental specified in the lease in which the commission is the lessee, the holder of the note and mortgage would have the right to foreclose the mortgage. The mortgage in-
An examination of the past decisions of this court, as to whether the pledging of an interest in existing public property as security for a debt makes such indebtedness that of the government owning the incumbered property, in the sense in which the word “debt” is used in the state constitution, discloses a conflict in such decisions. While it may be true that there is no conflict in the express statements made by the court on the question, there, nevertheless, is a conflict in the results reached, as is disclosed by an analysis of the cases.
In State ex rel. Morgan v. Portage (1921), 174 Wis. 588, 184 N. W. 376, the railroad commission petitioned for a writ of mandamus to compel the city of Portage to improve its municipal waterworks. The city claimed it could not comply without violating the constitutional debt limitation imposed by
“To carry out this scheme results in mortgaging the city‘s property to secure the payment of a liability which was not a lien on the city‘s property in the nature of a purchase-money mortgage, and constitutes in fact an application of the property to the payment of a corporate debt. It must therefore be held that the city of Portage cannot make the improvements ordered by the railroad commission under the provisions of
secs. 927-16 and927-19b , because it would result in creating a corporate indebtedness in excess of the constitutional limitation.”
Seven years after State ex rel. Morgan v. Portage, supra, came the decision in Loomis v. Callahan (1928), 196 Wis. 518, 220 N. W. 816. In this last-mentioned case the Board of Regents of the University were faced with the problem
Loomis in his printed brief advanced various reasons why he contended that the proposed loans were invalid including that a state debt would be created thereby in violation of the state constitution. However, he did not advance as a reason
“It is not contended that the state can be coerced into applying to the payment of its rent either its general revenues or property owned by it at the time of the lease by the building corporation.” (Emphasis supplied.)
The court‘s opinion in Loomis v. Callahan, supra, however, cites State ex rel. Morgan v. Portage, supra, as authority for the principle that a city may contract for the purchase of property and pledge the proceeds arising from the operation thereof without creating a city indebtedness. The other principle of the Morgan Case, and the one which determined the outcome, of the incumbering of existing public property as security for a loan, was not touched upon in the opinion. However, the effect of the court‘s decision in Loomis v. Callahan wherein it was held that the proposed loans did not constitute a state debt, was to hold that the mortgaging of a leasehold interest in existing state property to secure a loan of the lessee corporation does not constitute a state debt. We are unable to reconcile this with the prior holding in State ex rel. Morgan v. Portage.
Eight years after Loomis v. Callahan, supra, was decided this court in Morris v. Ellis (1936), 221 Wis. 307, 266 N. W. 921, unmistakably indicated that it considered the rule of State ex rel. Morgan v. Portage, as to the effect of mortgaging of existing public property, to still be the law of this state. In Morris v. Ellis the village of Eagle River wished to acquire a new municipal water plant. It entered
“The lots acquired by the village were only acquired in pursuance of an obligation imposed by the Layne-Bowler contract, and, when they were acquired, became a part of the property and plant which the village agreed to buy. The contract did not obligate the village to pay any sum in discharge of the trust deed and certificates except out of revenues to be obtained from use of the unit of which the lots had become a part. As stated by the trial court, the result of the transaction was the same as if the Layne-Bowler Chicago Company had bought and paid for the lots and added $700 to the selling price of the water-supply system. No part of the property of the village owned and held at the time of the contract was incumbered by this transaction. The case is materially different from the Morgan Case, supra, where it was proposed to mortgage all of the municipal water works of the city of Portage to secure a debt for the purpose of making additions and improvements.” (Emphasis supplied.)
The great weight of authority favors the rule of State ex rel. Morgan v. Portage, supra. The general rule is stated in 64 C. J. S., Municipal Corporations, p. 379, sec. 1853 (b) (1), as follows:
“Where, in order to secure payment of an obligation payable from the revenue of income-producing property, a mortgage or lien is imposed on property already owned by a municipality, or on property other than that purchased, an indebtedness is incurred within the limitations on indebtedness, even though the mortgage itself cannot be foreclosed and although the city does not otherwise obligate itself to pay;...”
For clarity of expression it would be difficult to improve upon the following statement appearing in the opinion of the Illinois supreme court in Joliet v. Alexander (1902), 194 Ill. 457, 462, 62 N. E. 861 :
“One who pawns or pledges his property and who will lose the property if he does not pay, is indebted although the creditor has nothing but the security of the property; . . .”
While in subsequent cases the Illinois court receded from one aspect of its decision in Joliet v. Alexander, supra, it has adhered to the principle of the foregoing quotation that a mortgage of existing public-owned property creates a debt in the sense of the constitutional debt limitation even if there is no liability of the municipality to pay the same. Michigan Boulevard Bldg. Co. v. Chicago Park District (1952), 412 Ill. 350, 106 N. E. (2d) 359.
Logically there would seem to be just as much coercion on the part of the state to pay an indebtedness, for the payment of which existing state property, or an interest therein, had been pledged as security but the state had not otherwise agreed to pay the debt, as there would be in case of a debt as to which the state had made itself directly liable for the payment thereof. Both would appear to be equally objectionable from the standpoint of the objective which the framers of the constitution sought to attain by
We, therefore, are constrained to conclude that Loomis v. Callahan, supra, must be overruled in so far as it may be interpreted as authority that the incumbering of an interest in existing state property as security for a loan, as to which the state is not otherwise directly liable to make payment,
It necessarily follows that the provisions of
This holding of unconstitutionality makes it unnecessary to pass upon the issue of statutory construction raised in the complaint as to whether the investment board has the power to transmit the loan commitment to Allstate.
By the Court. Complaint dismissed.
GEHL, J. (dissenting). We are not at liberty to decide the issues in this case as an original proposition. They were determined in Loomis v. Callahan, 196 Wis. 518, 220 N. W. 816. The majority so concede, but overrule the decision in that case in express terms. A rule of property was there declared, a rule which we should adhere to without regard to how we might be inclined to decide the question if it were new. 21 C. J. S., Courts, p. 396, sec. 216; Wisconsin Power & Light Co. v. Beloit, 215 Wis. 439, 254 N. W. 119; Will of Wehr, 247 Wis. 98, 18 N. W. (2d) 709.
It does not appear that investments have been made by private investors in reliance upon the law declared in Loomis v. Callahan, supra, although it may not be amiss to presume that they have. In any event, it does not appear that reliance has not been placed by investors upon the decision which is now over twenty-five years old. A court should hesitate long before overruling a decision, the result of which is to disturb rights which may have been acquired thereunder or in reliance thereon. During the long period since its pronouncement, the legislature has taken no action to change the rule of that case. True, it could not have changed it by legislative enactment, but if it had been dissatisfied with it, it might
It is not as though the attention of the legislature had not been called to the decision. During its 1949 session, Bill No. 491, S., which would create
We should not under the circumstances depart from a rule of property so clearly expressed and for so long a time recognized as being the law.
