Summary
In Herro v. Wisconsin Federal Surplus Property Development Corp. (1969), 42 Wis.2d 87, 166 N.W.2d 433, this court defined the property rights of appellant in these two tracts and held that ch. 646, Laws of 1965, insofar as it purported to transfer the federal lands to the state conservation commission (hereinafter commission) was unconstitutional for failing to comply with the necessary procedural requirements for condemnation. March 10, 1967, relying upon the validity of ch. 646, and pursuant to sec. 32.12, Stats., the board adopted a resolution of necessity to condemn appellant's interest in the land.
Summary of this case from Herro v. Natural Resources BoardOpinion
No. 161.
Argued February 4, 1969. —
Decided April 1, 1969.
APPEAL from an order of the circuit court for Dane county: LEWIS J. CHARLES, Circuit Judge of the Fifteenth circuit, Presiding. Reversed in part and affirmed in part.
For the appellant there were briefs by Foley, Sammond Lardner of Milwaukee, and Immell, Herro, Buehner, De Witt Sundby of Madison, and oral argument by Marvin E. Klitsner of Milwaukee.
For the respondents Wisconsin Federal Surplus Property Development Commission and Wisconsin Federal Surplus Property Development Corporation there was a brief and oral argument by W. Scott Van Alstyne, Jr., of Madison.
For the respondent state of Wisconsin and cross-appellants State Conservation Commission and Natural Resources Board the cause was argued by Steven M. Schur, assistant attorney general, with whom on the brief were Bronson C. La Follette, attorney general, and William F. Eich, deputy attorney general.
Plaintiff Norman C. Herro (hereinafter the "appellant") brought action for a declaration of the invalidity of ch. 646, Laws of 1965, or in the alternative, judgment declaring that appellant's rights in the lands involved are unimpaired and binding on the successors in interest of the Bong Commission and the Bong Corporation.
The Bong Corporation, the Bong Commission and the Conservation Commission were named defendants. Subsequently ch. 75, Laws of 1967, was enacted abolishing the Bong Commission and creating the Natural Resources Board, which, together with the state, was added as a defendant upon stipulation of the parties.
Defendants demurred to the amended complaint. The circuit court sustained the demurrers of the Wisconsin Federal Surplus Property Development Commission (hereinafter "Bong Commission"), the Wisconsin Federal Surplus Property Development Corporation (hereinafter "Bong Corporation") and the state of Wisconsin and overruled the demurrers of the State Conservation Commission and the Natural Resources Board. Appellant appeals from the part of the order sustaining the demurrers. There are cross appeals from the part of the order overruling the demurrers of the State Conservation Commission and the Natural Resources Board.
In 1954, the federal government acquired 5,540 acres of land in Kenosha county, Wisconsin, for the purpose of establishing what was to be called the Richard I. Bong Air Force Base. After completion of part of the construction work, the project was abandoned in 1959. At the same time the United States declared the entire acreage and its improvements to be federal surplus property.
The Wisconsin legislature, by ch. 671, Laws of 1959, enacted the following statutes:
Sec. 15.995, Stats., which created the Wisconsin Federal Surplus Property Development Commission and set forth its composition, powers and duties; sec. 20.788 which appropriated $5,000 annually to the Bong Commission to enable it to carry out its functions; sec. 182.60 which provided for the creation of federal surplus property development corporations; and sec. 236.45 (5) which is not pertinent to this appeal.
"15.995 WISCONSIN FEDERAL SURPLUS PROPERTY DEVELOPMENT COMMISSION. (1) Purpose and creation. In order that federally-owned land, improvements and appurtenances thereto which may be disposed of by the federal government may be acquired and integrated into the Wisconsin economy with the least amount of dislocation of economic, social and governmental institutions of the state, in order that the tax base may be enhanced, in order to assure effective zoning and land use development of such property and in order to provide a facility competent to prevent the piecemeal and unplanned disposition and discordant development of such property which would have a lasting detrimental effect on said institutions, there is created a Wisconsin federal surplus property development commission hereafter known as the commission. The commission shall be composed of 5 members to be appointed by the governor with the advice and consent of the senate for terms of 3 years. Vacancies shall be filled as provided in s. 17.20 (2). The terms of the members first appointed shall begin as soon after the effective date of this section (1959) as may be. The terms of the members subsequently appointed shall begin July 1; of those appointed effective July 1, 1960, one shall be appointed for one year; 2 for 2 years and 2 for 3 years.
"(2) Powers and duties. The commission shall have the following powers and duties:
"(a) To ascertain the feasibility of acquiring surplus federal lands and improvements and appurtenances thereto within this state in order to assure that such property will be properly integrated into the economic, social and governmental institutions of the state.
"(b) If, after study of any available federal surplus property, it is determined by a majority of the commissioners that the procurement of such property is in the public interest, the individual members of the commission may, by and with the consent of the governor, incorporate under the federal surplus property development corporation laws and develop and dispose of any such available property.
"(c) To study social, economic and governmental problems relating to such property; to confer with officials of affected local units of government with respect to such problems and to propose solutions with respect thereto.
"(d) To employ such personnel as may be required to conduct necessary studies and surveys.
"(e) To request of any state agency or any agency of a political subdivision such data as may be necessary to accomplish its purposes, and such agencies shall comply with said requests.
"(f) To grant approval before any portion of property acquired by a corporation created by it may incorporate as a city or village or be annexed to any incorporated municipality and no such property shall be incorporated or annexed without such approval.
"(3) Records and compensation. The commission shall keep a record of its proceedings. The members shall receive no compensation but shall be reimbursed for their actual and necessary expenditures. The commission shall report annually to the governor and biennially to the legislature."
"182.60 SURPLUS FEDERAL PROPERTY DEVELOPMENT CORPORATIONS. (1) Creation. Nonprofit federal surplus property development corporations hereafter known as development corporations may be created by the Wisconsin federal surplus property development commission when a majority of the commissioners determines that the acquisition of federal surplus property is feasible. Such corporations may be organized under ch. 181 and shall have the powers enumerated therein except as otherwise provided in this section. The members of such corporations shall constitute the board of directors thereof.
"(2) Acquire land. Development corporations may acquire by gift, devise, lease or purchase any land and improvements and appurtenances thereto (hereinafter called `property') made available by the federal government if it is determined by them to be necessary to assure that the economic, social and governmental institutions of the state will thereby be enhanced or benefited and protected from piecemeal, unplanned and inefficient development which would adversely affect the tax base or the efficient development of the property. The interest acquired by the corporation may be in fee simple or less than fee simple as may be deemed expedient or necessary by the corporation. Any property thereto determined to be unneeded by the corporation may be leased or sold by the corporation at public or private sale with or without restrictions, conditions or reservations concerning the future use and occupation of such property so as to protect the property and its environs and to preserve the values thereof.
"(3) Development of properties. Development corporations may develop surplus property acquired by platting such lands, installing utilities, laying out streets and roads and doing all other things which may enhance the development of such property.
"(4) Issuance of bonds. Development corporations may by resolution provide for the issuance of mortgage or revenue bonds or both in such amount as may be required to pay for all or part of the cost of acquiring and developing any surplus federal property. They likewise may provide for the issuance of refunding bonds, to retire any bonds then outstanding at the principal amount thereof plus any redemption premium and accrued interest thereon; and to pay for all or part of the cost of development of the property for which the bonds being refunded were issued. The bonds to be so issued may be offered and sold by the corporation in such manner as is determined by the corporation to be most suitable and economical. The bonds shall be signed by the chairman and vice chairman of the corporation or by their facsimile signatures, and the official seal of the corporation shall be affixed thereto and shall bear the facsimile signature of the chairman of the corporation. In case any officer, whose signature or facsimile of whose signature shall appear on any bonds or coupons, shall cease to be such officer before the delivery of such bonds, such signature or such facsimile shall nevertheless be valid and sufficient, for all purposes the same as if he had remained in office until such delivery. All bonds issued under this section shall have and are hereby declared to have all the qualities and incidents of negotiable instruments under the negotiable instruments law of this state. To the extent that the proceeds of any bonds sold exceed the cost of the development for which such bonds were issued, those funds shall be applied to the credit of the sinking fund reserve or other reserve for such issue. The corporation may take any action in connection with the mechanics of setting up and servicing the issuance of bonds which will provide adequate protection for the purchasers, and which may be required by the circumstances then in force. Bonds issued under this section shall be payable solely from the property and the funds pledged or mortgaged for their payment as herein authorized and shall not constitute a debt of the state or of any political subdivision of the state. All expenses incurred by a development corporation shall be paid solely from funds provided under the authority of this section.
"(5) Payment of bonds. All moneys accruing from the sale of federal surplus property acquired by a development corporation shall provide a fund to pay the interest and retire the bonds of such property when the same becomes due and to create a reserve for such purpose. Such moneys shall be deemed to be trust funds to be held and applied solely to these purposes. Such bonds may be retired by the corporation before the date of maturity. Upon dissolution of the corporation, all trust funds remaining in the name of the corporation shall revert to the state.
"(6) Sale or lease of property. The corporation may by majority vote determine to sell or lease all or part of any property acquired when the sale thereof will, in the opinion of the corporation and with the approval of the development commission, result in effective utilization of such property. Such sale or lease may be to a private person or to a governmental agency.
"(7) Reports. The corporations shall annually on or before September 1 of each year submit a report for the prior fiscal year to the department of resource development.
"(8) Tax exemption. All property held by a development corporation shall be exempt from all general property taxes, but shall be liable for all special assessments.
"(9) Dissolution. A corporation created hereunder may be dissolved by the officers when they find:
"(a) That the corporation has paid all of its bonded indebtedness and other obligations;
"(b) That the purposes for which the corporation was created have been solved or are impossible of accomplishment; and
"(c) That all funds and property of the corporation remaining as payment of all indebtedness and obligations have been surrendered to those appropriate agencies of the state.
"(10) Special district. . . ." (not applicable).
Pursuant to ch. 671, Laws of 1959, the Bong Commission came into existence. Its powers and duties are set forth in footnote 1.
Under the authority conferred upon it by sec. 182.60, Stats. 1961, the Bong Commission, on July 25, 1961, caused the incorporation of a nonstock, nonprofit corporation entitled the Bong Corporation. The Bong Corporation had as its officer's and directors the five members of the Bong Commission. Powers of the Bong Corporation were those of corporations organized under ch. 181, Stats., except as otherwise provided by sec. 182.60. The latter section (set out in applicable parts in footnote 2) gave to the Bong Corporation the power to acquire lands made available by the federal government, the power to develop the lands so acquired by platting, installing utilities, etc., the power to issue bonds in such amounts as may be required to pay for the acquisition and development of the surplus property acquired by the corporation, the power to pay the bonds out of the proceeds of sale of the property acquired, and the power to sell or lease all or part of the lands acquired by the corporation.
After lengthy study by an ad hoc committee, the following plan was apparently developed by mid-1963 to allocate the available 5,540 acres. 1,980 acres would go to the Conservation Commission for a permanent wildlife refuge; 1,591 acres would be purchased by the Conservation Commission for temporary use but the land would be available later for private development; 977 acres would be purchased by the Bong Corporation for private development; and the remaining land was set aside for parks, highways, and educational purposes.
The 1,591-acre tract and the 977-acre tract are the ones involved in this appeal.
A hitch in the overall plan arose when three opinions of the attorney general stated that the Conservation Commission did not have the authority to purchase lands for temporary conservation purposes with a view toward reselling the property later at a private sale. The intention had been that the Conservation Commission would purchase the 1,591-acre tract and use it until such time as the Bong Corporation and its development partners were actually ready to begin using the land.
51 Op. Atty. Gen. (1962), 4, 118, 136.
The legislature responded by passing ch. 467, Laws of 1963, which required the Conservation Commission to sell any lands which it owned in the Bong base to the Bong Commission upon request.
"AN ACT to amend 24.085 (1) of the statutes, relating to the power of the conservation commission to convey property to the Wisconsin federal surplus property development commission.
" The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:
"24.085 (1) of the statutes is amended to read:
"24.085 (1) The state conservation commission is authorized and empowered to sell at public or private sale, lands and structures owned by the state under the jurisdiction of the state conservation commission when said commission . . . determines that said lands are no longer necessary for the state's use for conservation purposes. Upon request of the Wisconsin federal surplus property development commission, the commission shall sell any lands thus requested within Bong air force base when owned by the mission in outright fee to the Wisconsin federal surplus property development commission, or its designee, at fair market value."
On or about November 1, 1963, Norman C. Herro and three other individuals became associated in a joint venture in order to acquire and develop the 977-acre tract and the 1,591-acre tract involved in this appeal. Norman C. Herro became a trustee for his associates.
On February 28, 1964, the Bong Corporation entered into an "Agreement for Loan and Mortgage on Real Estate in Kenosha County, Wisconsin" (hereinafter "Agreement"). Parties to the Agreement were the corporation and appellant. Under the Agreement the appellant agreed to advance $94,715 to the Bong Corporation to enable it to acquire the 977-acre tract. In return for the down payment and certain notes and mortgages from the Bong Corporation, the federal government conveyed the 977 acres to the Bong Corporation.
The reason for the Agreement is obvious. Since the Bong Corporation was without funds, the appellant agreed to loan to the corporation the purchase price required by the federal government for the 977-acre tract. The appellant also agreed to lease the 977 acres pursuant to a "Lease with Option to Purchase," which was incorporated by reference into the Agreement. The appellant also agreed to develop the land in conformity with the land development program laid out by the Bong Commission.
Appellant did not loan the purchase price all at one time. The agreement between the Bong Corporation and the federal government for the 977 acres called for a down payment of $18,943 and ten annual installments of $7,577.20. Under the Agreement appellant was required to advance to the Bong Corporation such funds as were needed, from time to time, to meet these payments.
As security for the money advanced by appellant, the Bong Corporation agreed to issue noninterest bearing mortgage bonds to the appellant secured by a trust deed to the 977 acres. By the terms of the Agreement the Bong Corporation also agreed to execute a "First Right to Purchase Agreement" (which was incorporated by reference) granting the appellant an option to purchase the 1,591-acre tract.
The Agreement was signed as follows:
"IN WITNESS WHEREOF, the parties hereto set their hands and seals this 28th day of February, 1964.
/s/ Norman C. Herro ------------------------------------------- Norman C. Herro, Trustee-Developer ------------------------------------------- WISCONSIN FEDERAL SURPLUS PROPERTY DEVELOPMENT CORPORATION By: /s/ George L. Schlitz ------------------------------------------- Chairman /s/ J. H. Beuscher -------------------------------------- Vice-Chairman and Secretary "The above and foregoing Agreement is hereby approved and ratified this 28th day of February, 1964. FEDERAL SURPLUS PROPERTY DEVELOPMENT COMMISSION By: /s/ George L. Schlitz ------------------------------------------- Chairman /s/ J. H. Beuscher ------------------------------------------- Vice-Chairman " The "Lease with Option to Purchase" which applied to the 977-acre tract and the "First Right of Purchase Agreement" which applied to the 1,591-acre tract were thereafter executed, pursuant to the Agreement, on May 5, 1965.It should be noted that the Agreement contained the following language:
"Whereas, the Corporation is a creature of the Federal Surplus Property Development Commission. . . ."
The "First Right of Purchase Agreement" (to the 1,591-acre tract) contained the identical provision as above and it also stated:
"The Corporation for itself and the Commission hereby grants to the Developer an option to purchase at any time on or before the 4th day of May, 1973, part or all of the real estate described herein. . . .
Ch. 646, Laws of 1965, effective August 10, 1966, by amendment of sec. 24.085 (1), sec. 182.60 (1) and (2), and sec. 236.45 (5), and by the creation of sec. 15.995 (4) and sec. 23.09 (18), Stats., withdrew from the Bong Commission all power and authority to acquire any interest in the Bong base, transferred to the Conservation Commission all Bong property acquired by the Bong Corporation prior to August 10, 1966, and canceled and terminated all agreements and contracts made or entered into by the Bong Commission which relate to or affect the lands within the Bong base in Kenosha county.
"AN ACT to amend 24.085 (1), 182.60 (1) and (2) and 236.45 (5); and to create 15.995 (4) and 23.09 (18) of the statutes, relating to the acquisition and use of the federally-owned lands within the Bong air base.
" The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:
"Section 1. 15.995 (4) of the statutes is created to read:
"15.995 (4) Bong air base. (a) Subsections (1), (2) and (3) do not apply to and the commission is not authorized to acquire any interest of any kind in the federally-owned lands within the Bong air base in Kenosha county.
"(b) All lands within the Bong air base in Kenosha county which have been conveyed by the United States to the state of Wisconsin or to the federal surplus property development corporation on or before the effective date of this subsection (1965) pursuant to this section or s. 182.60 are transferred to the state conservation commission.
"(c) All agreements and contracts made or entered into by the commission which relate to or affect the lands within the Bong air base in Kenosha county are hereby canceled and terminated.
"(d) All files, records and reports of every kind relating to the Bong air base in Kenosha county and in the possession or custody of the commission are hereby transferred to the state conservation commission.
"Section 2. 23.09 (18) of the statutes is created to read:
" 23.09 (18) Bong air base. The commission is authorized to acquire by gift, purchase or otherwise the federally-owned lands, improvements and appurtenances thereto within the Bong air base in Kenosha county which may be disposed of by the federal government to be used by the commission for any of the purposes in sub. (7) (d).
"Section 3. 24.085 (1) of the statutes is amended to read:
"24.085 (1) The state conservation commission is authorized and empowered to sell at public or private sale, lands and structures owned by the state under the jurisdiction of the state conservation commission when said commission determines that said lands are no longer necessary for the state's use for conservation purposes. Upon request of the Wisconsin federal surplus property development commission, the commission shall sell any lands thus requested within the Bong air force base when owned by the commission in outright fee to the Wisconsin federal surplus property development commission, or its designee, at fair market value.
"Section 4. 182.60 (1) and (2) of the statutes are amended read:
"182.60 (1) Nonprofit federal surplus property development corporations hereafter known as development corporations may be created by the Wisconsin federal surplus property development commission when a majority of the commissioners determines the acquisition of federal surplus property, except lands within the Bong air base in Kenosha county, is feasible. Such corporations may be organized under ch. 181 and shall have the powers enumerated therein except as otherwise provided in this section. The members of such corporations shall constitute the board of directors thereof.
"(2) Development corporations may acquire by gift, devise, lease or purchase any land and improvements and appurtenances thereto (hereinafter called `property') made available by the federal government, except lands within the Bong air base in Kenosha county, if it is determined by them to be necessary to assure the economic, social and governmental institutions of the state will thereby be enhanced or benefited and protected from piecemeal, unplanned and inefficient development which would adversely affect the tax base or the efficient development of the property. The interest acquired by the corporation may be in fee simple or less than fee simple as may be deemed expedient or necessary by the corporation. Any property thereto determined to be unneeded by the corporation may be leased or sold by the corporation at public or private sale with or without restrictions, conditions or reservations concerning the future use and occupation of such property property and its environs and to preserve the values thereof.
"Section 5. 236.45 (5) of the statutes is amended to read:
" 236.45 (5) With respect to any surplus lands in excess of 500 acres in area, except the Bong air base in Kenosha county, sold in this state by the federal government for private development, department of resource development may, in accordance with the procedure specified in ch. 227, regulate the subdivision or other division of such federal surplus land in any of the ways and with the same powers authorized hereunder for municipalities, towns or counties. Before promulgating such rules, the department shall first receive the recommendations of the planning division and of any committee appointed for that purpose by the governor.
"Approved July 2, 1966."
As of August 10, 1966, the situation was as follows: The Bong Commission and the Bong Corporation were abolished insofar as Bong air force base lands were concerned. The title to the 977 acres which the Bong Corporation had acquired was transferred to the Conservation Commission. Whatever right the Bong Commission had over the 1,591 acres was canceled.
By letter dated October 12, 1966, the appellant requested the Bong Corporation and the Bong Commission to convey to him a portion of the 977 acres and a portion of the 1,591 acres. Conveyance of these two parcels was refused. Action was commenced on November 4, 1966.
The Wisconsin Conservation Commission, the Natural Resources Board and the state of Wisconsin demurred to the amended complaint on the following grounds:
(1) The court lacks jurisdiction over their persons because of sovereign immunity; and
(2) The amended complaint does not state facts sufficient to constitute a cause of action.
The Bong Commission demurred on the same two grounds above and also contends that:
(3) There is a defect of parties defendant by virtue of ch. 646, Laws of 1965, and ch. 75, Laws of 1967.
The Bong Corporation demurred on the same ground as number (3) above and on the further ground that:
(4) The complaint does not state facts sufficient to constitute a cause of action as to the 1,591-acre tract.
The trial court determined that ch. 646, Laws of 1965 (which canceled the contracts of the Bong Commission and transferred the 977 acres to the Conservation Commission) was constitutional. The basis of this finding was that the Agreement was a contract solely between the Bong Corporation and the appellant, that the legislation merely substituted the Conservation Commission to the rights and obligations of the Bong Corporation, and that if appellant had been deprived of any property by the legislation, his remedy was to seek just compensation under sec. 32.10, Stats. (inverse condemnation).
The trial court's decision separately considered the appellant's rights to the 977 acres and to the 1,591 acres.
Regarding the 1,591 acres, the trial court held that appellant had not stated sufficient facts to constitute a cause of action against anyone. As he viewed the situation the appellant had no way of forcing the Bong Commission to obtain title to the land, nor could the appellant have forced the Bong Commission to request the Conservation Commission to turn over the property. In short, the trial court held that appellant only had a contingent interest in the 1,591 acres which depended upon a future request by the Bong Commission to the Conservation Commission. Passage of ch. 646, Laws of 1965, made it impossible for the Bong Commission to direct any conveyance of the Bong lands.
In regard to the 977 acres, the trial court felt that appellant certainly had a right of some sort against one or all of the defendants. In analyzing the situation, the trial court concluded that no right could exist against either the Bong Commission or the Bong Corporation because either the Conservation Commission or the Natural Resources Board had succeeded to their powers and duties. Thus the demurrers of the Bong Corporation and the Bong Commission were sustained. The trial court also noted that the amended complaint sought either a declaratory judgment or a decree of specific performance. Neither remedy is available directly against the state of Wisconsin, so its demurrer was likewise sustained.
The trial court then concluded that the only remedy possible against the remaining defendants was that of inverse condemnation if the defendants refused to honor the contract the appellants had with the Bong Corporation.
By appeal and cross appeal the trial court's ruling comes to this court for review.
The appeal presents the following issues:
(1) Are the allegations of the amended complaint, that Bong Corporation acted as agent for certain respondents, deemed admitted for purposes of testing the sufficiency of the complaint;
(2) Does sec. 285.10, Stats., authorize joinder of the state in this action;
(3) Does the trial court have jurisdiction over the persons of all respondents despite the sovereign immunity provision of art. IV, sec. 27, of the Wisconsin Constitution;
(4) Are any of the respondents bound by appellant's agreement with Bong Corporation;
(5) Does the complaint state a cause of action as to the 1,591 acres; and
(6) Does the complaint state a cause of action as to the 977 acres?
Pleading Agency.
As a part of paragraph 23 of his amended complaint the appellant alleged:
"Defendant Bong Corporation, in its dealings and relations with plaintiff with respect to the Bong air base lands, acted pursuant to authority of and as agent of defendants Bong Commission and Conservation Commission. . . ."
Appellant contends that the allegation of agency is admitted for the purpose of a demurrer. The trial court, citing Hoyer v. Ludington (1898), 100 Wis. 441, 76 N.W. 348, held that the allegation of agency was a conclusion of the pleader and that the allegation was to be given no weight in testing the sufficiency of the complaint.
The Hoyer Case, supra, does not stand for such a broad proposition. In that case the defendant employed an agent to sell a piece of land. The agent was alleged to have made some false statements in the course of his employment which caused the plaintiff to buy some stock. The subsequent complaint alleged that the false statements of the agent were within the scope of his authority. The specific holding of the case was that a demurrer did not admit the truth of the conclusion that the false statements about the stock were within the scope of the authority of an agent who was employed to sell land. The court also stated in that case that a special agent employed to sell land cannot bind his principal by representatives outside the subject matter of his agency. The citation to the Hoyer Case does not shed any light on how to properly plead an agency relationship.
There is an annotation in A.L.R. 2d which specifically discusses the manner and sufficiency of pleading agency in contract actions where the pleading is attacked by demurrer. No Wisconsin cases are cited therein, but the general rule appears to be:
". . . the courts have permitted a large degree of generality in pleadings in which the party attempting to enforce the contract against the principal attempts to affirmatively allege the agency. Accordingly, it has been held that general allegations that the defendant acted `by' or `through' an agent are sufficient to allege both the basic fact of the agency relationship and that the agent had authority to do the acts relied upon.
". . .
"Where an attempt is made to specifically allege that the agent was in fact authorized to make the contract or agreement sued upon, it has usually been held that averments of authority expressed in the most general terms are sufficient." Annot. (1956), 45 A.L.R. 2d 586. See also, 3 Am. Jur. 2d, Agency, p. 701, sec. 344.
The Wisconsin statutes state in sec. 263.03 that a complaint shall contain:
"(2) A plain and concise statement of the ultimate facts constituting each cause of action, without unnecessary repetition."
In light of the above we hold that an allegation of an agency relationship and an allegation of authority as pleaded in the amended complaint are deemed admitted by demurrer.
The respondents do not really contend that agency was improperly pleaded here. They do maintain, however, that the Bong Commission and the Conservation Commission were specifically forbidden by both legislation and the Wisconsin Constitution to enter into an agency relationship with the Bong Corporation. Whether or not that allegation has a basis in fact forms a large part of the fourth issue in this case and will be further discussed in this opinion.
Does Sec. 285.10, Stats., Permit Joinder of State?
"285.10 State party defendant; judgment. The state may be made a party defendant in any action to quiet title under the provisions of s. 281.01 or between other parties, when necessary to the proper determination of their rights. The complaint shall set forth with particularity the nature of the interest or lien of the state. But no judgment for the recovery of money or personal property or costs shall be rendered in any such action against the state."
If a plaintiff wants to join the state as a defendant, it is fundamental that he first shows that the state has consented to the suit.
"The legislature shall direct by law in what manner and in what courts suits may be brought against the state." Art. IV, sec. 27, Wis. Const.
In this case the appellant is seeking either a declaratory judgment or a decree of specific performance. This court has already held that a declaratory judgment action against the state is barred by sovereign immunity. Berlowitz v. Roach (1947), 252 Wis. 61, 64, 30 N.W.2d 256; Kenosha v. State (1967), 35 Wis.2d 317, 323, 151 N.W.2d 36. However, neither of those cases involved an equitable action concerning land. Appellant maintains that sec. 285.10, Stats., consents to equitable actions concerning land so long as no judgment is given for the recovery of money or personal property. The respondents and the trial court argue that sec. 285.10 only consents to quiet-title actions.
There have only been two cases which interpreted the language of sec. 285.10, Stats. (formerly sec. 262.10) since it took its present form in 1921. Neither case contains significant information on the question now raised, but each has some pertinency.
See ch. 474, Laws of 1921.
Fulton v. State Annuity and Investment Board (1931), 204 Wis. 355, 236 N.W. 120, involved the foreclosure of a mechanic's lien. The court held that a state agency (the mortgage holder on the premises) was a proper party to the case because of sec. 262.10 (now 285.10), Stats. The case is only significant because the state agency was held to be a proper party even though the action was not a quiet-title action.
Glendale Development v. Board of Regents (1960), 12 Wis.2d 120, 106 N.W.2d 430, involved an equitable action to cancel a deed from the board of regents to a dummy building corporation. The title to the property before the deed was given was in the board of regents, a state agency. The state was named a party defendant under 262.10 (now 285.10), Stats., but its demurrer was sustained by this court because
". . . the state of Wisconsin is not a necessary party to the proper determination of the rights of the parties . . . ." Glendale Development v. Board of Regents, supra, at page 127.
Again there was no mention of the fact that sec. 285.10 only consented to quiet-title actions.
We think that sec. 285.10, Stats., should be construed as consenting to any equitable action involving land where no judgment for the recovery of money or personal property is sought against the state. Such a holding permits the state to be made a defendant when declaratory judgment, injunctive relief, or specific performance was sought because the state claims, or is alleged to claim, an interest in land adverse to the plaintiff. In such a situation the state is certainly "necessary to the proper determination" of the rights of the parties.
In this case the amended complaint alleged:
"Upon information and belief, the 1,591 acres designated for residential and other urban uses, under the plan referred to in paragraph 5 above, has been deeded in outright fee to defendant Conservation Commission, the State of Wisconsin (Conservation Commission), or the State of Wisconsin, under the jurisdiction of defendant Conservation Commission. The State of Wisconsin has also purportedly attempted to transfer the 977 acres of land intended for industrial and executive airport uses, under the plan referred to in paragraph 5 above, from the defendant Bong Corporation to the defendant Conservation Commission. The State of Wisconsin is made a party defendant to this action by authority of Section 285.10 of the Wisconsin Statutes because its presence may be necessary to the proper determination of the rights of the parties inasmuch as (1) title to either or both of such tracts of land is, or may be, in the State of Wisconsin under the jurisdiction of the Conservation Commission or otherwise; and (2) the State of Wisconsin has purportedly modified, abolished or otherwise attempted to change the status, powers and authorities of certain of the other defendants, along with the rights and obligations between the plaintiff and some, or all, of such other defendants."
Sovereign Immunity.
Having concluded that sec. 285.10, Stats., permits the joinder of the state to this action, any further discussion of sovereign immunity is unnecessary. Consent to sue the state is also consent to sue the agencies of the state. Thus, the Conservation Commission, the Bong Commission, and the Natural Resources Board would all be proper parties under sec. 285.10.
Who Is Bound by the Agreement?
This is really the central issue of this case. It is an issue difficult to resolve because intricately involved in the question is the validity and effect of the state's use of a dummy corporation. This case presents a good time to quickly review the purpose and development of the dummy corporation device in Wisconsin since this is the first time a case has come to the court wherein the state is trying to circumvent a broad development plan. Rules which have developed when the dummy corporation device was being used as a shield should be reviewed in light of the fact that it now appears that the state is using the corporate device as a sword.
It has long been recognized that the purpose of the dummy corporation was to legally avoid the effect of certain provisions of the Wisconsin Constitution. Among the constitutional provisions to be avoided were art. VIII, sec. 10:
"The state shall never contract any debt for works of internal improvement, or be a party in carrying on such works; . . ."
and art. VIII, sec. 4:
"The state shall never contract any public debt except in the cases and manner herein provided."
This court defined "internal improvement" in State ex rel. Owen v. Donald (1915), 160 Wis. 21, 79, 151 N.W. 331, and in State ex rel. Thomson v. Giessel (1954), 267 Wis. 331, 343, 65 N.W.2d 529. It is not necessary to go into any review of what is meant by that term as it is beyond dispute that the development plan involved in this case was within the definition of "internal improvement." The point is that dummy corporations were created pursuant to legislative authority to engage in this kind of work on behalf of the state. The profits from these corporations went either to the state or a state agency. The directors of the dummy corporations were usually also the members of the state agency which created the corporation. Nonetheless, the separate corporate identity of the dummy corporation permitted the state to claim that it was not participating in the internal improvement. The exact claim first came to this court, and the arrangement was then approved, in State ex rel. Thomson v. Giessel (1953), 265 Wis. 185, 60 N.W.2d 873.
The problem of avoiding a state debt was encountered long before the beginning of dummy corporations. In Connor v. Marshfield (1906), 128 Wis. 280, 107 N.W. 639, this court avoided financial roadblocks by declaring that no "debt" is created when a city or state enters into a contract unless that contract exposes some pre-existing funds or property to liability. As long as the state could lose no more than the benefits of a contract entered into, no state debt was created.
The principle of state indebtedness was first combined with a dummy corporation in Loomis v. Callahan (1928), 196 Wis. 518, 220 N.W. 816. A short review of that case will indicate how the system was designed to work.
The Board of Regents of the University of Wisconsin (a state agency) held title to certain unimproved lands upon which they wanted a fieldhouse built. To accomplish this end, the land was leased to a dummy corporation, the Wisconsin University Building Corporation. The members of the dummy corporation were also the officers of the board of regents. The land was leased to the dummy corporation for a term of fifty years for the consideration of one dollar. The land was immediately leased back to the board of regents for a period of time shorter than fifty years at an annual rental which was calculated to permit the dummy corporation to make payments on whatever funds had to be borrowed to build the fieldhouse. Whenever the building costs were retired, the dummy corporation was required to turn over the structure to the board of regents. The dummy corporation then mortgaged its leasehold interest to another state agency (although it was also empowered to issue bonds to any private party) and the funds necessary for the construction of the fieldhouse were obtained. This court found that the arrangement did not constitute a state indebtedness because the board of regents was free to abandon the plan at any time. Under the terms of the lease running from the building corporation to the board of regents, the state's only obligation was to pay the annual rent. Only the proceeds from the leased property were to be used to pay the rent. Thus the court could state:
". . . 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. . . ." Loomis v. Callahan, supra, at page 525.
A problem subsequently arose with the type of arrangement entered into in the Loomis Case. In State ex rel. Thomson v. Giessel (1954), 267 Wis. 331, 65 N.W.2d 529, this court conceded that the board of regents in the Loomis Case had become "indebted" at least insofar as the leasehold mortgagee could have foreclosed the mortgagor's interest in the property if the dummy corporation failed to make the required payments under the plan. Of course, the only reason the dummy corporation would fail to make payments would be because the state had failed to pay its rent to the dummy corporation. The "debt" arose because the state had, prior to the lease and leaseback, owned the unimproved lot free from encumbrance. If the state defaulted on the agreement, the leasehold mortgagee would have the use of the lot for the term of the lease if he foreclosed.
"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; . . .'" State ex rel. Thomson v. Giessel (1954), 267 Wis. 331, 353, 65 N.W.2d 529.
The state found a way around the problem in State ex rel. Thomson v. Giessel (1955), 271 Wis. 15, 72 N.W.2d 577. There again the state agency wanted a building on its lot. The land was leased to a dummy corporation, but when it was leased back, a provision waiving any right of re-entry or foreclosure in case of any default by the state agency was included. This court held that:
"The state in no manner has pledged its income for the payment of the rentals, nor has it assigned the same. The rentals are not an enforceable charge upon the fund from which they are provided. There can be no foreclosure and consequent loss of state-owned property . . . ." State ex rel. Thomson v. Giessel (1955), 271 Wis. 15, 44, 72 N.W.2d 577.
The dummy corporation scheme was used in Glendale Development v. Board of Regents, supra, to permit the development of a commercial shopping center on state-controlled land. In that case land owned by the state agency was sold to a dummy corporation so that private development could take place. The fact that the property was still controlled by the state did not mean that the state itself was engaging in "internal development" or creating a "state debt."
This court had occasion to determine the relationship between dummy corporation property and the state in State ex rel. Wisconsin University Bldg. Corp. v. Bareis (1950), 257 Wis. 497, 507, 44 N.W.2d 259:
"`. . . the naked legal title is in the corporation but held exclusively for the benefit of the . . . [state].'"
It is with that background that the present case comes on for review. In all the preceding cases the state was necessarily relying on a distinct corporate structure to create debt and to participate in internal improvements. In this case the Bong Corporation's functions became so intermixed with those of the Bong Commission that even the legislature seems to have become confused.
Under ch. 671, Laws of 1959, which created the Bong Commission, the legislature bestowed the following functions:
1. To determine whether federal surplus lands should be acquired;
2. To incorporate for purposes of buying, developing, and disposing of the surplus lands;
3. To study and plan how the surplus lands should be developed;
4. To give approval before any lands acquired by a corporation may be incorporated into or annexed to a municipality; and
5. To approve all proposed corporation sales or leases.
As originally developed, the Bong Commission was to study and decide. The Bong Corporation was to acquire, develop and dispose of property. The activities of the Bong Corporation were to be financed by issuing bonds, but the bonds were not to constitute a debt of the state.
The Bong Commission was given an additional function by ch. 467, Laws of 1963:
"Upon request of the Wisconsin federal surplus property development commission, the [conservation] commission shall sell any lands thus requested within Bong air force base when owned by the [conservation] commission in outright fee to the Wisconsin federal surplus property development commission, or its designee, at fair market value."
This legislation was passed in order to make the 1,591 acres available for private development. In order to be consistent, this "call" on the 1,591 acres should have been given to the Bong Corporation because the Bong Commission did not have the authority to own land. Nonetheless, under the statute, the Bong Commission could designate the Bong Corporation to take title to the land. Note that the statute says
"Upon request the [conservation] commission shall sell any lands thus requested. . . ." (Emphasis supplied.)
Subsequently, the appellants entered into the Agreement. The question which must now be answered is what part did the Bong Commission play in the arrangement?
The appellant has alleged in his complaint that the Bong Corporation was the agent of the Bong Commission. The statutes readily disclose that only the Bong Corporation had the authority to acquire, develop and dispose of property. The statutes also disclose that the Bong Corporation alone could raise funds for its endeavors. Admittedly the Bong Commission desired to have its plans developed. Admittedly the work of the Bong Corporation gave some purpose and expression to the plans and decisions of the Bong Commission. However, both the Bong Commission and the Bong Corporation were creatures of the legislature. Their powers and functions were limited by their creating legislation, and the knowledge of those powers and functions should be imputed to persons who deal with them. Thus, there could be no agency here.
Nevertheless, the Bong Commission had specific authority from the legislature to approve all proposed corporation sales or leases. To that extent the Bong Commission participated in the sales and leases of the Bong Corporation and it was a party thereto. By approving and ratifying the Agreement the Bong Commission was actually performing a role delegated to it by legislation.
It seems to us that by approving and ratifying the Agreement the Bong Commission bound itself to "call" for the 1,591 acres when so directed by the Bong Corporation. Although the Bong Commission did not have any specific authorization to enter into contracts regarding its authorized functions, it did have the authority to demand delivery of a deed to the 1,591 acres. The authority to do the act itself would seem to carry the authority to contract regarding the act. Thus, we conclude that the Bong Commission was a party to the Agreement with the Bong Corporation and the appellant. By the contract, the Bong Commission agreed to "call" for the 1,591 acres when requested to do so by the Bong Corporation.
It is difficult and maybe impossible to separate the consideration received by the Bong Commission from that received by the Bong Corporation. But it is certainly obvious that the Bong Commission had the same overall desires as the Bong Corporation in regard to this development (after all, the members of the Commission and the Corporation were the same).
We hold that the appellant had a vested right to purchase the 1,591 acres after entering into the Agreement.
It is debatable whether the Conservation Commission could have transferred title to the 1,591 acres. However, appellant alleged in his complaint that:
"On information and belief the Conservation Commission had acquired a land contract vendee's interest in said 1591 acres, and was in fact the equitable owner thereof, prior to May 5, 1965."
Does the Complaint State a Cause of Action as to the 977 Acres?
Prior to the passage of ch. 646, Laws of 1965 (the constitutionality of which is attacked on this appeal), the appellant had a contract to lease and an option to purchase the 977 acres. Prior to August 10, 1966 (effective date of ch. 646, Laws of 1965), the Bong Corporation had title to the 977 acres. Nothing stood in the way of performance; and the complaint alleges that all of the parties were ready to perform.
Ch. 646 purported to transfer the Bong Corporation's title to the 977 acres to the Conservation Commission. Appellant complains that this is an unconstitutional taking of private property without just compensation.
The trial court held that ch. 646 was constitutional because either
1. The 977 acres was transferred to the Conservation Commission subject to all the contractual duties owed by the Bong Corporation; or
2. The appellant had a proper remedy under inverse condemnation.
The trial court concluded that a cause of action was stated for specific performance as to the 977 acres.
The Conservation Commission and the Natural Resources Board contend that they were not parties to the Agreement and that they cannot be bound thereby.
Now we must determine the rights of dummy corporations. If we are going to recognize that they are separate and distinct from the state, then it must be determined that the property owned by the dummy corporation is not the state's property. We hold that the legislature cannot transfer property from a dummy corporation without just compensation. The legislature, as well as the public, must treat the dummy corporation as a distinct entity.
We do not agree with respondents' contention that the legislation was in the nature of a condemnation and that the remedy is an action for "just compensation" under sec. 32.10, Stats. (inverse condemnation).
Sec. 32.10, Stats., states that when property has been occupied by a body possessing the power of condemnation, but where the ordinary condemnation procedures have not been followed, the owner of land may institute the proceedings.
It seems quite clear that there has been no "occupation" of the land in question here. The state merely sought to transfer title to the land by legislation. This court stated in Konrad v. State (1958), 4 Wis.2d 532, 538, 91 N.W.2d 203:
"Undoubtedly the state could, if it chose, condemn private property for public use. That is an attribute of sovereignty. The exercise of the right is limited by sec. 13, art. I, Const., declaring:
"`The property of no person shall be taken for public use without just compensation therefor.'"
When the state itself condemns, just compensation must be provided at the same time. When a proper state agency condemns, the individual owner can proceed under inverse condemnation. Inverse condemnation does not apply against the state because the state has not consented to be sued.
Appellant has standing to raise the constitutionality of ch. 646, Laws of 1965, because it affects his right to specific performance against the Bong Corporation.
Unless and until there is a proper condemnation, either under ch. 32, Stats., or by occupation by a proper state agency, the appellant has stated a proper cause of action for specific performance in regard to the 977 acres.
Insofar as ch. 646, Laws of 1965, attempts to transfer the property of the Bong Corporation without the payment of just compensation therefor, it is unconstitutional.
Does the Complaint State a Cause of Action as to the 1,591 Acres?
Assuming that appellant could show, as he alleged in his complaint, that the Conservation Commission could have passed title to the 1,591 acres prior to August 10, 1966, appellant had a vested contractual right to purchase that property at fair market value. That right was destroyed by ch. 646, Laws of 1965, when the legislature took away the Conservation Commission's authorization to sell Bong air base lands by amending sec. 24.085(1), Stats.
Appellant challenges the amendment of sec. 24.085(1) as a law "impairing the obligation of contracts":
"No . . . law impairing the obligation of contracts, shall ever be passed . . . ." Art. I, sec. 12, Wis. Const.
There can be no doubt that the Agreement was entered into in reliance on the legislative authorization of the Conservation Commission to sell the Bong lands at the "call" of the Bong Commission. In fact, the authorizing legislation was adopted solely to make the Agreement come into being.
In State ex rel. Damman v. The Commissioners of School University Lands (1855), 4 Wis. 432, 436 (*414, *418), it was stated:
"There can be no doubt but these express provisions of the statute, at the time the contract of sale between the purchaser and state was made, entered into, and became a part of such contract, and no subsequent law could be enacted which could change the conditions or impair the obligations imposed by them. . . .
If a person enters into a contract with a dummy corporation, which is both created and limited by the statutes, he is entitled to rely on the provisions of the statutes. If the legislature decided that it wanted this land back, it has its powers of condemnation which can be properly exercised.
Insofar as ch. 646, Laws of 1965, attempted to withdraw the authorization of the Conservation Commission to sell the 1,591 acres to the Bong Commission or its designee, it was unconstitutional as an impairment of the obligation of contracts.
The complaint states a proper cause of action for specific performance of the Agreement as regards the 1,591 acres.
Conclusion.
Our decision in this matter should not be construed as denying the proper use by the state or its agencies of the power of condemnation. Unquestionably, the Conservation Commission (or its successor under the Kellett Bill) can condemn both the 977-acre tract and the 1,591-acre tract if it desires. Just compensation would have to be paid. The appellant is given the right to buy the property at "fair market value;" likewise, the Conservation Commission would have to pay to appellant "fair market value" if he owned the land and condemnation proceedings were initiated.
We do not approve of the procedure adopted by the state in this matter. It is obvious that fair play and equitable principles have been disregarded.
By the Court. — That part of the order sustaining the demurrer of the state of Wisconsin, the Bong Commission, and the Bong Corporation is reversed; and that part of the order overruling the demurrers of the Conservation Commission and the Natural Resources Board is affirmed.