From a reading of the decisions on the question of ultra vires it is quite apparent that the question as to whether a corporation has by its acts exceeded its powers is often a close one and difficult to decide. This court has not heretofore decided any case that would absolutely control on the facts here. Conkling, in this case, had a past-due mortgage on his plant. He had to extend it or his business would be closed. The dock com the instrument did not evidence a sale of the pany in good faith lent him the money with The test which determines whether an al leged usurious transaction was in fact a loan or a sale is the intention of the parties, and their intention is to be ascertained from the whole transaction, including their conduct, as well as their written agreement. [Ed. Note.-For other cases, see Usury, Cent. Dig. §§ 23, 24, 146; Dec. Dig. 12.] 3. BANKS AND BANKING ~315(4) TRUS: COMPANIES-POWERS-LOANING MONEY. CRAIG and DUNCAN, JJ., also dissent. (273 Ill. 332) MERCANTILE TRUST CO. OF ILLINOIS (Supreme Court of Illinois. Feb. 16, 1916. By a contract between plaintiff, a trust company, and the K. Co., plaintiff agreed to buy from the K. Co. accounts due such company acceptable to plaintiff, and to pay therefor 99 per cent. of the face value on accounts paid within 15 days from the date of purchase, 98 per cent. on accounts paid within 30 days, the purchase price to be reduced 1 per cent. for each 30 days thereafter that the accounts were not paid. The contract provided that 77 per cent. of the face value was to be paid upon acceptance by plaintiff, and the remainder, less all deductions, immediately upon payment of any such accounts to plaintiff, provided that payment of the remainder due on any account should be discretionary with plaintiff, while any other account should be in default, that the K. Co. agreed to pay plaintiff all expenses, attorney's fees, and losses incurred by plaintiff in and about any account in default, that the term "default" or "loss" meant the nonpayment of any account to plaintiff at maturity, etc., that the K. Co. was given the right to make collections A trust company incorporated under the general corporation act with power as stated in its certificate of organization to buy, sell, hold, and own open accounts, commercial paper, bills of lading, etc., including personal property, leases, choses in action of every kind and nature, to buy, sell, hold, and own merchandise and personal property of every description, to borrow money, and mortgage, pledge, or otherwise charge any property and property rights owned by it, to issue bonds, debentures, or other corporate obligations, to secure the payment of moneys borrowed, and to do a general manufacturing and merchandising business, had no power to loan money, as the lending of money was not incidental to any of its corporate powers. [Ed. Note. For other cases, see Banks and Banking, Cent. Dig. §§ 1220. 1221; Dec. Dig. 315(4).] 4. CORPORATIONS 487(1) CONTRACTS-ENFORCEABILITY. ULTRA VIRES [Ed. Note.-For other cases, see Corporations, Cent. Dig. § 1556; Dec. Dig. 388(1).] 6. CORPORATIONS 487(1)-CORPORATE POWERS-LOANING MONEY. loan of money could recover from a party to If a corporation making an ultra vires whom the loan is made, it could do so only on the implied contract of the borrower to return the money, or make compensation for money which it had no right to retain; and hence an action could not be maintained on a guaranty by a third party of payment by the borrower. [Ed. Note.-For other cases, see Corporations. plaintiff's agent. Held that, while the parties Cent. Dig. §§ 1893, 1898; Dec. Dig. 487(1).] carefully used language appropriate to a sale, Farmer, C. J., and Duncan, J., dissenting. of such accounts and to that extent to act as For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes Error to Branch B Appellate Court, First District, on Appeal from Municipal Court of Chicago; Joseph Sabath, Judge. Action by the Mercantile Trust Company of Illinois against E. H. Kastor. Judgment for plaintiff was reversed by the Appellate Court, First District (191 Ill. App. 219), and plaintiff brings certiorari. Judgment of the Appellate Court affirmed. Ringer, Wilhartz, Louer & Concannon, of Chicago, for plaintiff in error. Harris F. Williams, of Chicago (W. S. Hodges and E. M. Votaw, both of Chicago, of counsel), for defendant in error. DUNN, J. The plaintiff in error recovered against the defendant in error, in the municipal court of Chicago, a judgment for $3,140.12, which the Appellate Court for the First District reversed without remanding the cause, and by writ of certiorari the record has been brought to this court for review. The plaintiff in error, the Mercantile Trust Company of Illinois, an Illinois corporation, and the United States Kellastone Company, an Oklahoma corporation, on September 2, 1913, entered into a written agreement the material parts of which are as follows, the Kellastone Company being designated the first party and the Trust Company the second party: "Whereas, first party is desirous of selling to second party, contracts, accounts receivable and choses in action, hereinafter designated as accounts, evidencing shipments of personal property: Now, therefore, in consideration of the premises the parties agree as follows: "First-Second party agrees to buy the accounts belonging to first party which are acceptable to it, and to pay therefor ninety-nine per cent. of the face value thereof on accounts that are paid within fifteen days from date of purchase by second party, and ninety-eight per cent. of the face value thereof on accounts that are paid within thirty days from date of purchase by second party, and for each thirty days thereafter that said accounts are not paid the purchase price shall be reduced one per cent. Payment to be made by second party as follows: Seventy-seven per cent. of the face value thereof upon acceptance by second party, the remainder, less all deductions, to be paid to first party immediately upon payment of any such accounts to second party: Provided, however, that if at the time of any settlement between the parties hereto any of the accounts purchased hereunder shall be in default, payment of such remainder while any of the accounts are in default shall be discretionary with second party. "Second-The term 'default' or 'loss,' as used in this contract, is construed to mean the nonpayment of an account to second party at maturity, insolvency of the debtor, failure or refusal of a debtor to accept, receive or retain the property evidenced by such account. First party agrees to pay to second party all expenses, attorney's fees and losses incurred by second party in and about any account in default. "Third-It is agreed that contemporaneously with the purchase of accounts first party shall assign and set over to second party such accounts purchased by it, to the end that second party shall be and become subrogated to all of the rights possessed by first party in respect thereto. Second party shall have the right to endorse the name of first party on all evidences of shipment or payment pertaining to accounts purchased hereunder. First party shall make entries upon its books disclosing the sale to second party of accounts purchased hereunder, and all records pertaining thereto shall at all times be open to the inspection of the second party. "Fourth-It is expressly understood that the purchase of accounts by the second party is made upon representations in writing concerning the financial responsibility of the first party, statements of which are to be furnished the second party once every calendar year. "Fifth-First party is hereby given the right to make collections of accounts purchased by second party, and to that extent first party shall act as the agent of second party. The agency hereby created may be terminated by either party upon written notice. During this agency first party agrees to transmit and deliver to second party at its offices in Chicago, Illinois, on the day of receipt thereof, all evidences of payment of accounts purchased hereunder, in the original form received. "Sixth-This agreement and all its provisions shall inure to and become binding upon the heirs, executors, administrators, successors and assigns of the parties hereto." The following writing was indorsed on this agreement and signed by E. H. Kastor, the defendant in error, and two others, the three being stockholders in the Kellastone Company: "In consideration of the sum of one ($1.00) dollar and other valuable considerations paid by Mercantile Trust Company of Illinois to each of the undersigned, receipt of which is hereby acknowledged, they and each of them do hereby jointly and severally guarantee to Mercantile Trust Company of Illinois, its successors or assigns, the full, prompt, and faithful payment, performance and discharge by United States Kellastone Company of each of the provisions and conditions of the agreement on reverse side hereof, or any other instrument given or executed in pursuance thereof. "The undersigned hereby jointly and severally waive all notice of default by first party, and waive notice of acceptance of this guaranty by Mercantile Trust Company of Illinois, its successors or assigns." The plaintiff's statement of claim was for $5,000 due the plaintiff from Kastor as guarantor of the contract between the United States Kellastone Company and the plaintiff, under which the Kellastone Company assigned and sold to the plaintiff accounts which remain unpaid by the debtors and which the Kellastone Company has failed to repay pursuant to the terms of the agreement, after due demand, wherefore the defendant, as guarantor, is liable to pay the amount of said accounts to the plaintiff. The accounts were stated to be for merchandise sold by the Kellastone Company on the dates, to the persons, for the amounts, and on terms of payment as follows: 8,714.86 2,263.60 tificate of Indebtedness, in the following | Mercantile Trust Company of Illinois, its sucform: "This is to certify that the persons named below are indebted to the undersigned for merchandise sold and delivered in the sums set opposite their respective names: ∞ ∞ ∞ 3339 7 26 8 6 8 7 8 21 8 22 8 23 8 23 Date of Bill Debtor 8 30 W. M. Brown, car 35898 car 95868 H. A. Jones, car 62651 cessors or assigns, the original correspondence of the contracts or open accounts listed above, or other documentary evidence relating to any whenever requested to do so by Mercantile Trust Company of Illinois, its successors or assigns. "In consideration of the premises aforesaid, and the further sum of one dollar to the undersigned heretofore paid, the undersigned hereby guarantees the payment in full to Mercantile Trust Company of Illinois, its successors or assigns, of the above named contracts and open accounts in accordance with the terms indicated and appearing thereon. "U. S. Kellastone Co. [Seal] "Aaron Bodenweiser, Pres. 339.54-3% Reg. "Sept. 3, 1913 $ $11,318.00 "For and in consideration of the sum of one dollar ($1.00) and other good and valuable considerations to the undersigned in hand paid, the receipt whereof is hereby acknowledged, the undersigned hereby sells, assigns and transfers to Mercantile Trust Company of Illinois, a corporation, its successors or assigns, all its right, title and interest in and to the contracts and open accounts above named, together with the merchandise represented thereby, and including the right of stoppage in transitu. The invoices, which amount to eleven thousand three hundred eighteen and no/100 dollars ($11,318), are herewith delivered to Mercantile Trust Company of Illinois. The undersigned guarantees that the moneys due on said contracts and open accounts are correctly set forth in above schedule; that full deliveries have been made on all said contracts and open accounts in accordance with the specifications of the buyer; that there is no contra account against any of them; that the amounts due on said contracts and open accounts as set out in said schedules are not disputed by the debtor and are not past due; that there are no offsets against said accounts, or any of them, for freight, drayage or other carrying charges, commissions, damages, or any other counterclaims of any nature whatsoever; that the amount set out in each item of said schedule is net, and that the payment of said item or items is not contingent on the fulfillment of any contracts, past or future, and that entries have been made on its books disclosing the absolute sale thereof to Mercantile Trust Company of Illinois, its successors or assigns. The undersigned further agrees to advise Mercantile Trust Company of Illinois, its successors or assigns, of any occurrences that may in any respect impair or reduce the amount shown to be due from debtors on any of the above named contracts or open accounts. It further agrees to submit to $11,318.00" Among other things, the defense was based upon a claim that the contract between the Mercantile Trust Company of Illinois and the United States Kellastone Company was a usurious agreement for the loan of money, which was beyond the powers of the Trust Company to make under its charter, and which was forbidden by the laws of Illinois under which the Trust Company was organized. There was no dispute in the evidence as to any matter relating to this question. The court instructed the jury that the agreement between the Kellastone Company and the Trust Company was a contract of sale, and not a pledge or loan, and that if the jury believed that the accounts set forth in the statement of claim were sold by the Kellastone Company to the Trust Company, and that on account of said sale the Trust Company suffered a loss, they should bring in a verdict for the plaintiff. It was not disputed that the accounts mentioned in the plaintiff's statement of claim were included in the certificates of indebtedness executed by the Kellastone Company under the terms of the contract between it and the Trust Company, and the instruction was therefore practically an instruction to find a verdict for the plaintiff. The defendant in error requested an instruction for a verdict in his favor, which the court refused. [1] In our judgment the contract between plaintiff in error and the Kellastone Company is not an agreement for the sale of accounts, but is an agreement for the loan by plaintiff in error to the Kellastone Company, upon the pledge of the latter's accounts, of 77 per cent. of the face of the accounts at a rate of interest equal to 1 per cent. of the face of the accounts for the first 15 days, 2 per cent. for 30 days, and 1 per cent. additional for each additional 30 days from the date of the advancement of the money until its repayment. The agreement fixes no price at which the whole interest in the accounts was to be purchased, but contains a scale of percentages for ascertaining the proportion to be retained by the trust company and the proportion to be paid to the Kellastone Company out of the accounts when collected. While it says that the trust company is to pay a percentage of the face value of the accounts on a descending scale from 99 per cent., according to the time when they shall se paid, the instrument goes on at once to provide that the plaintiff in error shall never be required to pay to exceed 77 per cent. of the face vlaue. If anything additional was to be received by the Kellastone Company, it was to come from the collection of the accounts themselves, and not from the plaintiff in error. The plaintiff in error was in no event to advance more than 77 per cent. of the face of the accounts, and in no event was it to receive less than the amount advanced, with interest at the rate of 1 per cent. of the face of the accounts for the first 15 days, 1 per cent. for the second 15 days, and 1 per cent. for each 30 days after the first 30 days. While the parties to the contract have carefully used language appropriate to a sale, the instrument, when complete, evidences not a sale, but a pledge for the security of a loan. The form of a transfer of the property in the account is manifestly fictitious. At no time do the accounts become the exclusive property of the Trust Company, but its interest in them is limited to the 77 per cent. advanced and the proportion of the remaining 23 per cent. fixed by the scale in the agreement. This is without regard to the right of the Trust Company to hold the proceeds of each account as security for the payment of any other account in default, for such right does not necessarily affect the character of the transaction as a sale or a pledge. If the business transacted under this agreement had been limited to a single $100 60-day account which was paid at maturity, the plaintiff in error would have advanced $77, the Kellastone Company would have collected the account and paid the plaintiff in error $80, or the plaintiff in error would have collected the account and paid the Kellastone Company $20, and the transaction would have been closed. The plaintiff in error would have had $3 profit in 60 days on $77, and would never have been under any liability for more than that amount. If the account was not paid at maturity, then, under the second clause, the Kellastone Company would be bound to pay the plaintiff in error $80. In either event-payment of the account or default in payment-the agreement contemplated the payment of $80 to the plaintiff in error at the expiration of the credit as the close of the transaction. If this amount was not paid promptly, then the amount to be paid to the plaintiff in error would increase $1 a month, and the amount the Kellastone Company would receive on the final payment of the account would decrease $1 a month. By the second clause of the agreement a loss is declared to have been incurred by the plaintiff in error whenever an account is not paid at maturity, and the Kellastone Company agrees to pay all losses. It is therefore bound, immediately upon the maturity of any account without payment, to repay the amount advanced by the plaintiff in error upon such account and an additional amount according to the stated scale of discounts. [2] Under the contract in question the Kellastone Company retained an interest in the accounts to the extent of 22 per cent. of their face value. The test which determines whether the real transaction between the parties was a loan or a sale is the intention of the parties, and their intention is to be ascertained from the whole transaction, including the conduct of the parties as well as their written agreement. In this case, however, it is not necessary to go outside of the contract, which sufficiently shows that the transaction was intended to be a mere pledge of the accounts for a loan of money at a usurious rate of interest. The instrument bears on its face conclusive evidence that it is merely a device to receive more than the law allows for the use of money loaned. The form of the transaction is not material. No device intended to disguise the real character of the transaction can avail to defeat the statute. Calling the transaction a sale of accounts does not alter the fact that the transaction is merely an advancement of money, to be repaid by the borrower with a rate of interest greater than that allowed by law. Contracts similar in character to that in controversy have come before United States courts in the cases of Chase & Baker Co. v. National Trust & Credit Co. (D. C.) 215 Fed. 633, In re American Fiber Reed Co. (D. C.) 206 Fed. 309, Home Bond Co. v. McChesney, 210 Fed. 893, 127 C. C. A. 552, and In re Grand Union Co., 219 Fed. 353, 135 C. C. A. 237. The first two cases were in the District Court; the last two in the Circuit Court of Appeals-the judgment in 210 Fed. affirming that in 206 Fed. In the three latter cases the contracts were held to provide for loans upon pledge, and not for sales. The case of Home Bond Co. v. McChesney, supra, was taken to the Supreme Court of the United States, which has recently affirmed the decree, saying that the conclusion of both the lower courts that the transactions were really loans with the accounts receivable transferred as collateral security seemed so entirely clear that it was unnecessary to discuss the matter at any length. 239 U. S. 568, 36 Sup. Ct. 170, 60 L. Ed. [3] The plaintiff in error has not the corporate power to lend money. It was incorporated under the General Corporation Act, and its powers are stated in its certificate of organization, as follows: "To buy, sell, hold and own open accounts, commercial paper, bills of lading, warehouse receipts, bonds and securities, including personal property, leases, choses in action of any and every kind, nature and description; and to buy, sell, hold and own books, pianos, furniture, machines, machinery, merchandise and personal that it has complied with the legal formalities which are prerequisite to its existence or to its action because such prerequisites might in fact have been complied with. Wood v. Mystic Circle, 212 Ill. 532, 72 N. E. 783. But when the contract is beyond the powers conferred upon it by existing laws, neither the corporation nor the other party to the contract can be estopped, by assenting to it or by acting upon it, to show that it was prohibited by those laws. The powers delegated by the state to corporations are matters of public law, of which no one can plead ignorance. A party dealing with a corporation having limited and delegated powers is chargeable with notice of those powers and their limitations and cannot plead his ignorance of their existence." Steele v. Fraternal Tribunes, 215 Ill. 190, 74 N. E. 121, 106 Am. St. Rep. 160; Converse v. Emerson, Talcott & Co., 242 Ill. 619, 90 N. E. 269. property of any and every kind, nature and de- | Legislature, it, as well as all persons conscription, including the good will and rights of tracting with it, will be estopped to deny any business; to borrow money, and mortgage, pledge or otherwise charge any or all property and property rights owned by the company; to issue bonds, debentures, certificates, scrip or other corporate obligations to secure the pay; ment of moneys borrowed, and to do a general manufacturing and merchandising business." There was here no power to make a loan of money, and in fact no corporation can be organized under the Corporation Act for the business of loaning money. In Calumet & Chicago Canal & Dock Co. v. Conkling, 112 N. E. 982 (No. 10,407), it was held that if power in a corporation to lend money can be implied, it can be only where the loan is incidental to an effort to promote the corporate purposes by the exercise of an express power authorized by the charter of the corporation. "A corporation cannot make loans of money unless the exercise of its chartered powers ordinarily includes such loans." Leigh v. American Brake Beam Co., 205 Ill. 147, 68 N. E. 713. The lending of money was not incidental to any of the corporate powers of the plaintiff in error. "The charter of a corporation, read in the light of any general laws which are applicable, is the measure of its powers, and the enumeration of those powers implies the exclusion of all others not fairly incidental." "A contract of a corporation, which is ultra vires, in the proper sense that is to say, outside the object of its creation as defined in the law of its organization, and therefore beyond the powers conferred upon it by the Legislature-is not voidable only, but wholly void and of no legal effect." Central Transportation Co. v. Pullman Palace Car Co., 139 U. S. 24, 11 Sup. Ct. 478, 35 L. Ed. 55. No action can be maintained upon such void contract by either party against the other. National Home Building Ass'n v. Home Savings Bank, 181 Ill. 35, 54 N. E. 619, 64 L. R. A. 399, 72 Am. St. Rep. 245; North Avenue Building & Loan Ass'n v. Huber, 270 Ill. 75, 110 N. E. 312; Calumet & Chicago Canal & Dock Co. v. Conkling, supra. [4] It is argued that, even though the contract is void, the Kellastone Company having borrowed money from the corporation and the defendant in error having procured the loan to be made by his guaranty, they are estopped to insist that lending the money was beyond the power of plaintiff in error. There can be no estoppel, however, where the contract in question is not within the powers conferred on the corporation by law. The cases in which the doctrine of estoppel has been recognized have been where the act complained of was within the general scope of the corporate powers but there has been some irregularity in their exercise. National Home Building Ass'n v. Home Savings Bank, supra; Durkee v. People, 155 Ill. 354, 40 N. E. 626, 46 Am. St. Rep. 340. "When a corporation acts within the general scope of the powers conferred upon it by the [5] If the plaintiff in error can recover from the Kellastone Company it is not by virtue of the contract, which was beyond its corporate powers, but under what is stated in Leigh v. American Brake Beam Co., supra, to be "the sound and wholesome doctrine that a party after demand." It is further said, quoting from Central Transportation Co. v. Pullman Palace Car Co., supra: lawful contract, nor according to its terms; but "The action is not maintained upon the un on an implied contract of the defendant to return, or, failing to do that, to make compensation for, property or money which it has no right to retain. To maintain such an action is not to affirm, but to disaffirm, the unlawful contract." This suit is brought against the defendant in error, however, upon his guaranty of the unlawful contract, and not upon the implied contract. The trial court erred in instructing the jury. It should have given the instruction to find a verdict for defendant. The judgment of the Appellate Court will be affirmed. Judgment affirmed. FARMER, C. J. (dissenting). As I understand it, there is nothing in the language of the written instrument, construed by the court in this case as an agreement or contract for a loan, which justifies that construction. On its face it is a clear, definite contract of sale, and to justify holding it to |