Opinion ID: 874102
Heading Depth: 1
Heading Rank: 9

Heading: The Stock Redemption Agreement is an illegal contract.

Text: An illegal contract is one that rests on illegal consideration consisting of any act or forbearance which is contrary to law or public policy, and such a contract is illegal and unenforceable. Farrell v. Whiteman, 146 Idaho 604, 609, 200 P.3d 1153, 1158 (2009). [W]hen the consideration for a contract explicitly violates a statute, the contract is illegal and unenforceable. Id. In Trees v. Kersey, we explained: The illegality of a contract ... can be raised at any stage in litigation. The Court has the duty to raise the issue of illegality sua sponte. Whether a contract is illegal is a question of law for the court to determine from all the facts and circumstances of each case. An illegal contract is one that rests on illegal consideration consisting of any act or forbearance which is contrary to law or public policy. The general rule is that a contract prohibited by law is illegal and unenforceable. A contract which is made for the purpose of furthering any matter or thing prohibited by statute is void. This rule applies on the ground of public policy to every contract which is founded on a transaction prohibited by statute. The Idaho Court of Appeals has suggested that where a statute intends to prohibit an act, it must be held that its violation is illegal, without regard to the reason of the inhibition or to the ignorance of the parties as to the prohibiting statute. 138 Idaho 3, 6-7, 56 P.3d 765, 768-69 (2002) (citations and quotations omitted). Idaho Code § 30-1-6 authorizes a corporation to purchase its own shares but limits the corporation to using only earned surplus and, if authorized, capital surplus to make the purchase. Because AIA Services had no earned surplus and was not authorized to use capital surplus when it agreed to purchase Reed Taylor's shares, the Stock Redemption Agreement violated the earned and capital surplus limitations of I.C. § 30-1-6. Based upon a review of the policy for the statute and the facts in this case, the Stock Redemption Agreement is thereby prohibited by law and is illegal.