Court Opinion

ID: 9542316
Source: CourtListenerOpinion
Date Created: 2023-08-07 16:33:00.612525+00
Date Added: 2024-06-11T15:07:34.792252
License: Public Domain

CALLISTER, Justice
(dissenting).
In my opinion there was a sale of stock to Luman and repurchase of the same by the corporation. Luman paid $4000 which was deposited to the corporate account. He thereupon, according to Mr. Robbins, became an officer and director of the corporation. The fact that no certificate of stock was issued to Luman did not prevent him *188from being a stockholder.1 In fact, the evidence is to the effect that the corporation had never issued stock certificates. Both Robbins and Luman testified that the payment by the latter of $4000 was for the purchase of stock.
The lower court held that the repurchase of Luman’s stock, if it were such a transaction, was permissible under the provisions of Sec. 16-2-16(a), U.C.A.19S3. The majority opinion agrees, but both overlook the fact that this subsection is modified and controlled by subsection (f).2 In other words, a corporation may purchase its stock to settle a bona fide controversy only if, in so doing, the capital is not impaired.
Both the lower court and the majority of this court take the position that the transaction did not affect the financial structure of the corporation because it was insolvent both before and after. This being so, the transaction was void. It seems to be the generally accepted view that an insolvent corporation cannot repurchase its stock.3 It matters not whether Owyhee knew or did not know of the transactions between Robbins, Inc. and Luman.
Our statutes prohibiting purchase by a corporation of its own stock, except in certain specified instances, are not a codification of any rule of equity. They are legislative enactments granting preference to creditors of a corporation because under most circumstances a shareholder’s liability is limited to the amount of his investment. Because of this limited liability, the legislature has determined that of the two parties, the shareholder should sustain any loss to the extent of his investment rather than the creditor.
As a general rule, the purchase by an insolvent corporation of its own stock may be avoided in favor of subsequent creditors as well as in favor of those existing at the time of the transaction.4
For the foregoing reasons I would reverse the decision of the lower court.

. Robey v. Hardy, 63 Utah 231, 224 P. 889 (1924); 13 Am.Jur., Corporations, §§ 172, 319.

. See footnote 5 to main opinion. ,

. 6A Fletcher, Cyc. Corps., § 2854, p. 401 and cases cited therein.

. 47 A.L.R.2d 765. See also, Pace v. Pace Bros., 91 Utah 132, 59 P.2d 1 (1936).