Delta Loan
When individuals pool resources, engage in a business for profit, and share in its management and profits, they form a general partnership by default. Partners in a general partnership are personally, jointly, and severally liable for all partnership debts. A corporation is a separate legal entity and is not automatically liable for pre-incorporation contracts made by its promoters. However, a corporation can become liable if it "adopts" the contract, either expressly or implicitly. The promoter who signed the contract (Ann) remains personally liable unless released by the creditor through a "novation."
At the time of the Delta loan, Ann, Bob, and Claire were operating ABC Shoes as a general partnership. They each provided capital, participated in daily operations, and agreed to split profits equally. Ann signed the loan papers on behalf of this partnership. Therefore, the partnership itself is liable for the debt. As general partners, Ann, Bob, and Claire are each personally, jointly, and severally liable for the full $30,000. Delta could sue any one of them or all of them for the entire amount. ABC Inc., which was formed later, would only be liable if it adopted this pre-existing debt. The facts do not indicate any such adoption.
In Conclusion, Ann, Bob, and Claire are personally liable for the Delta loan. ABC Inc. is not liable unless it can be shown that it adopted the loan.
Echo Loan
A fundamental principle of corporate law is limited liability. A validly formed corporation is a distinct legal entity responsible for its own debts and obligations.
Here, The Echo loan was made to "ABC Inc." after it was validly incorporated. Ann signed the note in her official capacity as "President". There are no facts to suggest any grounds for piercing the corporate veil, such as commingling of funds or fraud.
Therefore, only ABC Inc. is liable for the Echo loan.
The Big Shoe Co. Contract
A corporation is bound by the acts of its agents, such as a corporate officer, if the agent was acting with legal authority. This authority can be actual (express or implied) or apparent. Implied actual authority is the authority that an officer reasonably believes she has as a result of the position she holds. Apparent authority exists when the corporation's actions lead a third party to reasonably believe the officer has authority to act on the corporation's behalf.
Here, Ann signed the contract as "ABC Inc. by Ann, President." Although she lacked express actual authority because she did not consult Bob or Claire, she almost certainly possessed both implied and apparent authority. As the president of a retail shoe store, Ann has the implied actual authority to enter into contracts for the purchase of inventory, as this is an act reasonably necessary to carry out her duties and run the business. Furthermore, by holding Ann out as its President, ABC Inc. created apparent authority. Big Shoe Co. was entitled to reasonably rely on Ann's title and believe that she had the authority to bind the corporation in an ordinary business transaction like purchasing inventory. Because Ann acted with at least implied and apparent authority, her signature bound the corporation. As with the Echo loan, the corporate veil protects the shareholders from personal liability.
Therefore, Only ABC Inc. is liable for the contract with Big Shoe Co.
Peter’s Injuries
Under the doctrine of respondeat superior (or vicarious liability), an employer is liable for the torts committed by an employee acting within the scope of their employment. The employee who committed the tort remains personally liable as well. The corporate veil generally protects shareholders, officers, and directors from personal liability for the torts of a corporate employee.
Here, Fred was an employee of ABC Inc. At the time of the accident, he was "driving to pick up inventory," which is a task squarely within the scope of his employment. Because Fred was acting within the scope of his employment when he negligently injured Peter, his employer, ABC Inc., is vicariously liable for Peter's injuries. Fred, as the active tortfeasor, is also personally liable for his own negligence. Peter may sue either ABC Inc., Fred, or both. The corporate form shields Ann, Bob, and Claire from personal liability for a tort committed by a corporate employee.
While ABC Inc. is vicariously liable to Peter, the law generally gives an employer a right of indemnification against the employee who committed the tort. This means that after paying Peter's damages, ABC Inc. could potentially sue Fred to recover the amount it paid.
In Conclusion, ABC Inc. and Fred are liable for Peter’s injuries. Ann, Bob, and Claire are not personally liable.
(776 words)