Reference no: EM131660771

Question: A Question of Ethics. In 1990, American Design Properties, Inc. (ADP), leased premises at 8604 Olive Boulevard in St. Louis County, Missouri. Under the lease agreement, ADP had the right to terminate the lease on 120 days' written notice, but it did not have the right to sublease the premises without the lessor's (landowner's) consent. ADP had no bank account, no employees, and no funds. ADP had never filed an income tax return or held a directors' or shareholders' meeting. In fact, ADP's only business was to collect and pay the exact amount of rent due under the lease. American Design Group, Inc. (ADG), a wholesale distributor of jewelry and other merchandise, actually occupied 8604 Olive Boulevard. J. H. Blum owned ADG and was an officer and director of both ADG and ADP. Blum's husband, Marvin, was an officer of ADG and signed the lease as an officer of ADP. Marvin's former son-in-law, Matthew Smith, was a salaried employee of ADG, an officer of ADG, and an officer and director of ADP. In 1995, Nusrala Four, Inc. (later known as Real Estate Investors Four, Inc.), purchased the property at 8604 Olive Boulevard and became the lessor. No one told Nusrala that ADG was the occupant of the premises leased by ADP. ADP continued to pay the rent until November 1998, when Smith paid with a check drawn on ADG's account. No more payments were made. On February 26, 1999, Marvin sent Nusrala a note that read, "We have vacated the property at 8604 Olive," which, Nusrala discovered, had been damaged. Nusrala filed a suit in a Missouri state court against ADG and ADP, seeking compensation for the damage. In view of these facts, consider the following questions. [Real Estate Investors Four, Inc. v. American Design Group, Inc., 46 S.W.3d 51 (Mo.App. E.D. 2001)]

1 Given that ADG had not signed the lease and was not rightfully a sublessee, could ADG be held liable, at least in part, for the damage to the premises? Under what theory might the court ignore the separate corporate identities of ADG and ADP? If you were the judge, how would you rule in this case?

2 Assuming that ADP had few, if any, corporate assets, would it be fair to preclude Nusrala from recovering compensation for the damage from ADG?

3 Is it ever appropriate for a court to ignore the corporate structure? Why or why not?