Read the following scenario and answer the question in 5-10 sentences. You run a

Question

Read the following scenario and answer the question in 5-10 sentences.

You run a small business and signed a lease for some property for your store. The landlord is a company named Cherry Street Associates, Inc. In the lease is a clause that requires the landlord to repair any defects (including electrical and plumbing problems) at the property during the term of the lease. During the third month of the lease, several significant plumbing issues occurred. You contacted the landlord’s representative and he never responded. Because of the nature of your business, you must have running water and so you paid $10,000 to have the plumbing repaired. When the landlord’s representative failed to respond to your request for reimbursement, you filed a lawsuit. During the discovery phase of the lawsuit, your attorney discovers that Cherry Street Associates, Inc. is owned by only one person, the representative who signed the lease and who has failed to communicate with you since. In addition, your attorney discovers that Cherry Street Associates, Inc. did not have records of any corporate meetings. The company was officially formed just 2 months prior to the signing of your lease. The company did not yet have a bank account and all money was deposited in the representative’s account, though the representative did provide a spreadsheet to show how he tracked the funds for the business separately from his personal funds. Recalling your knowledge about the corporate veil, explain why you think the court might pierce that veil in this situation.

Explanation / Answer

Company as the agent

Considering the case and the facts provided, it is clear that the Cherry Street Associates is an agent for its own shareholders. This provides a vicarious liability to the shareholders of the company. In addition, the timing of the formation of the corporation and irregularity in their dealing (lack of meetings and bank account) pose a possibility of attempt to fraud. These details point to the fact that the company is acting as an agent for "the representative".

With these facts in mind, the court might pierce the corporate veil.

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