Sandra Lerner and Patricia Holmes were friends. One evening, while applying nail polish to Lerner, Holmes layered a raspberry color over black to produce a new color, which Lerner liked. Later, the two created other colors with names like “Bruise,” “Smog,” and “Oil Slick,” and titled their concept “Urban Decay.” Lerner and Holmes started a firm to produce and market the polishes but never discussed the sharing of profits and losses. They agreed to build the business and then sell it. Together, they did market research, worked on a logo and advertising, obtained capital, and hired employees. Then Lerner began working to edge Holmes out of the firm.
1. Lerner claimed that there was no partnership agreement because there was no provision on how to divide profits. Was she right? Why or why not?
2. Suppose that Lerner, but not Holmes, had contributed a significant amount of personal funds into developing and marketing the new nail polish. Would this entitle Lerner to receive more of the profit? Explain.
3. Did Lerner violate her fiduciary duty? Why or why not?