Chuck and Pete each operated businesses selling business communication equipment. Chuck's business was incorporated and Pete worked as a sole proprietor. Each promoted different lines of business equipment. The two friends were discussing business one evening when it occurred to them that they could pool their resources and work together for greater combined profit.

Pete decided to combine his sole proprietorship with Chuck's corporation in return for an equal share of Chuck's business shares. They then combined their inventories. Chuck assumed Pete's accounts receivable and payable and line of credit. Pete obtained signing authority from the bank for cheques drawn on Chuck's business accounts. Pete also brought his client base and line of products with him to the venture.

Some time after they had combined their businesses Pete, and Chuck began having disagreements about certain business matters. In particular, they could not agree on a uniform marketing plan or customer territory. Most notably, they could not agree on an appropriate division of commission based on who provided what client base. Making matters worse, Pete had little cash to inject into the business. These difficulties occurred before Pete and Chuck's solicitor had been able to transfer to Pete his equal share of stock.

The business was dissolved, and Pete sought an equal share of profits and capital.

A. What is the main legal issue?

B. Discuss the legal arguments that will be raised by each of the parties.

C. What would be the likely outcome of such litigation?