Problem 2 (25 marks)

Pat, Erica and Katharine have established separate advertising businesses. Pat and Erica operate as sole proprietorships. Katharine has incorporated a company, Katco Inc., to run her business.

Katharine was recently the successful bidder for the production of an advertising campaign fbr Mickey Besfs Beer Inc. ("MBB"), a brewery started by sports legend Mickey Best. Since she did not have the resources to complete the campaign, she suggested to Pat and Erica that they complete the job together.

Pat, Erica and Katharine agreed that although the contract, as signed, was with Katco Inc., they would all contribute equal amounts of capital, staff and time and divide the profits equally, subject to a commission fee of $50,000.00 which would be payable to Katco Inc. fbr arranging the

contract.

The campaign was successful with each of the parties earning $100,000.00.

On January 1, MBB told Katco Inc. that they would not be renewing the contract. In response to her inquiries MBB revealed that it has signed an agreement with Patco Ltd., a corporation recently formed by Pat, for advertising services for the next year at a price of $300,000.00.

Erica and Katharine come to you for advice and want to commence legal action against Patco Ltd. and Pat for all profits, and/or an injunction to prohibit Patco Ltd. from proceeding with the contract. Pat claims that since Patco Ltd. is a new corporation, any past dealings which Pat may have had with Erica or Katharine do not apply to Patco Ltd. and in any event that they were never partners and therefore all clients were "up fbr grabs".

Required: Advise Erica and Katharine whether they have any basis to commence an action against Patco Ltd. or Pat Are Pat, Erica and Katharine (or Katco Inc.) partners? Be certain to explain the applicable principles as part of your answer. Would the situation be any different if Katharine (rather than Pat) was personally hired by the brewery as an in-house employee in charge of advertising? Why or why not?