Problem 2

Marco, Erica and Katharine have established separate advertising businesses. Marco 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 for Mickey Bests Beer (MBB), a brewery started by sports legend Mickey Best. Since she did not have the resources to complete the campaign, she suggested to Marco and Erica that they complete the job together.

Marco, 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 $100,000.00 which would be payable to Katco Inc. for arranging the contract.

The campaign was successful with each of the parties earning $200,000.00.

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 Marcos Marketing Ltd. (MML), a corporation recently formed by Marco, 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 MLL and Marco for all profits, and/or an injunction to prohibit MML from proceeding with the contract. They

feel that a partnership arrangement had been entered into by the parties. Marco claims that since MML is a new corporation, any past dealings which Marco may have had do not apply to MLL and in any event that they were never partners and therefore all clients were up for grabs.

Required: Advise Erica and Katharine whether they have any basis to commence an action against MML or Marco. Be certain to explain the applicable principles as part of your answer.