Personal liability

Brad, Patrick and Andrew have established separate advertising businesses. Brad and Andrew operate as sole proprietorships. Patrick has incorporated a company, Patco Inc. to run his business. Patco was recently the successful bidder for the production of a 2 year advertising campaign for Big Beer Brewery (“BBB”). Since Patco did not have the resources to complete the campaign, he suggested to Brad and Andrew that they complete the job together. All parties agreed that they would devote their full time and attention to the contract for the next 2 years. Brad, Andrew and Patrick agreed that although the contract, as signed, was with Patco 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 Patco Inc. for arranging the contract. The campaign was successful with each of the parties earning $250,000.00 each year. Shortly before the 2 year period expired, BBB told Patrick that they would not be renewing the contract with Patco. In response to Patrick’s inquiries BBB revealed that it has signed an agreement with Bradco Ltd., a corporation recently formed by Brad, for advertising services for the next year at a price of $250,000.00. Andrew and Patrick come to you for advice and want to commence legal action against Bradco Ltd. and against Brad for all profits that Bradco earns from the contract, and/or an injunction to prohibit Bradco Ltd. from proceeding. Brad claims that since Bradco Ltd. is a new corporation, any past dealings which Brad may have had do not apply to Bradco Ltd. and, in any event, there never was a partnership between the parties and therefore all clients were “up for grabs”.Required: Advise Andrew and Patrick whether there is any basis to commence an action against Bradco Ltd. or Brad.

Is Brad correct in asserting that there was no partnership? Both Andrew and Patrick insist that they were partners with respect to all dealings, past and future, with BBB.

Does Brad have personal liability since it was Bradco Ltd. that signed the new contract?

Brad owns a large farm property in his personal name and set up Bradco Ltd. to protect the property. Be certain to explain the applicable principles as part of your answer.

Would the situation be any different if Patrick was personally hired by the brewery as an in-house employee in charge of advertising? Why or why not?


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