Bar Exam (Next Generation) Quiz: Fiduciary Duties Of General Partners

12 questions · exam conditions

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Fiduciary Duties Of General PartnersQuestion 1 of 12

Priya, a managing general partner in a construction partnership, decides to pay several workers in cash off the books. She knows this violates wage-and-hour laws, but believes it is necessary to keep the partnership profitable. When discovered, the partnership pays fines and penalties. The other partners seek to hold Priya personally liable for those amounts.

Is Priya liable for breach of fiduciary duty?

Priya is liable, because knowingly causing the partnership to violate the law breaches her duty of care.

Priya is liable only if she personally benefited from the off-the-books payments.

Priya is not liable, because she acted to benefit the partnership rather than herself.

Priya is not liable, because partners are not personally liable for partnership obligations absent an agreement to the contrary.

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Bar Exam (Next Generation) Quiz

Bar Exam (Next Generation) Quiz: Fiduciary Duties Of General Partners

Practice Fiduciary Duties Of General Partners in Bar Exam (Next Generation) with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Fiduciary Duties Of General Partners, giving you a quick way to practice the rules, question types, and explanations that matter most for Bar Exam (Next Generation).

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

Is Priya liable for breach of fiduciary duty?

Priya is liable, because knowingly causing the partnership to violate the law breaches her duty of care. (correct answer)
Priya is liable only if she personally benefited from the off-the-books payments.
Priya is not liable, because she acted to benefit the partnership rather than herself.
Priya is not liable, because partners are not personally liable for partnership obligations absent an agreement to the contrary.

Explanation: This question tests the fiduciary duties partners owe to each other, so separate the two main branches: duty of loyalty (self-dealing, conflicts) and duty of care (gross negligence, recklessness, intentional misconduct, or knowing violation of the law). Priya knowingly paid workers off the books despite knowing it was illegal. That intentional violation is a breach of the duty of care, regardless of her motive. Because the partnership had to pay fines and penalties as a result, the other partners may hold Priya personally liable for those losses. The choice saying Priya is liable "only if she personally benefited" misses the point: personal benefit is relevant to disgorgement for a loyalty breach, but it is not required for a knowing violation of law under the duty of care. Similarly, "she acted to benefit the partnership rather than herself" might explain her motive, but good intentions do not excuse knowingly illegal conduct. Finally, the statement that "partners are not personally liable for partnership obligations absent an agreement" confuses obligations owed to outside creditors with fiduciary accountability among partners—partners can be personally liable to the partnership for losses their own breaches cause. Study tip: on fiduciary duty questions, first ask whether the alleged misconduct is disloyal or careless. Knowingly violating the law is a classic duty-of-care breach, even with no self-dealing.

Question 2

Amir and Beth are the only general partners of a freight company. Amir handles dispatch. A state inspection report emailed to Amir states that Trailer 7 has a cracked axle and must not be used on a public highway until repaired. The email goes to Amir's spam folder, and he never reads it. A dispatcher mentions to Amir that Trailer 7 has been "riding a little rough lately." Focused on a delivery deadline, Amir sends Trailer 7 out anyway. The axle fails and causes a collision. Beth sues Amir for breach of his fiduciary duty of care.

Under applicable partnership law, is Beth likely to succeed on her claim?

Yes, because Amir knowingly dispatched the trailer in violation of a state safety regulation, and a knowing violation of law breaches the duty of care.
Yes, because Amir failed to exercise the care that an ordinarily prudent person would exercise in managing similar business affairs.
No, because a partner's fiduciary duty of care does not extend to day-to-day operational decisions about equipment dispatch.
No, because Amir did not act intentionally, recklessly, or with gross negligence; his misjudgment was at most ordinary negligence. (correct answer)

Explanation: Whenever you see a partner-liability question, remember that the partnership fiduciary duty of care is not the ordinary negligence standard you might expect. The law shields partners from liability for mere mistakes or misjudgments in running the business. Here, Amir's conduct falls short of the bar for breach. The duty of care requires partners to refrain from gross negligence, recklessness, intentional misconduct, or a knowing violation of law. Amir never read the inspection email because it went to spam, and he only heard a vague comment that the trailer was "riding a little rough." Sending the trailer out under those circumstances is poor judgment, but it is at most ordinary negligence—not gross negligence or recklessness. He did not knowingly dispatch an unsafe trailer. The "knowingly dispatched the trailer in violation of a state safety regulation" choice fails because Amir did not know about the regulation or the violation. The "ordinarily prudent person" choice also fails because that is the classic negligence standard, not the heightened standard for partner fiduciary duty. And the choice saying the duty of care does not extend to dispatch decisions is wrong too: partners owe the duty when managing business affairs, including operational decisions. The correct result is that Beth does not succeed, because Amir's misjudgment was ordinary negligence, not gross negligence. Study tip: On bar-exam partnership questions, equate "duty of care" with "gross negligence" immediately. If the facts show only carelessness or a bad call, the partner usually wins.

Question 3

The two general partners of an equipment-leasing partnership agree to dissolve the partnership. Elena is authorized to wind up the partnership's business. During the winding-up process, the partnership's principal piece of equipment is offered for sale at a public auction. Through a shell company that Elena solely owns, she is the winning bidder at a price slightly below fair market value. She later resells the equipment for a substantial profit. Frank, the other partner, demands that Elena account for the profit.

Under applicable partnership law, must Elena account for the profit?

Yes, but only for the difference between the auction price and the equipment's fair market value, because the auction sale was otherwise proper.
Yes, because Elena used a controlled entity to buy partnership property without Frank's consent,and she must account for the resale profit she derived from partnership property. (correct answer)
No, because the equipment was sold at a public auction,and a partner may purchase partnership property at a public salein good faith.
No, because after dissolutiona partner's fiduciary duties cease,and each partner is free to deal with partnership property for personal benefit.

Explanation: Whenever you see a partnership question involving dissolution, remember that fiduciary duties do not vanish—they persist through the winding-up process. This question tests the duty of loyalty, which prohibits a partner from dealing with partnership property for personal benefit without the other partners' consent. Here, Elena used a wholly owned shell company to bid at the auction. That is self-dealing. Because she did not obtain Frank's consent, she breached her fiduciary duty. The correct answer is that she must account for the resale profit, because the profit is derived from partnership property. The "Yes, but only for the difference between the auction price and fair market value" choice is wrong because the law requires disgorgement of all benefits from a breach of loyalty, not just the shortfall. The "No, because the equipment was sold at a public auction" choice fails because a public auction does not sanitize a secret self-dealing purchase; good faith requires disclosure and consent, which she lacked. The "No, because after dissolution a partner's fiduciary duties cease" choice is a classic trap—duties continue during winding up until the partnership is fully terminated. Remember, on the bar exam, any time you see a partner buying partnership property through an alter ego or without full disclosure and consent, you should suspect a violation of the duty of loyalty. The remedy is an accounting for all profits.

Question 4

Dana and Priya are equal general partners in a partnership that owns and operates a chain of three fitness studios in the same metropolitan area. The partnership agreement is silent on competition and on fiduciary duties. Without telling Priya, Dana begins working on weekends to develop a separate, small personal-training studio in a nearby neighborhood. Dana uses no partnership funds, staff, client lists, or studio space, and she has not solicited any clients, trained any clients, or signed any lease for the new studio. She plans to open it only after the partnership's three-year term expires in two months, at which point she intends to continue as a partner in the existing business. Priya learns of Dana's plan and sues, claiming Dana has breached her fiduciary duty of loyalty.

Is Dana's conduct a breach of her fiduciary duty of loyalty to the partnership?

Yes, because a general partner may not prepare to compete with the partnership while the partnership is still operating, even if no client has been solicited or served.
No, because a partner's duty of loyalty prohibits actual competition and the diversion of partnership opportunities, but not mere preparation to compete, and Dana's conduct is only preparatory. (correct answer)
Yes, because a general partner may not pursue an outside business interest that relates to the partnership's line of business without first obtaining the other partners' consent.
No, because she plans to open the studio after the partnership term expires, and a partner owes no duty to refrain from competing with the partnership once the partnership is dissolved.

Explanation: Whenever you see a partnership fiduciary duty question, distinguish actual competition, self-dealing, and usurping a partnership opportunity from mere preparation to compete. The duty of loyalty under the RUPA bars the former, not the latter. Dana's conduct is purely preparatory: she uses no partnership assets, has solicited no clients, and signed no lease. She is merely developing an idea for a future venture. Thus, she has not breached her duty, making the correct answer the one stating that mere preparation to compete is not a breach. Now examine the incorrect choices. The first claims a partner may not prepare to compete while the partnership is operating. That overstates the law—preparation is permissible unless it crosses into actual solicitation or diversion of a concrete opportunity. The second says she cannot pursue an outside business interest relating to the partnership's line of business without consent. That is also too broad; consent is not required for every related venture, only for actual competition or appropriation of a specific opportunity. The third says she owes no duty because the term expires in two months. That misstates the law—the duty of loyalty persists during the term and through winding up, and she intends to remain a partner, so that rationale is flawed; the real reason she wins is that she hasn't competed yet. Your study tip: on bar prep, spot the word "preparation." If the facts show no client solicitation, no use of partnership assets, and no concrete opportunity taken, the answer is almost always "no breach." Don't let a mere plan trigger a loyalty violation.

Question 5

Ravi and Sofia are equal general partners in a lunch-delivery business. Ravi, without telling Sofia, uses his personal savings to open his own lunch-delivery service in a neighboring office district. He does not use partnership funds, equipment, or client lists, and he does not solicit any of the partnership's existing customers. The partnership agreement is silent about outside business activities.

Has Ravi breached his fiduciary duty?

No, because Ravi did not use partnership resources or divert partnership customers.
No, because a partner may engage in any outside business if he does not compete for existing customers.
Yes, because Ravi competed with the partnership without consent and it is no defense that he used only personal resources. (correct answer)
Yes, because any personal profit earned by a general partner while the partnership operates must be shared with the partnership.

Explanation: Whenever you see a question about a general partner's fiduciary duties, focus on the duty of loyalty: a partner must not compete with the partnership or take opportunities belonging to it without consent. The key is that this duty is about the relationship itself, not just about using partnership assets. Here, Ravi opened a competing lunch-delivery service in a neighboring office district while still a partner. Even though he used only personal savings and didn't solicit the partnership's existing customers, he still entered a competing business. That competition, without Sofia's consent, breaches his duty of loyalty. The law does not excuse the breach merely because he avoided using partnership resources or customers—those facts mitigate damages but do not eliminate the breach. The first wrong answer, "No, because Ravi did not use partnership resources or divert partnership customers," misunderstands the scope of the duty. Loyalty is broader than resource protection. The second wrong answer, "No, because a partner may engage in any outside business if he does not compete for existing customers," is also incorrect: competing even in a different market area can still be a breach if it competes with the partnership's business. The fourth answer, "Yes, because any personal profit earned by a general partner while the partnership operates must be shared," overstates the rule—partners may keep outside profits from non-competing ventures; the problem is the competition, not the profit itself. Your study tip: when a partner's outside activity is at issue, ask first, "Is this competing with the partnership?" If yes, breach—consent is the only safe harbor.

Question 6

Pam and Dev are equal general partners in a printing company. Pam approves all supplier invoices. A long-time supplier submitted a duplicate invoice formatted identically to the original; no duplicate had occurred before. Pam, busy with a family emergency, approved both payments without comparing them, causing an $18,000 loss. Dev claims Pam breached her fiduciary duty of care by failing to catch the duplicate.

Is Pam likely liable to the partnership?

Yes, because a partner managing finances must exercise the care a reasonably prudent person would exercise under similar circumstances.
Yes, because approving invoices without comparing them to purchase orders is reckless mismanagement of partnership affairs.
No, because Pam's lapse was, at most, ordinary negligence and a partner is not liable for ordinary negligence absent gross negligence, recklessness, intentional misconduct, or knowing violation of law. (correct answer)
No, because partners are liable only for intentional misappropriation of partnership assets, not for careless approval of invoices.

Explanation: Whenever you see a partner's liability for a business mistake, separate ordinary negligence from more culpable conduct. Under partnership law, a partner's duty of care generally requires avoiding gross negligence, recklessness, intentional misconduct, or knowing violation of law—not perfection in day-to-day management. Here, Pam approved a duplicate invoice during a family emergency. That is a lapse in attention, but nothing suggests she acted recklessly or with conscious disregard. Therefore, the partnership is not likely to recover: Pam is not liable because her conduct was, at most, ordinary negligence. The choice saying a partner managing finances must exercise the care of a reasonably prudent person is a tort-law trap—that is the ordinary negligence standard, not the partnership standard. The choice claiming approving invoices without comparing them to purchase orders is reckless mismanagement overstates the facts; routine oversight can be negligent, but it is not reckless absent evidence of conscious disregard. The choice saying partners are liable only for intentional misappropriation is too narrow, because gross negligence or reckless conduct could also create liability. Your takeaway: on a partnership question involving an error, ask whether the facts show egregious behavior. If the partner was merely busy, distracted, or careless once, examiners usually want no liability under the partnership standard.

Question 7

Nina and Owen are equal general partners in a clothing store. While seeking new retail space for the partnership, Owen learns of an affordable storefront. Without telling Nina, Owen signs a lease for the space in his own name and pays the first month's rent with his personal funds. He then assigns the lease to a third party for a $50,000 fee. Nina demands that Owen account for the fee.

Which statement is most accurate?

No, because Owen paid for the lease with his own funds and did not use partnership money or credit.
No, because Owen did not prevent the partnership from leasing other space and no partnership loss resulted.
Yes, because Owen appropriated a partnership business opportunity he had discovered while acting for the partnership and did not offer it to the partnership first. (correct answer)
Yes, because a partner must account for any leasehold interest acquired while the partnership is in existence.

Explanation: This question tests the fiduciary duties general partners owe each other, specifically the partnership version of the corporate opportunity doctrine. Whenever you see a partner making a personal profit from something discovered while doing partnership business, ask two things: Was the opportunity in the partnership's field of business, and was it offered to the partnership first? Here Owen was seeking new retail space for the clothing-store partnership when he found the affordable storefront. He signed the lease in his own name, paid with personal funds, then assigned it for a $50,000 fee—all without telling Nina or offering the space to the partnership first. Because he learned of the opportunity while acting for the partnership, it was a partnership business opportunity. By diverting it for personal gain, he breached his duty of loyalty and must account for the fee. The "No" answers are both tempting but flawed. The claim that Owen owes nothing because he used his own funds ignores that the partnership opportunity doctrine exists regardless of whose cash paid for the lease; a partner cannot immunize a fiduciary breach by self-funding. The claim that there was no partnership loss is also wrong: the partnership never got the chance to lease the space, so the deprivation of its opportunity is the harm—no actual loss needs be shown. The other "Yes" answer, saying a partner must account for any leasehold interest acquired while the partnership is in existence, is overbroad: not every leasehold acquired during the partnership's lifetime is a partnership opportunity. Only interests acquired in connection with partnership business or through the partnership position trigger the duty. The precise rule is the one about appropriating a discovered partnership opportunity and failing to offer it to the partnership first.

Question 8

The three partners of a firm that provides tax-preparation services to retail businesses amend their partnership agreement to provide: "A partner may engage in the business of providing payroll-processing services to restaurants, on the partner's own account and without any obligation to account to the partnership, and that activity shall not be deemed a breach of any duty owed to the partnership." The firm has never offered payroll-processing services. Relying on the provision, one partner starts a payroll-processing business for restaurants, using no partnership property or personnel. The other two partners claim that the partner breached a fiduciary duty.

Under applicable partnership law, which of the following is the most accurate statement?

The provision is enforceable because it identifies a specific type or category of activity that does not violate the duty of loyalty, and the provision is not manifestly unreasonable. (correct answer)
The provision is unenforceable because a partnership agreement may not alter or limit the duty of loyalty in any respect, regardless of the reasonableness of the limitation.
The provision is enforceable only if the partner first obtained the other partners' unanimous consent to each specific payroll-processing engagement after disclosure of all material facts.
The provision is unenforceable because it permits a partner to compete with the partnership, and a partnership agreement may not authorize a partner to compete in any manner.

Explanation: When you see a partnership agreement that appears to waive or alter a fiduciary duty, remember the key limit: the duty of loyalty is the one fiduciary duty a partnership agreement may not eliminate entirely, but it may be shaped by specific, reasonable provisions. The amended agreement here does exactly what the law permits. It identifies a particular category of activity—payroll-processing services for restaurants—and states that engaging in that activity is not a breach. Because the firm never offered payroll-processing and the partner used no partnership property or personnel, the provision is not manifestly unreasonable. The agreement has effectively provided advance consent, so the partner may compete in that limited arena without accounting to the partnership. The "may not alter or limit the duty of loyalty in any respect" choice is wrong because the law allows reasonable, specific limitations even though the duty cannot be wholly eliminated. The "enforceable only if unanimous consent to each specific engagement" choice is also wrong; the partnership agreement itself is the consent, so case-by-case approval is unnecessary. Finally, the "unenforceable because it permits a partner to compete" choice misstates the rule—competition is a loyalty concern, but a partnership agreement may authorize specific competitive activities when, as here, the waiver is not manifestly unreasonable. Study tip: anytime a question tests modification of fiduciary duties, check whether the agreement is specific and reasonable. If it tries to eliminate the duty of loyalty wholesale, it fails; if it targets a defined activity, it likely succeeds.

Question 9

Maria and Noah are the only general partners of an accounting firm. The partners agree to dissolve the partnership,and Maria takes responsibility for winding up the firm's affairs. Noah immediately opensa competing accounting practice, renting his own office,ande using only his own funds. Maria sues Noah, claiming that his competition duringthe winding-up period breached his fiduciary duty of loyalty.

Under applicable partnership law, is Maria likely to succeed?

No, because the duty not to compete applies only before dissolution,and Noah may compete during the winding-up period. (correct answer)
Yes, becausea partner's duty not to compete with the partnership continues until the winding up of the partnership business is complete.
Yes, because Noah's competition duringthe winding-up period diminishedthe value of the partnership's assets being marshaled for distribution.
No, because Noah has dissociated from the partnership and therefore owes no fiduciary duties with respect to the partnership's affairs.

Explanation: Whenever you see a fiduciary-duty question involving partnership dissolution, separate two distinct periods: before dissolution, partners owe a duty not to compete; after dissolution, during winding up, that specific duty no longer applies. Here, Maria and Noah agreed to dissolve, and Maria is winding up. Noah may immediately compete using his own funds and office, so Maria's claim fails. The duty not to compete exists only while the partnership is carrying on its business, not during the winding-up process. The correct answer is therefore "No, because the duty not to compete applies only before dissolution, and Noah may compete during the winding-up period." A partner winding up still owes residual fiduciary duties of care and candor regarding the partnership's affairs, but the duty not to compete is not among them. Why are the others wrong? "Yes, because a partner's duty not to compete continues until winding up is complete" states the opposite of the rule—competition is allowed during winding up. "Yes, because Noah's competition diminished the value of the partnership's assets" sounds plausible but is not the legal test; unless he misused partnership assets or opportunities, ordinary competition is permitted. Finally, "No, because Noah has dissociated and therefore owes no fiduciary duties" overstates the point: dissolution does not automatically sever all fiduciary duties, only the specific duty not to compete. Study tip: on the bar exam, when you see "dissolution" and "competition," remember the rule as a timeline—duty not to compete ends when winding up begins, while other fiduciary duties continue.

Question 10

Navarro and Osei are the only general partners of a firm that develops small retail shopping centers in central Ohio. While on a personal trip to Arizona, Navarro is contacted by a developer who offers Navarro the opportunity to invest personally in a 500-unit residential apartment complex in Arizona. Navarro invests his own money and earns a large profit. Osei demands that Navarro account for the profit, claiming that Navarro usurped a partnership opportunity.

Under applicable partnership law, which of the following is Navarro's strongest defense to Osei's claim?

The offer was made to Navarro personally while he was on a personal trip, not in his capacity as a partner of the firm.
Navarro used no partnership funds, partnership property, or partnership personnel in making the Arizona investment and developed the project entirely with his own resources.
A partner does not violate a fiduciary duty merely because the partner's conduct in an investment furthers the partner's own interest rather than the partnership's interest.
The apartment complex was outside the firm's existing and anticipated line of business, and the firm had no interest or expectancy in acquiring it. (correct answer)

Explanation: Whenever you see a claim that a partner usurped a partnership opportunity, the central question is whether the partnership had a legitimate interest or expectancy in that particular opportunity. The duty of loyalty does not require a partner to offer every investment to the firm—only those that fall within the firm's existing or anticipated line of business. Here, the firm develops small retail shopping centers in central Ohio, while the opportunity is a 500-unit residential apartment complex in Arizona. Because that project lies entirely outside the firm's geographic area and type of business, the partnership had no claim to it. That is your strongest defense. The "made personally while on a personal trip" argument fails because the manner in which an offer arrives does not affect the fiduciary analysis; a partner's capacity matters, but the key factor is the partnership's interest in the opportunity, not the partner's location. Similarly, "no partnership funds or personnel used" is irrelevant—you cannot erase a duty breach simply by using personal resources; the duty runs to the opportunity itself. The statement that "a partner does not violate a fiduciary duty merely because conduct furthers self-interest" is true in the abstract, but it is too broad: furthering self-interest does become a breach if it involves usurping a partnership opportunity. That statement therefore does not answer the specific facts here. Remember the "line of business" rule: if the firm has no existing or planned stake in that type or location of investment, there is no opportunity to usurp.

Question 11

Grace and Henry are the only general partners of a commercial real estate brokerage. Without Henry's knowledge, Grace uses the firm's proprietary client database to compile contact information for the firm's largest client, then contacts that client's head of real estate and offers to handle the client's future leasing needs through a separate brokerage Grace plans to form. Grace's new brokerage will not begin operating until after the firm's current listing agreement with the client expires. Henry learns of Grace's actions and sues her for breach of fiduciary duty.

Under applicable partnership law, which of the following is the strongest basis for Henry's claim?

Grace breached the duty of care by failing to tell Henry about her plans before contacting the client about a matter affecting the firm's business.
Grace breached the duty of loyalty by soliciting a firm client for a competing venture, even though that venture will not begin until the firm's listing agreement expires. (correct answer)
Grace breached, at most, the obligation of good faith and fair dealing, which is not a fiduciary duty and does not support a claim against her.
Grace did not breach any fiduciary duty because a partner's conduct does not violate partnership law merely because it furthers the partner's own interest.

Explanation: Whenever you see a partner fiduciary duty question, classify the conduct: does it involve care (gross negligence) or loyalty (self-dealing, competing, usurping opportunities)? Here, Grace used the firm's proprietary database to solicit its largest client for a business she plans to form. The key trap is timing—the new venture won't operate until the listing expires. That doesn't save her. The duty of loyalty is breached at the moment of solicitation or appropriation of the partnership opportunity. She is diverting a client's future business away from the firm, which is a direct usurpation of a partnership asset and a solicitation for a competing venture. That makes the choice about soliciting a firm client for a competing venture even though it will not begin until the listing expires the strongest basis. The duty of care is wrong because it requires gross negligence or reckless conduct, not merely failing to disclose plans; the core issue here is disloyalty, not carelessness. The option claiming she only breached the obligation of good faith and fair dealing is wrong because that is a separate implied obligation, but her actions are a classic breach of the fiduciary duty of loyalty, which is much stronger. Finally, the choice that says no breach because conduct merely furthers her own interest is a trap—while pursuing one's own interest isn't automatically a breach, here she used firm resources and solicited a firm client, which is exactly what the duty of loyalty prohibits. Strategy: On the bar, remember that the duty of loyalty prohibits competing and self-dealing—and the breach occurs when the partner acts, not when the competing venture launches. If a partner solicits a client while still a partner, they've violated the duty immediately.

Question 12

General partners Devon and Sasha own a restaurant. The partnership needs its dining room renovated. Devon also owns a construction company. Without telling Sasha that his company would perform the work, Devon has his company submit a bid that is the lowest of three bids. Sasha, unaware of Devon's ownership interest, accepts the bid. The renovation is completed on time, at a fair price, and with satisfactory quality. When Sasha later learns that Devon's company performed the work, she claims Devon breached his fiduciary duty.

Under applicable partnership law, is Sasha likely to succeed?

Yes, because a partner may never contract with his own partnership, directly or indirectly, regardless of disclosure or fairness.
No, because the renovation was completed at a fair price and to the partnership's satisfaction, so the partnership suffered no loss.
No, because a partner is expressly permitted to transact business with the partnership and, as to that transaction, has the same rights and obligations as a nonpartner.
Yes, because Devon secretly dealt with the partnership as or on behalf of a party having an interest adverse to the partnership, without disclosing that interest. (correct answer)

Explanation: When you see a partner entering a transaction with his own entity, think fiduciary duties and disclosure. Under partnership law, a general partner owes a duty of loyalty that includes not dealing with the partnership as or on behalf of a party having an interest adverse to the partnership without the other partners' informed consent. Devon did exactly that: his construction company was the contracting party, he owned that company, and he concealed that interest when Sasha accepted the bid. The work being fair, timely, and satisfactory does not erase the breach—the fiduciary duty protects the partnership's right to make informed decisions, not just its financial outcome. So Sasha is likely to succeed in proving a breach of fiduciary duty. The answer saying a partner may never contract with his own partnership is too absolute: self-dealing is permitted if the conflict is fully disclosed and the transaction is fair. The "no, because fair price and satisfaction" answer misses that a breach can exist even without loss, and remedies can include disgorgement or other equitable relief. The answer that a partner is "expressly permitted to transact business... same rights and obligations as a nonpartner" misreads that rule: it assumes full disclosure and compliance with fiduciary duties, and Devon was not acting as a nonpartner—he stood on both sides of the deal. Study tip: On fiduciary-duty questions, separate fairness from disclosure. A perfectly fair transaction still breaches partnership law if the partner secretly stood to benefit as the adverse party.