MBE Rules · Business Associations
Partner Fiduciary Duties
Cal. Corp. Code §§ 16404, 16403
The rule
Partners owe each other and the partnership duties of loyalty and care. The duty of loyalty forbids self-dealing, competing with the partnership, and appropriating partnership opportunities. The duty of care limits liability to grossly negligent, reckless, intentional, or knowing violations of law.
In plain English
Partners in a partnership have a legal obligation to act in the best interests of each other and the partnership. This includes a duty of loyalty, which prevents them from engaging in self-dealing or competing against the partnership, and a duty of care, which protects them from liability unless they act with gross negligence or intentional misconduct.
Worked example
Alice and Bob are partners in a bakery. Alice starts a competing bakery down the street without informing Bob, which violates her duty of loyalty. As a result, Bob can sue Alice for breaching their partnership agreement and seek damages for lost profits.
Memory hook
Partners must put the partnership first, no self-dealing allowed!
The trap
Exams may present scenarios where a partner's actions seem harmless but actually violate the duty of loyalty, leading students to misinterpret the seriousness of the breach.
How examiners test it
Questions often involve fact patterns where one partner engages in questionable business practices, prompting candidates to analyze whether those actions breach fiduciary duties.
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