Question

John knows that The Franklin Enterprises Partnership, in which John is a partner, is interested in purchasing a particular tract of land for a business location. Can John lawfully have his aunt buy the land, so that she may resell the land to Franklin Partnership?

a. No, it violates John's duty of care.
b. Yes, assuming the price to Franklin was a fair market price.
c. No, it violates John's duty of loyalty.
d. Yes, the aunt is not a Franklin partner and has no loyalty to it.

Answer 1

John cannot lawfully have his aunt buy the land to resell to the Franklin Partnership because it violates his duty of loyalty to the partnership.

Step-by-step explanation:

The question pertains to a partner's duties within a partnership and whether a certain transaction would breach those duties. Specifically, the question asks whether John, as a partner in the Franklin Enterprises Partnership, can have his aunt purchase a tract of land with the intention of reselling it to the partnership. The correct answer is c. No, it violates John's duty of loyalty.

Within a partnership, partners owe a duty of loyalty to the partnership and its partners. This duty encompasses acting in the best interests of the partnership and not engaging in self-dealing or competing with the partnership on a personal basis. By having his aunt purchase the land to resell to the partnership, John would potentially be engaging in self-dealing where he (or his aunt acting on his behalf) could make a profit at the expense of the partnership. This could also be considered as acting against the best interests of the partnership if the purchase by the aunt is at a lower price than what the partnership would have to pay.