Harry, Clyde, and Pete carried on business in partnership as hardware merchants. Clyde, who did most of the purchasing of stock for the partnership, would occasionally purchase (using his own money) an extra quantity of some items that could readily be sold to consumers. He would use the truck owned by the business on the weekends to travel to his cottage where he would sell the items to cottage owners in the area of his own cottage. Harry and Pete were unaware of Clyde's actions, as Clyde had not revealed his weekend business activity to either Harry or Pete. Clyde's actions were in breach of the partnership agreement, since the agreement is a contract of utmost good faith.

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In a partnership, all partners are expected to act in good faith towards one another, which includes disclosing any business activities that could potentially compete with or affect the partnership. Clyde's failure to inform Harry and Pete of his side business, especially using the partnership's resources (the truck) for personal gain, breaches this principle of utmost good faith.

Harry, Clyde, and Pete Carried on Business in Partnership as Hardware