Historically, the fiduciary obligation of partners was a defining characteristic of a partnership:
If nothing else could have been said with confidence about partnerships on the eve of promulgation of the UPA in 1914, it was that the relationship was fiduciary in character. Thus, regardless of the contractual structure to which the partners agreed, the foundation of the relationship was a matter of status, not contract. Simply by virtue of being partners, the participants owed each other certain general obligations of conduct: “The duty of each partner to exercise toward the others the highest integrity and good faith is the very basis of their mutual rights in all partnership matters.” Because the obligations were seen as arising by virtue of the status of the partners as partners, and not by their agreement, the remedy for breach of the basic obligations was in tort, not in contract.
Because the fiduciary duty existed independent of the partnership agreement, it could override such an agreement. In an Illinois case, for example, the limited partners claimed that the general partner “squeezed” them out by refusing to make sufficient distributions to cover the taxes generated from the investment, then buying them out at discount. The partnership involved a private placement promoted only to “wealthy and sophisticated investors.” The agreement gave the general partner “sole discretion” as to partnership distributions. Nevertheless, the court held that the limited partners had a cause of action based on an intrinsic general fiduciary duty owed by the general partner that is separate from the terms of the agreement.