Starr v. International Realty, Ltd.

Stanley Harris (defendant), a real estate broker, joined a partnership and convinced the partnership’s members to purchase a property. During the purchase transaction, Harris did not inform the partners that the property could have been purchased for less, that the commission and escrow fee paid were being paid to International Realty, Ltd. (International) (defendant), of which Harris was the president, and that he had made an agreement with the seller that either Harris or International would secure a vendor’s interest in the real estate contract that effected purchase of the property. The partners sued Harris and International for failing to account to the partnership the commission Harris received for the purchase of the real property without consent of the remaining partners. The partners also requested that Harris and International hold in trust for the partnership the vendor’s interest that Harris acquired without the remaining partners’ consent. Harris argued that the commission paid was not a secret, the partners had experience in real estate transactions, and based on the conversations between the partners, they knew the commission was being paid to International. The partners argued that although they knew or should have known that Harris or International would be paid based on the transaction, they did not know who would be paid, and without that information, they could not give informed consent to Harris to receive such commission. The trial court held that Harris was liable to the partnership for the commission, minus any portion paid to his employee, and that Harris held the vendor’s interest in the contract for the benefit of the partnership. Both Harris and the partners appealed.