## Facts

- Sherwood & Roberts-Oregon, Inc. (SRO) arranged financing for customers and sought a long-term loan commitment for developers David Alexander and James J. Praggastis (individually and through an unincorporated joint venture, Iron Mountain Investment Company).
- SRO advised that anticipated interest (at least 12%) would be usurious for individual borrowers, so the loan would need to be made to a corporation.
- SRO required a “good faith deposit” equal to 1% of the proposed loan, refundable if no commitment was obtained, credited if a commitment was obtained and accepted, and retained if a commitment was obtained but rejected.
- Alexander stated the borrower would be “Iron Mountain Investment Co., Inc.” although no corporation had been formed.
- SRO prepared a note for the deposit executed as “Iron Mountain Investment Co., Inc. By David Alexander,” while both SRO and Alexander knew the corporation did not exist.
- SRO obtained a loan commitment on the discussed terms, but Alexander and Praggastis rejected it and never incorporated.
- SRO sued to recover the deposit amount on the note, relying in part on ORS 57.793 (joint and several liability for persons who presume to act as a corporation without authority).

## Issues

1. Whether Alexander and Praggastis were personally liable on a note executed in the name of a non-existent corporation.
2. Whether ORS 57.793 imposes personal liability when the creditor knew at execution that no corporation existed.
3. Whether agency or promoter-liability principles required personal liability under the parties’ conduct and intent.

## Decision

- The Oregon Supreme Court affirmed the bench-trial judgment for defendants.
- The court held Alexander and Praggastis were not personally liable on the note.
- ORS 57.793 did not impose personal liability because SRO knew the corporation did not exist and was not misled.
- Common-law theories (agent for a non-existent principal/promoter liability) did not justify rewriting the parties’ allocation of risk where SRO drafted the note to bind the (future) corporation and could have required incorporation or personal guaranties.

## Legal Principles

- A statute imposing liability for “presuming to act” as a corporation without authority is aimed at protecting parties misled by a false appearance of corporate status, not at granting recovery to a party that knowingly contracted with a non-existent corporation.
- When both sides know no corporation exists and nevertheless choose to document the obligation in a corporate name, a court may treat the risk of non-incorporation as assumed by the party that knowingly proceeded.
- Personal liability for pre-incorporation obligations turns on intent, reliance, and deception; absent misleading conduct and absent an intent to bind individuals, courts may decline to impose personal liability.

## Conclusion

The court refused to impose personal liability on developers for a “good faith deposit” note signed in a non-existent corporate name because the lender knowingly chose that structure to avoid usury limits and was not deceived, making ORS 57.793 and related common-law doctrines inapplicable on these facts.


Sherwood & Roberts-Oregon, Inc. v. Alexander, 269 Or. 389, 525 P.2d 135 (Or. 1974)