Sherwood & Roberts-Oregon, Inc. v. Alexander

David Alexander and James Praggastis (defendants) held title to land as members of Iron Mountain Investment Company (Iron Mountain), an unincorporated joint venture. Alexander and Praggastis wanted to develop the land and requested financing assistance from Sherwood & Roberts-Oregon, Inc. (SRO) (plaintiff). SRO recommended that Alexander and Praggastis obtain a long-term loan. The market interest rate on the loan was too high to charge individuals under Oregon’s usury laws, so SRO explained that the loan needed to be made to a corporation. SRO requested a good-faith deposit before SRO would help Alexander and Praggastis secure a loan. SRO’s policy was that if SRO secured a loan commitment but the borrower rejected the commitment, SRO would keep the deposit. When SRO was preparing the good-faith-deposit note, SRO asked Alexander for the name of the corporation that would be borrowing the money. Alexander told SRO that “Iron Mountain Investment Company, Inc.” would borrow the money, even though Iron Mountain was not actually incorporated. SRO prepared the note, and the note was executed by “Iron Mountain Investment Co., Inc. By David Alexander.” All the other documents SRO prepared in connection with the financing were prepared to be signed by Alexander or Praggastis individually. SRO secured a loan commitment, but Alexander and Praggastis rejected the commitment. SRO then sued Alexander and Praggastis, seeking payment of the deposit. Alexander and Praggastis argued that they were not personally liable. At a bench trial, an SRO officer testified that he originally intended to wait until Alexander and Praggastis gave SRO Iron Mountain’s certificate of incorporation before trying to secure a loan, because SRO would be liable under the usury laws if the corporation was found to be a sham. The trial court ultimately entered judgment for Alexander and Praggastis. SRO appealed.