Sherwood & Roberts-Oregon, Inc. v. Alexander – Case Brief
Sherwood & Roberts-Oregon, Inc. v. Alexander, 269 Or. 389, 525 P.2d 135 (1974).
Facts: Sherwood & Roberts-Oregon (P) was in the business of securing loans and Alexander (D) was a real estate developer. Alexander hired Sherwood to secure a loan. Sherwood informed Alexander that it would have to apply for the loan as a corporate entity because the rate of interest was usurious. P also required a 1% commitment deposit that would have been refunded if the loan was not secured. The deposit would have been applied to the fees of the loan if the loan was consummated, and retained if the loan was secured but not consummated by D. P prepared a note for the good faith deposit of the 1% and D signed the note on behalf of Iron Mountain Investment Co, Inc. Both P and D knew that no such corporation existed. P secured the commitment and D refused to take the loan or to incorporate. P sued D under a statute that imposed joint and several liability upon all persons who presume to act for a corporation without authority or a certificate to do so.
Issue: Is a promoter personally liable for a contract unless the other party agreed to look to some other person for fund or payment?
Holding and Rule: Yes. A promoter is personally liable on a contract unless the other party agreed to look to some other person or fund for payment.
The court held that since all parties were fully informed of the purely prospective existence of the corporation, the note was best construed as a preincorporation contract. D was therefore a promoter. The court held that the statute that P relied upon was not applicable to this situation because the common law rule governing promoter liability for preincorporation agreements applied.
The question then was to determine if P agreed to accept the obligation of a soon-to-be-formed corporation solely and not look for payment from D as an individual. The trial court held that P made no attempt to verbally or in writing hold D liable as a cosignor or as a guarantor. P insisted that the contract show a corporation as the obligor and would not do business otherwise. P also testified that it did not intend to proceed further in securing a commitment until D provided him with their articles of incorporation.
Disposition: Affirmed.