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Tippecanoe Beverages Inc. v. S.A. El Aguila Brewing Co.

decided: November 2, 1987.


Appeal from the United States District Court for the Northern District of Indiana, South Bend Division. No. 85 C 584, Robert L. Miller, Jr., Judge.

Cudahy, Posner, and Kanne, Circuit Judges.

Author: Posner

POSNER, Circuit Judge.

This appeal from a judgment for the plaintiff in a diversity suit requires us to consider issues of Indiana tort, contract, and agency law. The essential facts, construed as favorably to the plaintiff (since it won a jury verdict) as the record permits, are as follows. Early in 1984, Fred Zahrt, the president of Tippecanoe Beverages, Inc., an Indiana wholesaler of beer, read an advertisement in Beer Wholesaler magazine that had been placed by a Spanish brewer, El Aguila, which was seeking U.S. distributors for its Aguila [Eagle] Imperial beer. The advertisement indicated that anyone interest in a distributorship should get in touch with Alvin Epstein, doing business in Florida under the name Swiss Mint. (The collocation of ethnicities in this case is dizzying.) Later that year, at a convention of beer wholesalers in Las Vegas, Zahrt met Epstein and Alfredo Torres, and executive of El Aguila. Torres told Zahrt that Epstein was El Aguila's exclusive agent and representative in the United States and that Zahrt should deal only with Epstein since Epstein was conducting all of the brewery's U.S. business. Torres also told Zahrt that Epstein had an office at the brewery in Spain; and indeed this office was listed, along with Swiss Mint's Florida address, on the business card that Epstein gave Zahrt. Torres solicited Zahrt to be El Aguila's Indiana distributor, and also told him to place his orders for El Aguila beer with Epstein. Shortly afterward, the Director-General of El Aguila wrote Zahrt certifying (as required by the Indiana Alcoholic Beverages Commission) that Swiss Mint "are the importers of our beer Aguila Imperial and Aguila Reserve for the United States of America and they have the authorization for the nomination of distributors thru out the United States."

Zahrt, deciding to buy beer from El Aguila, telephone Epstein to place his order. Epstein told him he'd have to pay for the beer in advance, by cashier's check made out to Swiss Mint and sent to the Capital Bank in Miami. Shortly afterward, Zahrt received in the mail a document, in Spanish, on El Aguila's letterhead, captioned "factura pro-forma," which is Spanish for pro forma invoice. This document contained the figure $12,960, the price that Epstein had quoted Zahrt for the beer that Zahrt had ordered by phone. It also named both Swiss Mint and the Capital Bank. Upon receipt of the document (almost certainly from Epstein, though there is no direct evidence of this), Zahrt, without getting the document translated (he does not read or speak Spanish), sent a cashier's check for $12,960, made out to Swiss Mint, to the Capital Bank.

The beer never arrived, and in September 1985 Zahrt wrote El Aguila in Spain to find out what had happened. El Aguila answered him the following month, in a letter which said:

1. Mr. Epstein (Swiss Mint) was our importer and representative for the United States.

2. We received an order for a shipment to Tippecanoe Beverages Inc., but we did not accept that order, since we could not agree to the conditions. For that reason we did not make out the "factura proforma" in the amount of $12,960, a copy of which you sent us. Please inform us, if Swiss Mint put you in possession of the original of this "factura proforma", because we have a shrewd suspicion that this invoice has been "composed" by Swiss Mint, using parts of former letters of our Company, including a-cut out- seal of El Aguila S.A.

3. We are perfectly willing to help you to recover your money.

Epstein had vanished, presumably with the money; and El Aguila proved unwilling either to ship Tippecanoe the beer or refund the money that Tippecanoe had paid Epstein for it. So Tippecanoe brought this suit, which charges El Aguila with breach of contract and with conversion. The jury awarded Tippecanoe $21,000 under an Indiana statute that authorizes an award of up to three times actual damages for conversion. The judge added $7,980 in attorney's fees, under the same statute. El Aguila appeals.

If El Aguila induced in Zahrt a reasonable belief that Epstein was authorized to negotiate the terms of Tippecanoe's purchase of El Aguila beer and to receive payment from Tippecanoe for transmittal to Spain, then Epstein bound El Aguila to the contract that he made, and broke, to supply Tippecanoe with a quantity of El Aguila beer for $12,960. See Restatement (Second) of Agency, ยง 8 (and comments thereto) (1957); Northwest Calf Farms, Inc. v. Poirier, 499 N.E.2d 1165, 1167-68 (Ind. App. 1986); Storm v. Marsischke, 159 Ind. App. 136, 138-39, 304 N.E.2d 840, 843-44 (1973); Foss-Schneider Brewing Co. v. McLaughlin, 5 Ind. App. 415, 418, 31 N.E. 838, 839 (1892). Under the facts we narrated, a reasonable jury could find that this is exactly what El Aguila did. El Aguila points out, however, that Zahrt's testimony about Epstein's representations concerning his authority is not admissible, under the exception to the hearsay rule for statements by an adversary's agent (Fed. R. Evid. 801(d)(2)(D)), to prove that Epstein was El Aguila's agent. That would indeed be boot-strapping, but it was not the purpose for which the testimony was offered. Epstein's status as agent (actual or apparent) was established by Zahrt's testimony concerning what Torres had said to Zahrt and by the certification that El Aguila had mailed Zahrt from Spain. The testimony about Epstein's representations was then admissible under Rule 801(d)(2)(D) to show the precise scope of his agency and Zahrt's reasonableness in paying by cashier's check.

El Aguila's principal argument is that even if Epstein had apparent authority to contract on its behalf with Tippecanoe and did so by accepting Zahrt's check, Zahrt violated a condition of the contract by paying with a cashier's check rather than by letter of credit as specified (El Aguila contends) in the invoice. If Zahrt had paid by letter of credit it would have been less likely that Epstein could have made off with the money, though how much less likely is unclear. The invoice instructs Tippecanoe to make the letter of credit in favor of Swiss Mint and send it to the Capital Bank, although there is also a confusing reference to making "advance payment" to a bank in Spain upon receipt of shipment documents. However, we shall assume that one of the purposes of requiring a letter of credit in the invoice form that Epstein adapted to his own dishonest ends was -ironic though this is in the circumstances-to protect the seller, El Aguila, against its defalcating agent and that Zahrt's failure to comply with this condition enabled or facilitated Epstein's defalcation. We shall also assume that the Spanish words in the invoice, "credito bancario documentario irrevocable," which El Aguila's translator translates "irrevocable banking credit instrument," means letter of credit, though our Spanish dictionary gives "carta de credito" for letter of credit.

To the argument that El Aguila's breach of contract is excused by Tippecanoe's having violated a condition in the contract, a superficial reply is that since El Aguila has steadily maintained that Epstein forged the invoice it cannot consistently argue that the invoice imposed a contractual obligation on Tippecanoe. But Tippecanoe's contractual theory is that Epstein's conduct, however unauthorized and indeed criminal, created a contract between it and El Aguila which it is entitled to enforce; and Tippecanoe must take the bad with the good-contract duties with contract rights.

There are nevertheless two objections to El Aguila's attempt to use the letter of credit requirement in this ...

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