D & G STOUT, INC. v. Bacardi Imports, Inc.
1992 U.S. Dist. LEXIS 17413, 805 F. Supp. 1434, 1992 WL 332608 (1992)
Rule of Law:
Under the doctrine of promissory estoppel, a promise that the promisor should reasonably expect to induce action or forbearance is enforceable if the promisee reasonably relies on it to their detriment, and injustice can only be avoided by its enforcement.
Facts:
- In early 1987, liquor distributor General Liquors, Inc. ('General') lost two of its four major suppliers, causing concern about its financial viability.
- As a result of its weakened position, General's president, David Stout, entered into negotiations to sell the company's assets to National Wine & Spirits Corp. ('National').
- While the sale negotiations were pending, Stout met with representatives from its key remaining supplier, Bacardi Imports, Inc. ('Bacardi'), on July 9, 1987, to seek assurance about their future relationship.
- During the meeting, a Bacardi executive told Stout that General would remain a Bacardi distributor, provided it continued to meet sales expectations and market conditions did not change.
- Relying on Bacardi's assurance, Stout rejected National's purchase offer around July 21 and announced to his employees that General would stay in business.
- On July 30, 1987, Bacardi informed Stout that it was terminating its relationship with General to appoint a single, statewide distributor.
- Forced to sell from a position of weakness, General re-entered negotiations with National and accepted a new offer that was over $1 million less than the original July offer.
Procedural Posture:
- D & G Stout, Inc. sued Bacardi Imports, Inc. in the U.S. District Court for the Northern District of Indiana.
- The district court granted summary judgment in favor of Bacardi.
- D & G Stout, the plaintiff-appellant, appealed the decision to the U.S. Court of Appeals for the Seventh Circuit.
- The Seventh Circuit reversed the district court's grant of summary judgment and remanded the case for a trial.
- The case came before the district court for a trial without a jury on remand.
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Issue:
Under Indiana law, does a supplier's conditional, oral assurance to continue an at-will distributorship create an enforceable promise under the doctrine of promissory estoppel when the distributor relies on that assurance by rejecting a lucrative offer to sell its assets?
Opinions:
Majority - Miller, District Judge
Yes. Bacardi's oral assurance created an enforceable promise under the doctrine of promissory estoppel. The court applied Indiana's five-part test for promissory estoppel and found all elements satisfied. First, Bacardi made a promise, and its conditional nature did not preclude enforcement under estoppel. Second, Bacardi should have reasonably expected General to rely on the promise, as Bacardi knew its business was essential to General's survival and that Stout sought the commitment for that specific reason. It was not necessary for Bacardi to know about the specific purchase offer from National. Third, General's reliance was reasonable; given the market turmoil, it was reasonable for General to rely on a direct assurance from a key supplier, at least for the short term. The conditions of the promise did not change between the assurance and its revocation—Bacardi simply changed its strategic mind. Fourth, General's reliance was definite and substantial, as it involved forgoing a concrete and valuable opportunity to sell the business. Finally, injustice could only be avoided by enforcing the promise, as Bacardi's reversal severely undermined General's bargaining position and caused significant financial harm. The appropriate remedy is reliance damages, measured by the difference between National's first and second offers.
Analysis:
This decision is a significant application of promissory estoppel within an at-will business relationship. It establishes that even a conditional, oral assurance can be legally binding if it induces foreseeable, reasonable, and substantial reliance. The case illustrates that promissory estoppel serves to protect a party's reliance interest, providing a remedy where a traditional breach of contract claim might fail due to the lack of a formal, definite agreement. The court's focus on reliance damages—restoring the plaintiff to the position they were in before the promise was made—highlights the doctrine's equitable function of preventing injustice rather than enforcing the benefit of the bargain.
