This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (1996).





Johnson Brothers Liquor Company,



White Bear Bowl, Inc.,

d/b/a White Bear Bowl, et al.,

Appellants (C6-98-703),

Rodney Olson, et al.,

Appellants (C8-98-704).

Filed October 6, 1998


Klaphake, Judge

Ramsey County District Court

File No. C4-92-6748

Felix M. Phillips, Phillips & Potach, P.A., 5420 Norwest Ctr., 90 S. Seventh St., Minneapolis, MN 55402 (for respondent)

Richard W. Copeland, 4524 Highway 61, White Bear Lake, MN 55110 (for appellants)

Considered and decided by Klaphake, Presiding Judge, Crippen, Judge, and Shumaker, Judge.



Both parties appeal from a final judgment dismissing all claims and counterclaims after six years of litigation. Because the district court correctly ruled that the contract underlying appellants' counterclaims was illegal and unenforceable, correctly ruled that appellants established their defense of payment based on the apparent authority of respondents' employer to accept payments, and correctly ruled that res judicata barred respondent's claims based on a personal guaranty, we affirm.



Appellants Rodney and Joyce Olson and appellants White Bear Bowl, Inc. and its owner, R.G. Dreiling, counterclaimed against respondent Johnson Brothers Wholesale Liquor Company for breach of contract based on respondent's failure to deliver liquor products at discounted prices as promised by one of respondent's salesmen, Bryan Marquardt. In April 1995, the district court granted partial summary judgment and dismissed appellants' counterclaims. On review, we rely on the record at the time of final judgment. Cf. Denike v. Western Nat'l Mut. Ins. Co., 473 N.W.2d 370, 373 (Minn. App. 1991) (any order adjudicating fewer than all claims subject to revision at any time before entry of judgment).

Appellants argue that the district court erred when it ruled that the promises underlying their counterclaims were illegal and unenforceable. "Contracts which seek to effectuate results that the law seeks to prevent cannot be made the basis of a successful lawsuit." First Nat'l Bank v. Strimling, 308 Minn. 207, 213, 241 N.W.2d 478, 481 (1976). The Restatement treats the issue as one of public policy rather than illegality:

A promise or other term of an agreement is unenforceable on grounds of public policy if legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms.

Restatement (Second) of Contracts § 178(1) (1981).

The district court ruled that the verbal agreements between appellants and Marquardt for large quantities of discounted liquor products violated state rules governing the sale of liquor products. See, e.g., Minn. R. 7515.0300, subp. 3. (1997)[1] (requiring written invoices specifying purchase date and per unit price), subp. 6 (prohibiting "concessions in wholesale prices" unless same terms are offered to all retailers and any discounts must appear clearly on invoice); 7515.0310, subp. 1 (no sale shall be made except in accordance with prices filed with department), subp. 18 (full amount of sale must be shipped during month of sale); 7515.0630 (requiring retailers who store excess stock other than on licensed premises to report to commissioner location and quantities stored). We agree with the court's ruling.

Appellants nevertheless argue that even if their transactions with Marquardt violated these rules, the district court erred by refusing to enforce their agreements against respondent because, as the wholesaler, respondent was responsible for complying with the rules. However, "[t]he legislature chose to regulate the sale of alcohol and place on liquor vendors the responsibility of complying with the requirements of chapter 340A." Englund v. MN CA Partners/MN Joint Ventures, 555 N.W.2d 328, 332 (Minn. App. 1996), aff'd, 565 N.W.2d 433, 434 (Minn. 1997). Minn. Stat. § 340A.318, subd. 1 (1996) places an equal burden on retailers:

Except as provided in this section, no retail licensee may accept or receive credit, other than merchandising credit in the ordinary course of business for a period not to exceed 30 days, from a * * * wholesaler * * * or agent or employee thereof.

The rules cited by the district court are intended to implement chapter 340A. See Minn. Stat. § 299A.02, subd. 3 (1996) (Commissioner of Public Safety has authority to "make all reasonable rules to effect the object of" chapter 340A).

Appellants argue that, unlike Minn. Stat. § 340A.318, which specifically prohibits any claim in violation of the statute, the rules contain no such prohibition and therefore the contract can still be enforced. As noted, the rules are intended to implement chapter 340A. In addition, an agreement is unenforceable under Restatement § 178 if "its enforcement is clearly outweighed * * * by a public policy against * * * enforcement." In weighing the public policy against enforcement, courts consider:

(a) the strength of that policy as manifested by legislation or judicial decisions,

(b) the likelihood that a refusal to enforce * * * will further that policy,

(c) the seriousness of any misconduct involved and the extent to which it was deliberate, and

(d) the directness of the connection between that misconduct and the [promise].

Restatement § 178(3).

These considerations support the district court's decision here: (a) the state has expressed a strong public policy in regulating the sale of liquor; (b) refusal to enforce this contract will show that parties cannot benefit from liquor sales that violate this public policy; (c) the conduct here was serious and deliberate in that it was carried out over a 10-year time period; and (d) there is a direct connection between appellants' agreement with Marquardt and the evil the rules are aimed at controlling. Had their agreement been properly recorded and filed, it would have been discovered and terminated earlier. Both respondent, by failing to discover and correct the misconduct of its salesman, and appellants, by skirting the reporting requirements, assisted in preventing discovery of the illegal transactions. Given these circumstances, the district court correctly ruled that the agreement between Marquardt and appellants violated public policy and was unenforceable. Accord Resolution Trust Corp. v. Home Sav. Of America, 946 F.2d 93, 95-97 (8th Cir. 1991) (rejecting buyer's argument that regulations applied only to seller of loans and refusing to enforce repurchase agreement that violated federal banking regulations even though regulations did not specifically state that such agreements were void); cf. Strimling, 308 Minn. at 213, 241 N.W.2d at 482 (holding agreement that created sham bank loan unenforceable).

For the first time on appeal, appellants claim restitution. Appellants waived their restitution argument by failing to raise it at the district court during six years of litigation. See Thiele v. Stich, 425 N.W.2d 580, 582-83 (Minn. 1988) (appellate courts may not decide issues not raised before and considered by trial court). Even if we were to consider appellants' claim, with certain exceptions, "a party has no claim in restitution for performance that he has rendered under or in return for a promise that is unenforceable on grounds of public policy * * *." Restatement § 197.

Appellants argue that they fit into the exception recognized by the Restatement § 198:

A party has a claim in restitution for performance that he has rendered under or in return for a promise that is unenforceable on grounds of public policy if

(a) he was excusably ignorant of the facts or of legislation of a minor character, in the absence of which the promise would be enforceable, or

(b) he was not equally in the wrong with the promisor.

However, just as enforcement is denied appellants because they are equally responsible for compliance with chapter 340A, appellants are also denied restitution because they were not "excusably ignorant." See id.; Englund, 555 N.W.2d at 332 (liquor retailers responsible for complying with provisions of chapter 340A).

Appellants argue that they were not equally in the wrong and rely on the district court's statement that "[t]here was absolutely no evidence of improper collusion by [appellants]." However, this statement was made in connection with the district court's conclusion that Marquardt had apparent authority to accept payments from appellants; it does not support appellants' restitution claim.


In a prior appeal, this court affirmed the district court's grant of summary judgment to appellants and dismissal of respondent's claims that violated Minn. Stat. § 340A.318 (1990). Johnson Bros. Liquor Co. v. Olson, 511 N.W.2d 494 (Minn. App. 1994), review denied (Minn. Mar. 31, 1994). The district court thereafter applied Minn. Stat. § 340A.318 to respondent's claims and found that it had remaining claims for nonpayment of liquor product in the amount of $1,052.44 against appellants Olsons and $3,587.30 against appellant White Bear Bowl. These remaining claims and appellants' defense of payment were the subject of a court trial. The district court found that appellants were "justified in believing that Bryant Marquardt had apparent authority to accept cash payments on behalf of [respondent] from [appellants]," and credited respondent with receipt of payment that exceeded the amount of respondent's remaining claims. Respondent challenges the district court's finding that Marquardt had apparent authority.

Our review is limited to whether the evidence supports the findings and whether those findings support the district court's judgment. Auto-Owners Ins. Co. v. Harris, 374 N.W.2d 795, 797 (Minn. App. 1985). To establish apparent authority,

[t]he principal must have held the agent out as having authority, or must have knowingly permitted the agent to act on its behalf; furthermore, the party dealing with the agent must have actual knowledge that the agent was held out by the principal as having such authority or had been permitted by the principal to act on its behalf; and the proof of the agent's authority must be found in the conduct of the principal, not the agent.

Foley v. Allard, 427 N.W.2d 647, 652 (Minn. 1988) (quoting Hockemeyer v. Pooler, 268 Minn. 551, 562, 130 N.W.2d 367, 375 (1964)).

Respondent argues the district court's finding of apparent authority was error, relying on Foley. However, Foley is distinguishable because the claimed agent in Foley was not an employee of the principal. "[S]ince [the alleged agent] was neither an employee or agent of [the principal]" the supreme court required "affirmative conduct on [the principal's] part holding out [the alleged agent] as its authorized agent." Id. at 653. Here, Marquardt was respondent's employee and the district court ruled that even if he acted beyond the scope of his employment, Marquardt's conduct and that of his principal, Johnson Brothers, established apparent authority.

The district court relied on the following conduct of respondent to conclude apparent authority existed in this case: (1) respondent exercised little supervision over Marquardt; (2) when discrepancies between invoices and payments occurred, respondent only notified Marquardt; (3) respondent allowed Marquardt to make payments on customer accounts, in cash or with personal checks; (4) respondent shipped product to customers with unpaid balances if the sales representative said it was okay; and (5) respondent had no established practice to monitor customer accounts except through the sales representative.

Appellants had no further duty to inquire because respondent continued to deliver liquor until Marquardt ceased his employment. Cf. Foley, 427 N.W.2d at 653 (duty to inquire where no affirmative evidence by principal that agent was acting on behalf of principal). These facts support a finding of apparent authority. See Sauber v. Northland Ins. Co., 251 Minn. 237, 245-46, 87 N.W.2d 591, 598 (1958) (when employer allows employee to act on behalf of employer's business concern, employee acts with apparent authority).


Appellant R.G.Drieling, now deceased and the owner of appellant White Bear Bowl, executed a personal guaranty to respondent. That obligation was "primary and unconditional" and covered "all existing and future indebtedness." Respondent claims that the district court erred by ruling that its claims based on this personal guaranty were barred by res judicata.

A judgment on the merits constitutes an absolute bar to a second suit for the same cause of action, and is conclusive between parties and privies, not only as to every other matter which was actually litigated, but also as to every matter which might have been litigated therein.

Mattsen v. Packman, 358 N.W.2d 48, 49 (Minn. 1984) (quoting Hauser v. Mealey, 263 N.W.2d 803, 807 (Minn. 1978)). Respondent's complaint included claims based on Dreiling's personal guaranty and those claims were part of the claims that violated Minn. Stat. § 340A.318 and were dismissed by partial summary judgment in 1993. Pursuant to respondent's motion under Minn. R. Civ. P. 54.02, the district court granted "final summary judgment on all claims based on credit extended beyond the original 30 day period against White Bear Bowl Inc. and R.G. Dreiling." That final judgment was the subject of the appeal in Johnson Bros. v. Olson, 511 N.W. 2d 494. This court affirmed that respondent "had no right of action for claims based on sales made when an uncontested invoice amount remained unpaid more than 30 days after the invoice date [under Minn. Stat. § 340A.318]." Id. at 497. That final judgment prohibits respondent from relitigating those same dismissed claims. Mattsen, 358 N.W.2d at 49.

To the extent that the district court found that respondent had claims that did not violate Minn. Stat. § 340A.318, the district court nevertheless found that appellants established their defense of payment. The amount of payments that the district court attributed to White Bear Bowl equaled the amount respondent claimed it was due under the guaranty. In light of the district court's finding that respondent was paid for the amount that it claimed it was owed, respondent has no debt to recover under the guaranty. Cf. Americana State Bank v. Jensen, 353 N.W.2d 652 (Minn. App. 1984) (guarantor of note not liable to bank where bank has elected to repossess collateral securing note and has received satisfaction on that note).


[1] Although these verbal agreements took place from 1978 until 1990, this opinion will cite to the current rules and statutes, which have not changed substantially since the parties' transactions occurred or since the district court issued its decisions.