Exhibit 10.38

                       United Breweries of America, Inc.

October 23, 1997


Martin J. Lombardi
Vice President
Savings Bank of Mendocino County
P.O. Box 3600
Ukiah, Ca. 95449

Dear Marty,

It was very nice speaking with you yesterday. As I shared with you, we certainly
appreciate  your  cooperation  and the support of the Savings  Bank of Mendocino
with  regard  to  United  Breweries  of  America's  proposed  investment  in the
Mendocino Brewing Company ("MBC").

Pursuant to your  request,  I am writing you this note in order to formalize our
understanding  with respect to your  Commitment  Letter dated  October 15, 1997,
which  references  the terms and  conditions  of your  Commitment  Letter  dated
September 13, 1997, to Michael  Laybourn and Norman Franks of Mendocino  Brewing
Company.

1.  The proposed  Interest Rate for the permanent  financing is one and one half
    (1-1/2) percent over the Prime Rate.

2.  Paragraph  5 b.  Referencing  collateral.  You agree to omit the "as well as
    inventory, chattel paper, accounts, equipment, general intangibles etc.".

3.  Section 5.  Referencing  collateral.  As you  reference  in your  Commitment
    Letter dated, October 15, 1997; you will omit all language with reference to
    the Public Offering.

4.  Paragraph  7f.  Referencing  lease  financing.  You  agree to omit  complete
    paragraph, as it is no longer applicable.

5.  Paragraph 7G.  Regarding Dean Strupp & Associates  Appraisals,  you agree to
    waive this requirement.

6.  It is agreed that the bank terms, covenants and/or requirements with respect
    to this permanent financing loan facility,  will allow MBC the ability to do
    the following without triggering any default provisions;


Martin J. Lombardi
Vice President
Savings Bank of Mendocino County
Page 2.


         a.   Should we choose to,  buy back the  preferred  shareholders  in an
              amount of $180,000.

         b.   In light of the transaction proposed between UBA and MBC, to write
              off certain  items,  if we feel it is in the best  interest of the
              company.  Such items are accounting related items in the amount of
              $200,000  and a  potential  distributor  claim  in the  amount  of
              $400,000.

UBA  obviously is not assuming any of MBC's  liabilities  to the Savings Bank of
Mendocino.  Our interest in discussing  these matters with you is to confirm our
understanding of the financial terms and conditions of MBC's banking  facilities
and our understanding of the status of MBC's  relationship with the Savings Bank
of Mendocino.

If the above  represents your  understanding  of our  conversation,  please sign
below.

Kindest Regards,



/s/ Jerome G. Merchant
- ----------------------------------
Jerome G. Merchant
Director
Strategic Planning



/s/ Martin J. Lombardi
- ----------------------------------
Martin J. Lombardi
Vice President
Savings Bank of Mendocino County