First Louisiana Bank v. Morris & Dickson, Co.
2010 WL 4336105, 2010 La. App. LEXIS 1501, 55 So.3d 815 (2010)
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Rule of Law:
When an offer invites acceptance by performance, the offeree must give prompt notice of the commencement of that performance to the offeror to form a binding contract, unless the offeror knows or should have known that performance has begun.
Facts:
- Morris & Dickson Company, LLC hired Material Management Systems, Inc. (MMS) to install a warehouse system and issued a purchase order for $196,450.50.
- To help the underfunded MMS secure a loan, Paul M. Dickson of Morris & Dickson wrote a 'To Whom it May Concern' letter on January 15, 2004, stating payment for that purchase order would be made jointly to 'Material Management Systems and First Louisiana Bank'.
- Morris & Dickson wrote similar letters mentioning other banks, including Bancorp South, for the same and other purchase orders.
- Based on the letter, First Louisiana Bank loaned MMS over $115,000, with Ronald Tuminello serving as a guarantor.
- First Louisiana Bank never notified Morris & Dickson that it had made the loans to MMS.
- Another lender, Bancorp South, did notify Morris & Dickson that it had loaned money to MMS, and Morris & Dickson subsequently included Bancorp South as a joint payee on a check to MMS.
- MMS eventually defaulted on its project obligations and its loans from First Louisiana.
- Morris & Dickson made payments for the project work either to MMS alone or jointly to MMS and Bancorp South, but never to First Louisiana.
Procedural Posture:
- First Louisiana Bank filed suit against Morris & Dickson in the trial court seeking to enforce the terms of the letter.
- Ronald Tuminello filed a petition of intervention as the guarantor on the defaulted loans.
- Morris & Dickson filed an exception of prescription, arguing the claim was in tort and had prescribed.
- The trial court granted the exception and dismissed the suit.
- First Louisiana and Tuminello appealed to the Louisiana Court of Appeal, Second Circuit.
- The Court of Appeal reversed the trial court, holding the claim was contractual with a 10-year prescriptive period, and remanded the case.
- On remand, the trial court held a hearing on the merits and rendered judgment in favor of Morris & Dickson, finding no contract had been formed due to lack of notice.
- First Louisiana and Tuminello appealed this judgment on the merits to the Louisiana Court of Appeal, Second Circuit.
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Issue:
Does a 'To Whom it May Concern' letter, written by a company to help a contractor secure financing by promising to make joint payments, create an enforceable contract with a lender who extends credit based on the letter but fails to notify the company that it has done so?
Opinions:
Majority - Gaskins, J.
No, a 'To Whom it May Concern' letter does not create an enforceable contract with a lender who fails to provide notice of its acceptance. The letter constituted an offer that invited acceptance by performance (i.e., making the loan). Under Louisiana Civil Code art. 1941, when an offeree accepts by commencing performance, they must give prompt notice of that commencement to the offeror. Here, First Louisiana failed to provide any notice to Morris & Dickson that it had loaned money to MMS. Morris & Dickson could not have known which, if any, of the several potential banks mentioned in its various letters had extended credit. Because Bancorp South did provide notice and was subsequently added as a payee, it demonstrates Morris & Dickson's reasonable expectation that it would be notified. Without communication of acceptance, there was no 'meeting of the minds' and therefore no contract was formed. Furthermore, the guarantor's detrimental reliance claim fails because his reliance was not justifiable, as Morris & Dickson made no direct representation to him and could not have expected him to rely on the general letter.
Analysis:
This decision reinforces a fundamental principle of contract law: acceptance of an offer must be communicated to the offeror. It specifically clarifies that when an offer is made to an indefinite group (as in a 'To Whom it May Concern' letter) and acceptance is by performance, the burden is on the performing party to provide notice. This protects offerors from being unknowingly bound to multiple parties who might perform in response to a single offer. The case serves as a practical warning to lenders to formally notify promisors when they extend credit in reliance on such third-party assurances to ensure the agreement is enforceable.
