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Common Mistakes With Estoppel Letters - Case StudiesAllen J. Heffner and Bruce E. Loren | Mar 05 2019

In addition to the Notice of Assignment, the Estoppel Letter is the single most important document for a Factor. If a Factor receives an Estoppel Letter signed by the Account Debtor, the Factor lowers the risk of non-payment of the invoice and greatly increases its likelihood of collecting money from the Account Debtor, should the need for litigation arise.

This article focuses on real-life examples of Factors who unfortunately made some self-inflicted mistakes with respect to its Estoppel Letters and lessons that can be learned from those experiences.

Case 1

Facts:

Factor sent numerous Estoppel Letters to the Account Debtor asking for confirmation that the referenced invoices were valid and would be paid by the Account Debtor to the Factor.

However, the Factor did not actually attach copies of the invoices to the Estoppel Letters. Also, the Factor used its own internal reference number to identify the invoices in the Estoppel Letter.

The Account Debtor executed each Estoppel Letter, but ultimately failed to pay the Factor.

Lawsuit:

Issue:

The Account Debtor claimed that the Estoppel Letters did not create a binding agreement between it and the Factor because there was no meeting of the minds as to what invoices the parties were agreeing to. The court agreed and held that the Estoppel Letters did not create binding contracts between the parties.

What to take away from this case:

It is best practice for Factors to actually attach a copy of the invoice in question to the Estoppel Letter. At a minimum, Factors must refer to invoices using the invoice numbers and references used between the Account Debtor and the Client.

Case 2

Facts:

Factor e-mailed the Account Debtor various Estoppel Letters.

For each Estoppel Letter, a representative of the Account Debtor called the Factor to confirm the validity of the invoices and its agreement to timely pay the invoices to the Factor. The Factor would then write "verbal acceptance" on a hard copy of the Estoppel Letter and placed it in their file.

The Account Debtor failed to pay numerous invoices, denied agreeing to the terms of the Estoppel Letters, and litigation ensued.

Lawsuit:

Issue:

Did the Account Debtor’s verbal confirmations of the Estoppel Letters constitute agreements between the Factor and Account Debtor? No. The court held that the Factor could not prove there were contracts, written or verbal, between the Factor and Account Debtor.

What to take away from this case:

Factors should only rely upon written approvals of their Estoppel Letters. If a Factor receives a verbal confirmation, it should ask the individual to follow it up with an e-mail confirming. If the Factor does not receive this confirmation in writing, it should proceed as if it does not have a binding Estoppel Letter.

Case 3

Facts:

Factor e-mailed Estoppel Letters to Account Debtor and copied the Client on the e-mails.

For each Estoppel Letter, Factor would receive a fax from an unknown number with the Estoppel Letter signed by a purported representative of the Account Debtor.

The Account Debtor failed to pay numerous invoices, responded claiming it never executed any Estoppel Letters, and litigation ensued.

Lawsuit:

Issue:

Despite signatures on the Estoppel Letters purportedly on behalf of the Account Debtor, the Account Debtor was able to raise issues of fact as to whether or not the Account Debtor actually signed the Estoppel Letters, overcoming Factor’s motion for summary judgment. Specifically, the Account Debtor alleged that it was the Client who actually signed the Estoppel Letters, forged the signature of the Account Debtor’s representative, and faxed the Estoppel Letter back to the Factor.

What to take away from this case:

Do not copy the Client on Estoppel Letters sent to its Account Debtors. Estoppel Letters should only be sent to representatives of the Account Debtor with authority to bind the Account Debtor. Additionally, if the Factor receives a signature from someone the Factor has not heard of or receives the Estoppel Letter in a manner in which it did not expect, the Factor should follow up with the Account Debtor to confirm the identity of the person who signed?the Estoppel Letter. The Factor should fund only after the Factor has confirmed with the Account Debtor that the individual that signed the Estoppel Letter was an authorized representative of the Account Debtor.?

Bruce Loren and Allen Heffner of the Loren & Kean Law Firm are based in Palm Beach Gardens and Fort Lauderdale. For over 25 years, Mr. Loren has focused his practice on construction law and factoring law. Mr. Loren has achieved the title of "Certified in Construction Law" by the Florida Bar. The Firm represents factoring companies in a wide range of industries, including construction, regarding all aspects of litigation and dispute resolution. Mr. Loren and Mr. Heffner can be reached at bloren@lorenkeanlaw.com or aheffner@lorenkeanlaw.com or 561-615-5701.