INEFFECTIVE ESTOPPEL LETTERS AND LIEN RELEASES – A CASE STUDY (Construction Factoring) Bruce E. Loren, Esq. and Allen J. Heffner, Esq. | Oct 05 2018

The Estoppel Agreement (or sometimes called a no set-off letter) is a letter sent by the Factor, signed by the Account Debtor, confirming that an invoice to be purchased is due and owing and will be paid to the Factor without setoff, recoupment, defense, or counterclaim. No matter what type of receivables you are factoring, Factors should always try to obtain Estoppel Agreements from Account Debtors. It is an incredibly useful tool that increases the likelihood the Factor will get paid and extremely limits the Factor’s risk – so long as it is done properly.

This article focuses on a real-life example of a Factor who wrongfully believed it was relying upon valid Estoppel Letters and compounded the problem by making representations to the Account Debtor based upon promises of its Client and lessons that can be learned from the experience.


  • Client was a subcontractor working on a public construction project for a General Contractor (the Account Debtor).
  • Before factoring each invoice, the Factor sent the General Contractor an e-mail asking the General Contractor to confirm that the invoice was due and owing and would be paid directly to Factor without offset.
  • For each e-mail, the General Contractor responded something to the effect of “yes, pending state approval and final funding.”
  • Factor considered these responses to be sufficient and funded each invoice.
  • Unfortunately, the Client was not performing its work in accordance with the subcontract and the General Contractor sought to offset payments to the Factor from what the General Contractor paid another contractor to correct and finish the Client’s work.
  • For payments that were to be made, General Contractor then sent partial release and lien waivers for Factor’s execution. The partial release contained language that the signor confirmed that “all subcontractors and suppliers have been paid” and that Factor would indemnify and hold the General Contractor harmless if any statements in the partial release were untrue.
  • The Factor signed the partial releases and sent them back to the General Contractor.


Issue Number 1:

The Factor sued the General Contractor based upon the unpaid Estoppel Letters and the General Contractor countersued the Factor for the amounts that the General Contractor incurred in correcting and completing the Client’s work. The court held that the some of the Estoppel Letters were not valid because the General Contractor provided conditional approvals, and the conditions were never met because there was no payment or approval from the state. Additionally, the court held that, because there were not valid Estoppel Letters for each invoice, the Factor “stood in the shoes” of the Client and was liable to the General Contractor for some of the damages incurred by the General Contractor that were caused by the Client.

Issue Number 2:

Worse, the Client did not pay its subcontractors and suppliers and the court held that the Factor misrepresented to the General Contractor that the subcontractors and suppliers were paid by executing the partial releases. The court ordered the claw back of funds received by the Factor from the General Contractor.

What to take away from this case:

If a Factor is relying upon e-mail responses for an Estoppel Letter, do not fund unless you get a clear “yes” back from the Account Debtor. If the Account Debtor includes conditions in its response – even if you are sure the conditions have been met – ask again for a simple “yes” response. Treat any other response as if the Account Debtor refused to sign.

Additionally, Factors should not execute release and lien waivers that include representations from the Factor regarding the work performed or whether all subcontractors and suppliers have been paid no matter how sure the Factor is of the representation. Factors do not perform labor or provide services on construction projects nor do Factors hire subcontractors or suppliers. As such, there is no requirement that a Factor sign these releases. However, Factors can execute final release and lien waivers stating that they are limited only to releasing the Account Debtor for payments made to the Factor.

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 or or 561-615-5701.