Today’s subject relates to different ‘defenses’ available to Defendants in Texas collection cases, and specifically, doctrines known as “estoppel by misrepresentation”, also known as equitable estoppel, and on the other hand, the claim of quasi-estoppel, also known as “estoppel by conduct”. First, equitable estoppel, contains the following elements:
- Defendant made a false representation to, or concealed material facts from Defendant; intending that the representation or concealment be acted on;
- Plaintiff actually knew the real facts but Defendant did not know or have any way of knowing the real facts;
- Defendant relied on the representation or concealment, to its damage and detriment.
Maguire Oil v. City of Houston 69 SW3d 350 (Texarkana 2002). Equitable estoppel is usually raised as a defense, but also, may be raised by Plaintiff, to nullify one of Defendant’s defenses. Cook v. Smith 673 SW2d 232 (Dallas 1984). The theories of ‘fraud’, and equitable estoppel, are different: the foundation of fraud rest upon the misrepresentation itself, whereas equitable estoppel looks at the ‘changed position’, which resulted from the misrepresentation.
The defense of equitable estoppel, therefore, seeks to establish that Plaintiff either made a false representation to, or concealed a material fact from, the Defendant. Equitable estoppel, however, cannot be used or based upon a promise to do something in the future. If Plaintiff’s statement involves Plaintiff’s future promise to do something, a Defendant should instead allege promissory estoppel. Regarding Plaintiff’s “false representation” Defendant must establish that Plaintiff either made a false statement of material fact or that Plaintiff concealed a material fact, by remaining silent while under a duty to speak. The one element, that Defendant must establish Plaintiff made such representation with the intention to be acted upon is, in essence, a representation or concealment, made in bad faith.
In proving equitable estoppel, where Defendant’s evidence establishes that it substantially, reasonably, and detrimentally relied upon Plaintiff’s false representation, the Defendant is showing that “but for”, the representation, it would not have acted. Also, Defendant’s reliance must be reasonable. Johnson & Higgins v. Kenneco (Tex. Sup. Ct. 1998). To have detrimentally relied upon Plaintiff’s representation, the Defendant must have “shifted” from a better position to a worse position, based upon Plaintiff’s representation. Equitable estoppel is an affirmative defense and must be pleaded, or it is waived.
The Texas collections attorney needs to be aware that Quasi-estoppel, or estoppel by conduct, is slightly different, however. Quasi-estoppel is an equitable doctrine, which prevents a party from asserting a right inconsistent with that party’s previous position, to another party’s disadvantage. The brief
elements are as follows:
- Plaintiff acquiesced, or accepted a benefit under transaction;
- Plaintiff’s position now is inconsistent with its earlier position when it accepted the benefit of the transaction;
- It would be unconscionable to allow the party to maintain its present position, to the other party’s disadvantage.
Lopez v. Munoz 22 SW 857 (Tex. 2000). The Lopez case also stated that Defendant needs to establish that it would be unconscionable to allow Plaintiff to maintain its current position, to another’s (Defendant’s) disadvantage.
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*The foregoing is not intended to provide specific legal advice, but instead only as a generalized discussion
Sam Emerick has over 35 years
experience in Commercial Collections Law,
Factoring Litigation and Wills, Trusts & Probate