Sterling Commercial Credit v. Hammert's Iron Works (IN)

Summary: A construction contractor was estopped from denying payment or placing any restrictions on invoices the subcontractor was seeking to factor with a lender.


Sterling Commercial Credit – Michigan, LLC v. Hammert’s Iron Works, Inc., 998 N.E. 2d 752 (Ind. Ct. App. 2013).


Facts: In May 2010, the subcontractor Hammert’s Iron Works, Inc. (“Hammert’s”) entered into an agreement to furnish and install structural steel for a construction project. Hammert’s then entered into a subcontract agreement with National Steel Erectors, Inc. (“NSE”) for steel work on the project. Pursuant to this agreement, Hammert’s was not obligated to pay NSE until Hammert’s received payment from the project’s general contractor. In August 2010, NSE entered into a Factoring and Security Agreement with Sterling Commercial Credit-Michigan, LLC, (“Sterling”), giving Sterling the right, but not the obligation to purchase NSE’s invoices. In deciding whether to purchase each invoice, Sterling required a verification letter from Hammert’s to “confirm that the work, product or service has been completed and accepted and that there are not joint checks requests, offsets, credits, debits for counterclaims of any kind, and that this job is not subject to any payment bonds, contractors bonds, performance bonds, or other bonded obligations.”

In September 2010, NSE submitted a $144,045 invoice (“Invoice 1”) to Sterling and sent a payment verification letter to Hammert’s. Hammert’s verified that the amount was earned, owing, and final but explained that pay date was only an estimate pursuant to the pay-when-paid term in the contract. Sterling then purchased Invoice 1 at 85% of the total amount due. In October and November of 2010, NSE submitted invoices to Sterling (“Invoice 2” and “Invoice 3” respectively) and verification letters to Hammert’s. Sterling explained to Hammert’s that it was relying on the verifications in order to provide financing to NSE. Hammert’s paid Sterling for Invoice 2 but imposed conditions on Sterling’s acceptance of the check. Upon Hammert’s denial of payment on Invoice 3, Sterling filed a complaint for breach of the subcontract agreement and for promissory estoppel, seeking payment due under Invoice 3. The trial court ruled in favor of Hammert’s and ordered Sterling to pay $121,986.19 in damages to Hammert’s. Sterling appealed.


Holding: Reversed. On appeal, Sterling argued that the trial court erred in granting summary judgment in favor of Hammert’s on Sterling’s complaint regarding Invoice 3 and its counterclaim regarding the restrictions placed on the payment for invoice 2. The appellate court reversed the trial court’s decision and ruled that Hammert’s was estopped from denying payment on Invoice 3 and from placing restrictions on Invoice 2. Promissory estoppel applies where there is: (1) a promise by the promisor (2) made with the expectation that the promise will rely thereon (3) which induces the reliance by the promise (4) of a definite and substantial nature (5) and injustice can be avoided only by enforcement of the promise. Hammert’s argued that they did not make any promises and there was no detrimental reliance.

The appellate court ruled that the verification letters from Hammert’s were promises that Hammert’s would not assert claims or defenses to reduce the value of the invoices. The appellate court also determined from its review of the designated material that the verification letters clearly stated that Sterling intended to rely upon the verifications in order to provide financing to NSE. Having found both a promise and detrimental reliance, Hammert’s was estopped to deny payment of Invoice 3 and place restrictions on payment of Invoice 2.


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By: ATG Underwriting Department | Posted on: Mon, 04/07/2014 - 12:02pm