Estoppel

Individuals In procurement need to understand the concept of estoppel. Estoppel is a theory that exists primarily under equity principles although some jurisdictions may provide for estoppel under law. The primary use of estoppel under equity principles is to prevent what is called “unjust enrichment” by one of the parties. Unjust enrichment is simply getting more at the other party’s expense where the basis for getting more simply is not warranted. Estoppel precludes or “stops” a person from asserting a fact or a right or prevents a party from denying a fact. Acts that may create a situation where estoppel may apply is when one party’s actions, conduct, statements, admissions, or failure to act prejudices the other party. For example if you had apparent authority to tell a supplier to start to do the work and they did, you could later deny them payment arguing that there was no contract or order. Estoppel would prevent you from denying that fact because you received the value of the work and to not pay for the work performed would prejudice the supplier

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There are several types of estoppel. The ones that would apply most to procurement are:

Equitable estoppel .This occurs where one party is barred from asserting a fact or right because they made false representations or concealed the facts. This is called equitable estoppel). For example, if a supplier made a representation in a contract that a certain thing about the product was true or concealed facts knowing that it wasn’t true, they would be prevented from arguing that its wasn’t true or the buyer shouldn’t have relied on the representation.

Estoppel by latches. This occurs where a party is barred from asserting a fact or right because they failed to act until the other party was prejudiced by the delay. For example, if a painting company arrived at your house and started to paint your house in error and you knew that they were doing it and took no action to stop it, in a claim by that company for payment you could estopped or prevented from asserting that you had no contract with the supplier or failed to authorize the work.

For procurement the key is your actions, statements, admissions or failure to act, if they prejudice the supplier, may prevent you from asserting or denying certain facts. In dealing with a supplier, rather than rely upon their actions, statements, or admissions make sure they become part of the agreement so you don’t have to rely upon estoppel. Rather than rely upon the supplier’s inaction, make your agreement clear as to what is required and what occurs if there is a failure to act. A good example of that is supplier claims. The fact that a supplier has not submitted a claim does not mean that there are no claims. If you want to manage supplier claims so they must be brought within a specific time period so that extinguishes their ability to make claims after that point, make sure that’s clear in the agreement.

Estoppel

Estoppel is a theory that exists primarily under equity principles although some jurisdictions may provide for estoppel under law. People need to understand the concept of estoppel.

The primary use of estoppel under equity principles where the goal is to prevent unjust enrichment by one of the parties. Estoppel precludes or "stops" a person from asserting a fact or a right or prevents a party from denying a fact. Situations where and estoppel may apply is when a party’s actions, statements, statements conduct or failure to act prejudices the other party. There are several types of estoppel.

Equitable estoppel .In an equitable estoppel a party is barred from asserting a fact or right because they made false representations or concealed the facts.For example, if a supplier made a representation in a contract that a certain thing about the product was true or concealed facts knowing that it wasn’t true, they would be prevented from arguing that its wasn’t true or the buyer shouldn’t have relied on the representation.

Estoppel by latches. This occurs where a party is barred from asserting a fact or right because they failed to act until the other party was prejudiced by the delay.For example, if a painting company arrived at your house and started to paint your house in error and you knew that they were doing it and took no action to stop it, in a claim by that company for payment you could estopped from asserting that you had no contract with the supplier or failed to authorize the work. You had the

Collateral estoppel. Collateral estoppel occurs when there is a court ruling against that party on the same matter in a different case.

The goal in equity is to make sure that the parties are treated equitably and that negative actions or failures to act are not rewarded at the expense of the other party. This differs from the responsibility to mitigate damages. The responsibility to mitigate damages requires the use of reasonable care and diligence to minimize or avoid injury. Using the house painting example if the painting company became aware that it was the wrong house being painted, they could not simply continue and expect to be paid. They would need to take reasonable steps to avoid continuing

What this means to procurement people is if they are seeing a supplier do work that they know the supplier is not authorized to do,they can't simply do nothing and expect to get it for free. They need to act to prevent the supplier from incurring further damages.If they don't in a claim for the cost of the work they may be prevented or estopped from making the assertion that it wasn't authorized.


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