On May 26, 2022, the First Department issued a decision in Capstone Business Funding, LLC v. Shames Constr. Co., Ltd., 2022 NY Slip Op. 03439, holding that estoppel letters were unenforceable because of a lack of consideration, explaining:
Under Uniform Commercial Code § 9-404(a), Unless an account debtor [defendant in the case at bar] has made an enforceable agreement not to assert defenses or claims, the rights of an assignee are subject to all terms of the agreement between the account debtor and assignor and any defense or claim in recoupment arising from the transaction that gave rise to the contract. The question here is whether the estoppel letters signed by defendant are enforceable agreements not to assert defenses or claims against plaintiff.
. . .
In New York, a promise to perform an existing legal obligation is not valid consideration to provide a basis for a contract. If MEP had been properly licensed, defendant would have been under an existing legal obligation to pay MEP’s invoices at the time of the estoppel letters. Defendant received no benefit from the estoppel letters; it signed them solely as an accommodation to MEP, its subcontractor.
To be sure, consideration is not the only factor in deciding whether an estoppel letter is valid; the other factor is detrimental reliance. However, according to the admissible evidence in this case, plaintiff did not detrimentally rely on defendant’s estoppel letters.
(Internal quotations and citations omitted).