I blinked. "Oh. I ... well ... I still think it looks nice."
We nodded along in uncomfortable silence for a moment before changing to a garment-free topic.
Whichever end of a compliment you've been on, you've been in this situation. We often go out of our way to downplay praise, no matter how genuine it is.
Sometimes, it's by devaluing it.
"I love your shoes!"
"These old things? Oh, they're worn out now - I've had them for years."
In other cases, we might shift the praise onto someone else.
"You did a great job on this project!"
"It was really so-and-so who did most of the work! I just kind of lucked out."
Then there's that annoying kind of person who knows perfectly well that they're amazing, but just wants to keep hearing it.
"You really thought I did a great job? I wasn't sure. But you really think so? TELL ME MORE."
But still, other times we'll dive headfirst into self-deprecation mode, just because we feel like it's a necessary component of accepting praise.
"Your hair looks great today!"
"Stop. I look really gross. It's windy outside and I haven't even showered today and it's been three weeks since I last used shampoo and I'm fairly certain my dog repeatedly defecated all over my lushless locks in my sleep, which is fine, because the remnants sort of cover up my split ends."
You get the point.
A rejected compliment can feel a bit discomforting for all parties involved.
I'm not talking about creepy remarks made by losers in bars trying to score.
But genuine, innocuous, no-strings-attached compliments from someone you know is like a free gift. If someone handed you a tangible present, you wouldn't open it up, say "No, no, I don't deserve this" and force it back on the user. (Sure, you might feign a "NO, Aunt Mabel, this is too much money! I couldn't possibly take it!" but we all know you're going to pocket that cash after the second faux protest.)
But when it comes to words of praise from friends, we tend to be a bit more hesitant.
Ladd Wheeler, adjunct professor in psychology at Macquarie University, explained that a less-than-gracious response to receiving compliments usually either stems from one of three things: low self-esteem, a fear of looking arrogant or stuck-up, or suspicion over the complimenter's motives.
"I think that often we really don't want to appear to be immodest, because everyone's going to hate us," he told news.com.au.
"But one of the most interesting things to me about compliments is the number of compliments I hear given or I receive that you think are really insincere, and then you wonder, well, what are they up to? Why are they buttering me up like this? What's their motive?"
He also said the reverse of this - people who actively seek out compliments - was more likely to stem from an insecurity that was directly related to the person fishing for validation.
Mr Wheeler said accepting praise with humility was the best way to go about it. But he explained that there was a clear difference between accepting a compliment without looking arrogant and self-deprecation.
"Humility is an honest thing," he said. "You're not terribly proud of yourself. You can accept compliments but you're not a hero, just because you help somebody.
"Self-deprecation typically has a motive - people have a reason to run themselves down. Maybe it's deep-seated low self-esteem, or maybe there's some social reason for it - they're afraid you think they're too big for their britches, so they're deprecating themselves to correct that false image you have of them."
So, in the case of my fabulous-coat-wearing friend?
"She thought you were having her on," Mr Wheeler said. "She was running down her own jacket. If she really thought you thought she was wearing a nice jacket, you would have said, 'thank you'. But she was trying to say, 'Look, I can look a lot better than that. Why do I deserve that compliment?'"
So, is there any way to accept a compliment without it sounding like you're about to get a "So you agree? You think you're really pretty?" retort in response, a la Regina George?
"Simply say, 'Thank you very much, I appreciate that'," Mr Wheeler said.
"And then just move on."
Follow Gavin on Twitter at @GavinDFernando