Suspension of Performance and Insolvency Options

• Author: David J. Cook
• Pages: 33-35

Suspension of Performance

and Insolvency Options

This section explains that “where there’s smoke, there’s fire” and “a stitch

in time saves nine.” Both expressions are part of the UCC. UCC Code Section

2069 enables a party to suspend performance under a contract when the

other party (usually the buyer of goods) is suffering financial palpitations.

Life support is never good. Section 2609 provides as follows:

(1) A contract for sale imposes an obligation on each party that the oth-

er’s expectation of receiving due performance will not be impaired.

When reasonable grounds for insecurity arise with respect to the

performance of either party, the other may in writing demand

adequate assurance of due performance and, until he receives

such assurance, may if commercially reasonable suspend any per-

formance for which he has not already received the agreed return.

(2) Between merchants, the reasonableness of grounds for insecurity

and the adequacy of any assurance offered shall be determined

according to commercial standards.

(3) Acceptance of any improper delivery or payment does not preju-

dice the aggrieved party’s right to demand adequate assurance of

future performance.

(4) After receipt of a justified demand, failure to provide within a

reasonable time (not exceeding 30 days) such assurance of due

performance as is adequate under the circumstances of the par-

ticular case is a repudiation of the contract.

What does this mean in English? Well, fire fighters are hailed when they run

into burning buildings. Law enforcement is lauded when the officers rush to

an active shooter scene. On the other hand, the UCC Code Section 2609 tells

the vendor to “get out of dodge” before the debtor goes bankrupt, makes an

assignment, or collapses under the weight of foreclosing secured creditors.

UCC 2609 enables a seller to mitigate its losses by stopping sales, putting

product on credit hold, or freezing production.

In true UCC jargon, Section 2609 enables the seller to suspend sales

based on “reasonable grounds for insecurity.” Upon the accrual of these

grounds, the seller can demand adequate assurance in writing and, absent

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