Sales and Leases | 163
The nature of the contract can be a weighty factor in determining whether there are reasonable grounds for insecurity. For instance, in most cases, if a buyer learns from a trustworthy source that the seller has delivered defective goods to other customers, the buyer would have reasonable grounds for insecurity. But the buyer may agree to pay before inspection, thus assuming the risk of defective goods. Here, the buyer cannot evade that risk simply by demanding assurance, unless she learns of facts that would outright excuse her obligation to pay. [ See U.C.C. § 2-609, cmt. 3 (1951).] c. The Parties’ Relationship and Reasonable Grounds for Insecurity The parties’ relationship obviously plays a major role in evaluating whether there are reasonable grounds for insecurity. Oftentimes, a given buyer and seller will enter multiple, distinct contracts. If the buyer falls behind on her account with the seller as to some contracts, the seller will likely have reasonable grounds for insecurity as to other contracts on which the buyer has not yet fallen behind. Conversely, if the seller makes defective deliveries as to some contracts with the buyer, the buyer may well have reasonable grounds for insecurity as to other contracts with the same seller. [ See U.C.C. § 2-609, cmt. 3-4 (1951).] d. Information from Apparently Trustworthy Sources In determining whether there are reasonable grounds for insecurity, parties are generally entitled to reasonably rely on information from apparently trustworthy sources—even if that information ultimately proves false. [ See U.C.C. § 2-609, cmt. 3-4 (1951).] Example : A buyer contracted to buy oil from a seller on 30 days’ credit, provided the buyer’s financial stability was satisfactory to the seller, with a 2 percent discount for payment within 10 days. For a long time, the buyer made payment within 10 days of delivery and, thus, utilized the discount. On one occasion, though, the buyer did not pay within 10 days. At about the same time, the seller heard rumors (ultimately false) that the buyer’s financial condition was unsound. Though the rumors were false, they were from apparently trustworthy sources, and the seller thus had no reason to doubt them. The rumors, together with the buyer’s sudden failure to pay early and avail herself of the discount as she had always done, gave the seller reasonable grounds for insecurity as to the buyer’s performance. [ Adapted from U.C.C. § 2-609, cmt. 4 (1951).] e. Performance on the Current Contract and Other Contracts Obviously, a party’s performance on the current contract is a highly relevant factor in evaluating reasonable grounds for insecurity. But the party’s performance on other
Made with FlippingBook - Online Brochure Maker