Sales and Leases | 166
For a long time, the buyer made payment within 10 days of delivery. Once, though, the buyer did not pay within 10 days. At that time, the seller heard rumors (ultimately false) that the buyer’s financial condition was unsound. The rumors, together with the buyer’s sudden failure to pay early as before, gave the seller reasonable grounds for insecurity. Upon receiving the seller’s demand for assurances, the buyer (1) offered a report from her bank indicating that she was financially sound, (2) promised to make all payments on time, and (3) offered a good explanation for the one-time failure to pay early for the discount. These measures, taken together, are likely adequate assurance of due performance. [ Adapted from U.C.C. § 2-609, cmt. 4 (1951).] a. Good Faith and Adequate Assurance of Due Performance In demanding adequate assurance, not to mention in evaluating any assurances offered, the insecure party must act in good faith. [2 Hawkland UCC Series § 2-609:3, Westlaw (database updated June 2021).] 3. Demand for Assurances without Reasonable Grounds for Insecurity If a party demands adequate assurance of due performance, but there are no reasonable grounds for insecurity, then the demand may be tantamount to a repudiation. This observation is especially applicable if the demand indicates that the demanding party will perform only if she receives assurances. [2 Hawkland UCC Series § 2-609:4, Westlaw (database updated June 2021).] 4. Content of Demand for Adequate Assurance A proper demand for adequate assurance should clearly indicate that the insecure party is, in fact, seeking adequate assurance of future performance. To that end, the demand should do more than simply to state that the insecure party is unsatisfied and demand satisfaction. Rather, the demand should articulate the facts giving rise to the insecurity, what the insecure party wants, and that the insecure party will treat the contract as repudiated or withhold performance if the demand goes unmet. Finally, most authority seems to hold that a demand is not unreasonable or inappropriate just because it asks for things beyond the scope of the contract. Indeed, most demands for assurance do go beyond the contract. [2 Hawkland UCC Series § 2-609:4, Westlaw (database updated June 2021).] 5. Commercial Reasonableness of Suspending Performance An insecure party should exercise some thought before deciding to suspend performance. After all, if that party suspends performance when she is not entitled to, she may be found in breach of contract. As for the commercial reasonableness of suspending performance, there seems to be little caselaw on the subject, as the issue is apparently seldom litigated. However, suspension is generally commercially reasonable if forcing the seller to perform despite the
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