To Supply or Not Supply Goods: Credit Risks and Remedies in Uncertain Times

Am I Obligated to Ship? A supplier selling goods on credit should first understand whether and under what circumstances it is required to deliver product to a customer before withholding that product out of concern for nonpayment, This inquiry largely depends on whether the supplier and customer are parties to a contract governing their relationship in the long term, the terms of that contract and a calculation of whether the likely assessment of damages for a breach exceed the financial risk of performance. Outside of a requirements contract, the ability to refuse to ship or to exit the relationship out of concern for the customer's solvency without threat of litigation may be more defined in the agreement or subject to applicable state law concepts. [...]Article 2-609 provides that if a seller has reasonable grounds for insecurity with respect to the performance of a buyer, the seller may issue a writing demanding adequate assurance of due performance. [...]that assurance is received, which could include a certified financial statement demonstrating solvency or a letter of credit, the supplier may suspend performance. Contracts that were properly terminated before the debtor filed its bankruptcy case, and those contracts that expire by their terms after the petition date, are not property of the estate within the jurisdiction of the Bankruptcy Court, demonstrating the benefits of terminating at the first available pre-bankruptcy opportunity following a customer's breach.