Short answer. No, not necessarily. Article 1536 of the Civil Code excuses you from delivering goods sold on credit if the buyer loses the right to the credit period under Article 1198, which includes becoming insolvent after the sale unless the buyer gives a guaranty or security for the debt.
What the law says
The vendor is not bound to deliver the thing sold in case the vendee should lose the right to make use of the terms as provided in article 1198.
Civil Code, Article 1536 — Delivery Excused by Buyer's Loss of the Term. Read the full provision →
Why insolvency changes your delivery obligation
Ordinarily, a seller who extended credit terms is bound to deliver the goods and wait for payment on the agreed schedule. Article 1536 creates an exception: the vendor is not bound to deliver the thing sold if the buyer loses the right to make use of those credit terms under Article 1198. Because Article 1198 lists becoming insolvent after the obligation was contracted as one ground for losing that right, a buyer's insolvency can directly excuse you from having to hand over goods you already agreed to sell on credit.
The exception within the exception
Article 1198's rule on insolvency is itself qualified: the debtor loses the right to the period unless he gives a guaranty or security for the debt. Applied here, that means if the buyer, despite becoming insolvent, offers you a guaranty or security sufficient to cover the debt, the credit terms are not necessarily lost, and your excuse from delivering under Article 1536 may not apply either. Insolvency alone does not end the matter if adequate security is provided in its place.
What insolvency means for this purpose
Article 1198 speaks of the debtor becoming insolvent after the obligation was contracted, which points to the buyer's actual inability to meet obligations as they become due, rather than a mere rumor or suspicion of financial trouble. Being able to point to concrete facts showing the buyer's real insolvency, rather than an unconfirmed concern, matters if you intend to rely on this provision to withhold delivery, since invoking Article 1536 on shaky grounds could itself expose you to a dispute over whether you were entitled to withhold the goods.
What this does not resolve
Neither Article 1536 nor Article 1198 by themselves address what happens to the contract as a whole, such as whether it can be cancelled outright or whether you can seek damages for the buyer's inability to pay; they address specifically whether you remain bound to deliver on credit terms that have been lost. Working out the rest of your remedies against an insolvent buyer typically involves the broader rules on rescission and damages for breach, layered on top of this specific excuse from delivery.
Related provisions
- Civil Code, Article 1536 — Delivery Excused by Buyer's Loss of the Term
- Civil Code, Article 1198 — When the Debtor Loses the Benefit of the Period