Also known as: adequate assurances · assurance of performance
Written by attorneys · grounded in primary & secondary sources — see below
A contractual assurance or guarantee that a party will perform its obligations as promised. It may be demanded in writing when reasonable grounds for insecurity arise with respect to the other party's performance. Until the assurance is received, the demanding party may suspend performance if commercially reasonable.
Stone Resource contracted with Stone Clean for phased delivery of equipment over eighteen months. Media reports of enforcement actions against Stone Clean prompted Stone Resource to send a written demand for assurance of future deliveries. Stone Clean replied only that production remained on track without contingency plans. More than thirty days later Stone Clean announced it would divert machines elsewhere.
River Coastal purchased refrigerated containers from Silver Sea under a UCC-governed sales contract. An incomplete container delivery and reports of warehouse damage led River Coastal to send a written demand for assurance. Silver Sea, a merchant, responded informally that issues were resolved but supplied no certifications. River Coastal had previously accepted shipments with minor documentation errors.
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River Coastal accepted earlier engine-part shipments containing documentation errors. A later shipment appeared refurbished rather than new, prompting a new written demand for assurance that remaining parts would be brand new and fully documented. Silver Sea had already responded to an earlier demand with only an informal statement.
A party may demand adequate assurance in writing when reasonable grounds for insecurity arise with respect to the other party's performance. The demanding party may suspend performance if commercially reasonable until the assurance is received. Between merchants the reasonableness of grounds and adequacy of assurance are measured by commercial standards.
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No. Acceptance of any improper delivery or payment does not prejudice the aggrieved party's right to demand adequate assurance of future performance. Each demand is evaluated independently on its own facts.
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Failure to provide adequate assurance within a reasonable time not exceeding thirty days constitutes a repudiation of the contract. The demanding party may then pursue remedies for breach including cover and damages.
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Adequacy is determined according to commercial standards in the relevant industry. An informal statement without certifications or timelines may be inadequate when prior defects have been reported.
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…good faith aspects of the output and requirement problems of subsection (1). It also raises questions of insecurity and right to adequate assurance under this Article.” Section 2-306 is consistent with prior New York case law (Buerger and O’Connor, Practice Commentaries, McKinney’s Cons Laws of NY, Book 62½, Uniform Commercial Code, §…