Also known as: assurances of due performance · assure due performance · assuring due performance · adequate assurance of performance · demand for assurance
Written by attorneys — see sources below.
A contractual right that permits an obligee facing reasonable grounds to believe the obligor will commit a total breach to demand in writing adequate assurance of due performance and, if commercially reasonable, to suspend performance until the assurance is received. Failure to provide assurance adequate under the circumstances within a reasonable time constitutes a repudiation.
Valley Hospital learned that MedEquip faced serious regulatory sanctions on quality control. Valley sent a written demand for concrete commitments on future ventilator deliveries. MedEquip responded only with vague statements about working through challenges. Valley treated the inadequate response as repudiation and canceled the contract.
NanoWireless announced it was exiting the consumer market and selling network assets. MetroCell demanded written assurance that NanoWireless would perform the remaining ten-year term. NanoWireless replied only that service would continue during the transition. MetroCell treated the response as repudiation and obtained substitute coverage.
BlueWave inspected HarborWorks shipyard and found little progress plus unpaid subcontractors. BlueWave demanded detailed written assurance that the vessel would finish on time. HarborWorks replied only that it would accelerate work. BlueWave suspended payments and hired another yard.
GalaWorks canceled other events and announced staff cuts. Harbor Hope demanded clear written assurance that GalaWorks would stage the gala. GalaWorks replied only that it was confident it could work something out. Harbor Hope suspended ticket sales and sponsor outreach.
Best was acquired by Sally Beauty. Nexxus demanded assurance that Sally Beauty would continue vigorous promotion of its products. Sally Beauty offered no concrete commitments. Nexxus treated the failure to assure as repudiation and terminated the distribution contract.
In 1979 Nexxus Products Company, a California corporation that formulates and markets hair care products, negotiated with Best Barber & Beauty Supply Company, Inc., a Texas corporation in the business of distributing beauty and hair care products to retail stores, barber shops and beauty salons throughout Texas. Between March and July 1979 Mark Reichek, Best’s president, negotiated with Stephen Redding, Nexxus’ vice-president, over a possible distribution agreement between Best and Nexxus. This resulted in an August 2, 1979 distributorship agreement executed in the form of a July 24, 1979 letter from Reichek to Redding under which Best would serve as the exclusive distributor of Nexxus hair care products to barbers and hair stylists throughout most of Texas except El Paso. The July 24, 1979 letter set forth pricing terms, Nexxus’s agreement to underwrite training and seminars, payment by letter of credit, and termination provisions allowing cancellation only on the anniversary date with 120 days’ prior notice and requiring Nexxus to buy back inventory at cost if it terminated the relationship. In July 1981 Sally Beauty Company, Inc., a Delaware corporation with its principal place of business in Texas and a wholly-owned subsidiary of Alberto-Culver Company, acquired Best in a stock purchase transaction and merged Best into Sally Beauty, which succeeded to Best’s rights and interests in all contracts; Alberto-Culver is a major manufacturer of hair care products and a direct competitor of Nexxus. Shortly after the merger Stephen Redding met with Michael Renzulli, president of Sally Beauty, and wrote a letter stating that Nexxus would not allow Sally Beauty to distribute its products because Sally Beauty was wholly owned by a direct competitor. In August 1983 Sally Beauty commenced this action by filing a complaint in the Northern District of Illinois, claiming that Nexxus had violated the federal antitrust laws and breached the distribution agreement. Nexxus moved for summary judgment on the breach claim. The district court granted the motion on January 31, 1985. The remaining claims were dismissed by stipulation in May 1985, and final judgment was entered on the breach of contract claim.
Reasonable grounds arise from objective facts such as regulatory sanctions, asset sales, production halts, unpaid subcontractors, or public announcements of strategic shifts that threaten future performance. The demand must be in writing and the grounds must support a belief that the obligor will commit a total breach.
Supporting sources
…obligation to use its best efforts to promote Nexxus products, but if so its remedy was not to cancel the contract but to demand assurances of due performance. See UCC § 2-609; Official Comment 5 to § 2-306. No such demand was made. An anticipatory repudiation by conduct requires conduct that makes the repudiating party unable to perform.…
…(same, applying Mississippi’s UCC provisions to seller’s invoice sent after shipment of goods), and Sudenga Indus. v. Fulton Performance
Failure to provide assurance adequate under the circumstances within a reasonable time, not exceeding thirty days under the UCC, constitutes repudiation. Vague or noncommittal replies are inadequate when the insecurity stems from serious operational or regulatory problems.
Supporting sources
Yes. If commercially reasonable or reasonable under the circumstances, the insecure party may suspend performance for which it has not yet received the agreed exchange until adequate assurance arrives. Suspension is justified even before any actual breach occurs.
Supporting sources
No. Acceptance of an improper delivery or payment does not prejudice the right to demand adequate assurance of future performance when new grounds for insecurity arise.
Supporting sources
The Restatement rule applies to all contracts and permits a demand for assurance when reasonable grounds exist to fear total breach. Courts have applied it to construction, service, and long-term supply agreements beyond the UCC.
Supporting sources