Also known as: demands assurance of performance · demanded assurance of performance · demanding assurance of performance · adequate assurance of performance · demand adequate assurance
Written by attorneys · grounded in primary & secondary sources — see below
A contractual right allowing a party facing reasonable grounds for insecurity about the other party's performance to demand adequate assurance of due performance. The demanding party may suspend its own remaining performance until the assurance is received if doing so is reasonable under the circumstances. Failure to provide adequate assurance within a reasonable time constitutes a repudiation.
Ash Homes contracted with Fair Contractors to build a mixed-use tower on a tight schedule with milestone payments. Three months in, Fair Contractors' key structural subcontractor filed for bankruptcy and work halted ninety days behind schedule. Ash Homes demanded specific written assurances including replacement subcontractor details and proof of financing, then suspended further progress payments.
BlueWave contracted with HarborWorks to build a research vessel tied to grant funding deadlines. Midway through, BlueWave's engineer found little progress, unpaid subcontractors, and rumors of an impending sale. BlueWave stopped milestone payments and demanded detailed written assurance that HarborWorks would finish on time.
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River Coastal purchased engine parts from Silver Sea under a UCC-governed sales contract. After accepting earlier shipments with minor documentation errors, River Coastal received what appeared to be refurbished parts instead of new ones. River Coastal sent a written demand for detailed assurance that remaining parts would be brand new and fully documented.
Objective facts such as a key subcontractor's bankruptcy causing major delays, visible lack of progress at a work site, unpaid subcontractors, or regulatory warnings halting production can create reasonable grounds. Vague statements of commitment or optimism do not dispel those grounds when concrete details about recovery plans are missing.
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A bare statement of confidence or general commitment without timelines, plans, or financial backing is inadequate when the insecurity stems from concrete problems like staff cuts or production halts. Commercial standards between merchants or the specific circumstances of the contract determine adequacy.
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Failure to provide adequate assurance within a reasonable time may be treated as a repudiation of the contract. The demanding party may then pursue remedies for total breach, including covering and seeking damages.
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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 when new grounds for insecurity arise.
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…as a matter of law. While Defendants correctly note that courts have generally recognized that letters of credit provide adequate assurance of performance due, see, e.g. , Lustrelon, Inc. v. Prutscher , 178 N.J.Super. 128, 139, 428 A.2d 518 (App.Div.1981), it is undisputed that Defendants did not provide a letter of credit for the warehouse…