Also known as: ground for insecurity · reasonable grounds for insecurity · UCC 2-609 · adequate assurance
Written by attorneys · grounded in primary & secondary sources — see below
A factual basis that permits one contracting party to demand adequate assurance of due performance from the other. The basis exists when circumstances create a reasonable belief that the other party will commit a breach by nonperformance sufficient to give rise to a claim for total breach damages. The demanding party may suspend its own performance until the assurance is received.
River Coastal received an incomplete container delivery and reports of storm damage to Silver Sea's warehouse. River Coastal sent a written demand for adequate assurance of future performance on the sales contract. Silver Sea replied informally that all issues were resolved but supplied no certifications or warranties.
Birch Industries learned that Star Manufacturing's stock had been downgraded because of cash-flow problems. Birch demanded bank-backed assurances of timely deliveries. Star responded with an internal memo promising to prioritize Birch's orders.
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Adequacy is determined according to commercial standards in the relevant industry. An internal memo may or may not suffice depending on manufacturing norms. The demanding party cannot unilaterally insist on a bank guarantee.
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No. Acceptance of any improper delivery does not prejudice the right to demand adequate assurance of future performance when new concerns arise.
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Failure to provide adequate assurance within a reasonable time not exceeding thirty days constitutes a repudiation of the contract.
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Media reports of enforcement actions that could close a plant, incomplete deliveries, warehouse damage, fires, layoffs, and missed deadlines can collectively supply objective grounds for insecurity.
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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, §…