Occasionally when buying goods, a situation arises where one party is unsure whether or not the other party will hold up their end of the bargain. If you find yourself in this predicament, you have the right to demand “adequate assurances” that the contract will be completed. An Irvine business lawyer can advise you of your options and the best way to proceed.
When Can I Ask For Adequate Assurances?
California’s Uniform Commercial Code Section 2609 allows you to demand adequate assurances whenever “reasonable grounds for insecurity arise.” What constitutes reasonable grounds is determined by the commercial standards of the industry. For example, if a buyer of auto parts discovers that his supplier has failed to make its last four shipments to other customers, he likely has reason to be uncertain about his upcoming delivery.
How Do Adequate Assurances Work?
Parties to a contract are allowed to take 3 steps when there are reasonable grounds to worry about the other party’s performance:
- Suspend Performance– The aggrieved party may suspend performance and preparation, and will not be liable for the delay. For example, a seller might stop manufacturing goods for the buyer if it looks like the buyer is about to go bankrupt.
- Demand Adequate Assurances– What constitutes adequate assurances will vary depending on the situation and the parties, and can range from a simple promise to perform to the posting of some kind of guarantee.
- Treat the Contract as Broken– The failure to make adequate assurances when called upon amounts to an admission that the party will not perform. The other party may treat this as a breach of contract.
If you are concerned that a party to your contract won’t perform, or you have yourself been called upon to make adequate assurances, consult with a skilled Irvine business lawyer on how best to handle your case. Call Daily Alijian, LLP at 949-861-2524.