Hawaii Notice of Demand for Assurance of Performance and an Indemnity Bond

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If a party to a contract has certain duties to perform under that contract and then transfers these duties to another person who is to perform them, there is a delegation of duties. Section 2-609 of the Uniform Commercial Code imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return.


Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards.

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FAQ

When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return.

What is adequate assurance? The doctrine of adequate assurance allows a contract party with reasonable grounds to believe that its counterparty will be unable to perform, to demand that the counterparty provide ?adequate assurances? that the counterparty will perform its contractual obligations.

Under UCC Section 2-609, a party to a contract has the right to demand adequate assurance of performance from a distressed counterparty. This demand usually takes the form of a letter known as a demand for adequate assurance letter.

(1) A contract for sale imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired.

When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return.

Consumers want products and services that are safe and of good quality. Corresponding to such demand is the demand for assurance, before the fact, that the quality and safety will be as promised.

(1) A contract for sale imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired.

In order to preserve your contract rights?in particular where you have negotiated favorable terms?it is important that you: (1) respond quickly, (2) attack the grounds for any claimed need for "adequate assurances," (3) provide adequate assurances (but without creating new demands that ruin the economics of your deal), ...

Generally, as long as the seller can show that the buyer had a clear understanding that performance would be suspended until adequate assurance was received, then the written requirement under the UCC should be satisfied. Oral demands for assurance have also been considered acceptable in certain circumstances.

Comment: Under the Uniform Commercial Code (UCC), when a party to an agreement for the purchase or sale of goods has reasonable grounds to believe its counterparty will not perform as promised, the party may make a written demand for assurance of due performance from the counterparty.

More info

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Hawaii Notice of Demand for Assurance of Performance and an Indemnity Bond