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

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US-02376BG
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Description

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

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), ...

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

For example, a seller that finds out that the buyer is in breach of its agreements with other sellers may have a reasonable basis for seeking adequate assurance regarding its own contract. The seller's insecurity must be based on an objective standard and not the seller's subjective belief.

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.

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

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