Sales and Leases | 162
Right to Adequate Assurance of Performance In every contract for the sale of goods, each party bears an obligation that the other’s expectation of getting due performance will go unimpaired. To that end, special rules apply if reasonable grounds for insecurity arise concerning one party’s performance that is not yet due. Here, the insecure party may, in writing, demand adequate assurance of due performance— provided the insecure party is not herself in breach. Until the insecure party receives that assurance, and if commercially reasonable, she may suspend any performance for which she has not already received the agreed return. If a party receives a justified demand for adequate assurance but fails to provide adequate assurance of due performance within a reasonable time not exceeding 30 days, then the failure is a repudiation of the contract. At this point, all the rules on anticipatory repudiation and retraction apply. [U.C.C. § 2-609(1), (4), cmt. 5 (1951); 2 Hawkland UCC Series § 2-609:1, Westlaw (database updated June 2021); Anticipatory Repudiation, Retracting an Anticipatory Repudiation, supra .] 1. Reasonable Grounds for Insecurity Generally speaking, reasonable grounds for insecurity as to one party’s performance arise if (1) there is not an outright repudiation of the contract, but (2) there is objective reason to doubt the party’s willingness or ability to perform. Between merchants, the reasonableness of any grounds for insecurity is determined according to commercial standards. If one party is a nonmerchant, then that nonmerchant status is itself a factor to consider. In any case, reasonableness is a function of all the surrounding circumstances. Relevant factors include:
the nature of the contract, the parties’ relationship,
information gleaned from apparently trustworthy sources, the counterparty’s performance on the current contract, and the counterparty’s performance on other contracts.
[U.C.C. § 2-609(2), cmt. 3 (1951); 2 Hawkland UCC Series § 2-609:1, Westlaw (database updated June 2021).]
a. Reasonable Grounds for Insecurity and the Obligation of Good Faith In deciding whether there are reasonable grounds for insecurity, a party must exercise good faith. [2 Hawkland UCC Series § 2-609:2, Westlaw (database updated June 2021).]
b. The Nature of the Contract and Reasonable Grounds for Insecurity
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