Right to assurance: Overview, definition, and example
What is right to assurance?
The right to assurance refers to the legal right of one party to request verification or confirmation from the other party regarding the performance or fulfillment of their obligations under a contract. This right typically arises when one party has reasonable grounds to believe that the other party may not perform their obligations as agreed, or there is uncertainty about their ability to meet the terms of the contract. It allows the requesting party to seek assurance—such as documentation, guarantees, or other forms of proof—that the other party will fulfill their obligations.
The right to assurance is commonly found in contracts involving ongoing relationships, such as business agreements, construction contracts, or loans, where the continued performance of the contract may be in question.
Why is right to assurance important?
The right to assurance is important because it provides a mechanism to address concerns about performance, helping to mitigate risks and prevent breaches of contract. When a party has doubts about the other party’s ability or intention to perform, requesting assurance can prevent the situation from escalating into a formal breach of contract or dispute.
For businesses, having the right to assurance can protect them from potential financial loss, delays, or other complications that could arise if the other party fails to perform as agreed. For the party providing assurance, this requirement fosters transparency and accountability, ensuring that both sides are confident in the execution of the agreement.
Understanding right to assurance through an example
Let’s say your company has a contract with a supplier to deliver goods within a certain time frame. As the delivery date approaches, the supplier’s operations are delayed, and you become concerned about whether they will fulfill their obligations. Under the right to assurance, you can request that the supplier provide confirmation or documentation (such as proof of shipment or a guarantee) that the delivery will be made on time.
In another example, a lender may have a loan agreement with a borrower, and halfway through the term, the borrower’s financial situation appears unstable. The lender may exercise their right to assurance by requesting updated financial statements or a guarantee from the borrower’s guarantor to confirm that the loan obligations will still be met.
Example of right to assurance clause
Here’s what a right to assurance clause might look like in a contract:
“If either Party has reasonable grounds to believe that the other Party will not perform its obligations under this Agreement, such Party may request written assurance of performance. The other Party shall provide such assurance, in the form of [specific documentation or guarantee], within [X] days of the request. Failure to provide sufficient assurance may result in the requesting Party considering the Agreement as repudiated.”
Conclusion
The right to assurance is a valuable tool in contracts, allowing parties to request confirmation that the other party will perform their obligations. It helps mitigate risks, resolve uncertainties, and prevent disputes before they escalate.
For businesses, this right offers a safeguard to ensure that agreements are executed as expected. By including a right to assurance clause in contracts, parties can protect their interests and ensure clarity and accountability throughout the term of the agreement.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.