Center for Contract and Economic Organization
Center for Law and Economic Studies
Under the common law, a contracting party could only demand assurance of performance if the other party was insolvent. If a party had reasonable grounds for insecurity, the UCC §2-609 allowed it demand adequate assurance even if the counterparty were solvent. The Restatement (Second) adopted the same rule for non-goods. In NorCon v. Niagara Mohawk the New York court extended the adequate assurance doctrine for some non-goods contracts. Although the decision seems to imply that there is some relation between the NorCon facts and its conclusion as to the law, there is none. Relying primarily on material available to the court, this paper examines the contract, the context in which it was written, and the events precipitating Niagara Mohawk’s insecurity. While Niagara Mohawk’s insecurity was no doubt justified — NorCon would almost certainly have walked away from its obligation for the last ten years — the assurance question had been a major issue in negotiating this contract, and in similar contracts involving Niagara Mohawk and other public utilities.
Victor P. Goldberg,
A Precedent Built on Sand: NorCon v. Niagara Mohawk,
Columbia Law and Economics Working Paper No. 423
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/1754