Legal Relationship of Assurance of Performance in Bilateral Contracts

Assurance of performance is the right that the party obligated to first perform in a bilateral contract can refuse the performance of his/her obligation when there is a significant reason why the other party has difficulty performing. Since bilateral contracts have connectedness between benefit and compensation mutually dependent, so assurance of performance is recognized. However, even if it is a bilateral contract, but there is a prior performance obligation, assurance of performance functions to secure the possibility of performance in a bilateral contract that is interdependent by being recognized as an exception to the simultaneous performance relation. If the legal basis for assurance of performance is said to be the legal principle of change of circumstances, then assurance of performance cannot be exercised if a circumstance that existed at the time of the conclusion of the contract is confirmed after the conclusion of the contract. In addition, the requirement for assurance of performance in Article 536, Paragraph 2 of our Civil Act is generally and abstractly stipulated as when the other party has a significant reason that he or she has difficulty in performing. Except for the causes of narrow sense such as credit insecurity or deterioration of financial status, it also needs to be applied to the cases of wide sense, such as insufficient supply capacity, uncertainty about the occurrence of hidden defects in the object, and the possibility of export/import ban or outbreak of war. Therefore, it is not the legal principle of change of circumstances, which is a limited position on the basis of assurance of performance, but in a bilateral contract that parties assume an interdependent obligation, even if there is an agreement to assume a prior performance obligation, it can be said that assurance of performance is recognized to perform a collateral function by clearly ensuring the possibility of performance in a bilateral contract with a mutually dependent relationship when a reason for this risk of performance arises. In addition, it is believed that whether the occurrence of a reason for this risk of performance has caused uncertainty in the performance of the counter-performance does not need to be limited to objective circumstances, but can be judged based on the subjective situation of the party with a prior performance obligation. In cases where a prior performance obligation arises in a bilateral contract, they may arise by legal provisions or special agreements of the parties, but there are also cases where one party's benefit should be performed in advance due to the nature of the contract, such as a continuous contractual relation, a joint surety contract, or an insurance contract. And assurance of performance is to be recognized when precarious causes of performance have occurred, which include not only objective causes such as weakening of property status or credit insecurity, but also subjective causes. And it should be recognized not only in the case of precarious causes that occurred after the conclusion of the contract, but also in the case of causes that existed at the time of the contract but were turned out after the contract. In addition, there is a legislative need to recognize not only the right to refuse performance as an effect of exercising assurance of performance, but also the right to claim security and the right to cancel the contract, reflecting recent international trends.