Page 22: of Marine News Magazine (February 2016)

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COLUMN LEGAL

Although the letter can take any form, we suggest begin- with an uncollectable credit balance.

ning with a short introductory paragraph identifying the Although no one likes being put in a position to write goods and services that are speci? ed in your agreement such a letter, in any rapidly deteriorating market, it is im- and a short explanation of why you have concerns about portant to take these types of precautions to make sure that their ability to pay for or provide these goods or services you are not stuck in a situation where your company in- pursuant to the agreement. The second paragraph should curs signi? cant losses because of another company’s failure state that you have become aware of a certain event, or to perform. Courtesy of this UCC provision, you are not issue, that constitutes reasonable grounds for insecurity required to wait until you suffer signi? cant losses before under UCC Section 2-609, or your corresponding state cancelling the contract. Using this statute, you can try to law. The next paragraph should demand that the vendor jump off the other ship before it sinks. You may get a little provide you adequate assurance that they can complete wet. But, you will continue on to sail another day.

their performance under the agreement. The letter should conclude by stating that, unless you receive the adequate assurance by a certain date, that you will regard the agree- ment between the parties as being breached by the other party. Although the UCC does not set a time period for responding to a demand for assurance, you should select a commercially reasonable deadline that is less than 30 days away from service of the demand.

Depending upon the circumstances, the adequate assur- ance could be as simple as a letter explaining a prior deliv- ery problem or as complicated as the provision of ? nancial statements or a credit agreement proving that they will be

Mr. DeMarcay is a partner in the law able to deliver on the agreement. ? rm of Fowler Rodriguez Valdes-Fauli.

In the event that the party does not provide adequate

His areas of practice include Commercial assurance, and you still believe you have a reasonable basis

Litigation, Admiralty, Personal Injury, for insecurity, you can then move forward with the termi-

Transportation, Real Estate, Construction nation of the agreement citing the lack of adequate assur- and Corporate Law. Prior to attending ance as the reason. This early termination of an agreement law school, Mr. DeMarcay served on the will allow you to ‘stop the bleeding’ before a situation goes

Washington based legislative staff of Congressman Jimmy from bad to worse. Using our fuel example, it is much bet-

Hayes. On the WEB: www.frvf-law.com ter to cancel the credit agreement early than to get stuck

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