Caveat Venditor: Ensure Debtor Has Authority To Pay

Law360, New York (April 20, 2010, 2:22 PM EDT) -- Imagine that you are the head of a major petroleum company that has a sales agreement with a distributor of motor fuel. Under the terms of the agreement, if the distributor wants your products, you are contractually obligated to deliver them. And the sales volume is significant, say $1 million per week. Assume further that the distributor, as is often the case, has pledged all of its personal property, including cash and inventory, to obtain financing.

Now imagine that the distributor files for Chapter 11 protection...
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