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Competing Liens: the Basics

One customer of Denton Auto, a large supplier of auto parts, is Fitch Motors, Inc., a full service auto dealership in the business of selling new and used cars, as well as providing warranty, other service, and body work. Fitch has established a credit agreement with Denton, and as part of that arrangement Fitch has agreed to grant Denton a security interest in any and all inventory sold on credit until that auto parts inventory is paid in full. Fitch has experienced some cash flow problems and is now "slow pay." Invoices are 120 days out and a few are even longer, but Fitch has continued to send a steady stream of payments. Lisa Stein, Denton's credit manager, is concerned but not terribly so because she knows legal action can be taken, if necessary, to repossess the bulk of the auto parts Fitch stocks. However, in a telephone conversation with Fitch's accounts payable staff, Stein hears something that does give her pause. Apparently Fitch has also given a lien on its entire inventory of automobiles and auto parts, as well as in its equipment and receivables, to a local bank. Can Fitch do that? . . . (to read the remainder of this article, please log in below.)
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