Litwiller Mach. & Mfg., Inc. v. NBD Alpena Bank - 184 Mich. App. 369, 457 N.W.2d 163 (1990)

Rule:

A security interest attaches to collateral when (1) the debtor has signed a security agreement describing the collateral, (2) value has been given, and (3) the debtor has "rights in the collateral." Mich. Comp. Laws § 440.9204(1) (Mich. Stat. Ann. § 19.9204(1)).

Facts:

The manufacturer and debtor entered into an unwritten agreement whereby the manufacturer would purchase steel components and send the components to the debtor's plant for fabrication. The debtor defaulted on an earlier loan from the bank. The loan was secured by security agreements that granted the bank a security interest in all the debtor's inventory, raw materials, work in progress, and current or after acquired supplies. The bank took possession of the debtor's assets, including the manufacturer's components. The bank subsequently sold the components at public sale. The manufacturer initiated a case against the bank alleging that the bank converted its property. The trial court granted the bank's motion for summary judgment and the manufacturer appealed. 

Issue:

Did the bank's security interest attach to the components?

Answer:

Yes.

Conclusion:

The court affirmed the trial court judgment because the bank's perfected security interest in the components had priority over the manufacturer's unperfected security interest pursuant to Mich. Comp. Laws § 440.9312 (Mich. Stat. Ann. § 19.9312). A security interest attaches to collateral when (1) the debtor has signed a security agreement describing the collateral, (2) value has been given, and (3) the debtor has "rights in the collateral." Mich. Comp. Laws § 440.9204(1) (Mich. Stat. Ann. § 19.9204(1)). The court concluded that the manufacturer's components were part of the debtor's inventory and that the bank's security interest attached to the components.