PRIME FINANCIAL SERVICES LLC V CASEY VINTONAnnotate this Case
STATE OF MICHIGAN
COURT OF APPEALS
PRIME FINANCIAL SERVICES LLC,
June 3, 2008
Kent Circuit Court
LC No. 01-010952-CK
Advance Sheets Version
BANK ONE NA,
Before: O’Connell, P.J., and Hoekstra and Smolenski, JJ.
In this collateral dispute involving priority to notes secured by mortgages, defendant
Bank One, NA (Bank One),1 appeals as of right the jury verdict in favor of plaintiff Prime
Financial Services LLC (Prime) premised on conversion, unjust enrichment, aiding and abetting
conversion and aiding and abetting breach of fiduciary duty. On appeal, the primary issues are
whether prior Article 9 of the Uniform Commercial Code (UCC)2 governed the creation of a
security interest in a note secured by a mortgage and, if it did, whether a properly recorded
assignment of mortgage could give the assignee greater rights to the note than the assignee had
under Article 9. We conclude that Article 9 governed the creation of the security interests at
issue and that an assignment of mortgage can give no greater rights to the assignee than it has in
Bank One, NA, is the successor to Bank One, Michigan, which in turn was the successor to
NBD. After Prime sued Casey Vinton, Bank One, NA, merged with JPMorgan Chase Bank,
NA. However, for ease of reference, we will use “Bank One” or “bank” throughout this opinion
to refer to the various incarnations of the bank involved in the dealings at issue.
Throughout this opinion we cite both the current revised version and the prior version of Article
9. In order to distinguish between the applicable versions, we will cite the current version with
the year that it became effective (2001). Citations without the year refer to the prior version of
Article 9. All citations to other articles of the UCC are to the current version.
the note underlying the mortgage. We further conclude that, after applying Article 9 to the
undisputed facts of this case, Bank One’s interest in the notes was superior to that of Prime.
Finally, because Bank One’s dispositions of the notes and mortgages were specifically
authorized under Article 9, we conclude that those actions cannot—as a matter of law—
constitute conversion, unjust enrichment, or aiding and abetting conversion or breach of
fiduciary duty. Accordingly, we reverse the trial court’s decision to deny Bank One’s motion for
judgment notwithstanding the verdict (JNOV) and remand for entry of judgment in favor of
Bank One on all Prime’s claims.
I. Basic Facts and Procedural History
This case arises out of the failure of Bedford Financial, Inc. (Bedford), which did
business under the name of Apex Financial. Bedford was in the business of making short-term
subprime loans to consumers to cover the cost of constructing modular homes. In a typical
transaction, a consumer would arrange to finance the purchase and construction of a modular
home through Bedford. The consumer would execute a note for the balance of the construction
loan and grant Bedford a mortgage on the real property to secure repayment of the note. Once
the home was complete, the consumer would obtain permanent financing—referred to as a
“takeout loan” or “end-mortgage”—and pay off the loan from Bedford. Under ideal
circumstances, the consumer would pay off the construction loan with Bedford in 60 to 90 days.
Because Bedford did not have the cash reserves to fund its lending activities, it had to
secure funding from outside sources.3 Patrick Hundley, who was the owner of Bedford, initially
obtained funding for Bedford through First of America Bank. At some point before December
1997, Hundley’s loan officer from First of America approached Arthur Bott, who was a business
owner and investor, about funding Bedford’s business. Bott began to fund Bedford’s loan
activities through his trust, which eventually became Bedford’s primary source of funds. Bott
was attracted to Bedford by the 15 percent rate of return on the loans.
In the summer of 1997, Bott organized Prime with Hundley. Sometime thereafter, Bank
One4 approached Bott about assisting him with his business activities, and Bott suggested that
the bank help him fund Bedford. Bott testified that he and Hundley agreed that Bott would take
over Prime after talks with Bank One began. Eventually, Bott’s trust became the sole member of
Prime with Bott as the sole officer. After the formation of Prime, Bott began to fund Bedford
through Prime, but also continued to provide some funding through his trust.
In November 1997, Bank One agreed to provide a “short-term construction loan facility”
to Prime in the amount of $5 million. Under the terms of the facility, the bank would fund 72
percent of the lesser of the cost or appraised value of the project. Apparently Prime was
supposed to fund an additional eight percent, and the remaining 20 percent represented the
Such lenders are often referred to as “warehouse lenders.” See Regions Bank v Provident Bank,
Inc, 345 F3d 1267, 1270 (CA 11, 2003) (describing a typical warehouse lending arrangement);
Provident Bank v Community Home Mortgage Corp, 498 F Supp 2d 558, 561 n 2 (ED NY, 2007)
(defining warehouse lending).
At the time, the actual bank was NBD.
consumer’s equity. The loan payments were interest-only until the consumer obtained endmortgage financing. Once the consumer obtained an end-mortgage and paid Prime through
Bedford, Prime was required to pay Bank One the principal associated with that particular
consumer’s loan. However, the facility also provided that, if the consumer did not obtain an endmortgage within nine months of the initial advance, Prime had to pay the principal associated
with that particular consumer’s loan. As part of the facility, Bott gave his personal guaranty and
that of his trust to Bank One. Prime closed on the facility with Bank One on January 9, 1998.
Prime entered into a $10 million credit facility with Bedford on January 28, 1998. This
facility was similar to the credit facility between Prime and Bank One. Under this facility, Prime
took a security interest in all the loans originated by Bedford with funds supplied by Prime,
required payment of the principal associated with a given loan when the consumer obtained endfinancing, and, if the consumer did not obtain an end-mortgage within nine months of the initial
disbursement, required Bedford to repay the principal associated with that particular project.
Likewise, under the terms of the agreement, Bedford granted a security interest in certain notes,
which it was required to deliver to Prime along with the corresponding mortgage. In addition,
Bedford was required to assign the mortgage to Prime. Despite the delivery requirement, Prime
permitted Bedford to retain the notes in its possession.
After these agreements, Prime funded some loans originated by Bedford jointly with its
own funds and funds drawn on its facility with Bank One. In the case of the jointly funded
loans, Prime funded more than the contemplated eight percent. In other cases, Prime funded the
loans entirely without drawing on the credit facility with Bank One.
At some point after Bank One entered into the facility with Prime, Bott apparently
received information that there were concerns with Bedford’s loan practices. Bott’s attorney
wrote a letter to Hundley expressing concern over his “cavalier” attitude toward the loans and
“lack of documentation.” Bott also had problems with another bank related to his interests in
Bedford loans. Some time in March 1999, Bott told Hundley to find another lender “besides
me[;] I would like out.” In the past, Hundley had had dealings with Richard Baidas, who owned
several businesses, including one that manufactured modular homes. Baidas expressed interest
in purchasing an interest in Bedford.
In June 1999, Bank One entered into a new $15 million facility agreement with Bedford.
Under this new facility, Bank One would directly fund Bedford’s lending. As part of the deal,
Bank One would pay off the amount currently owed by Prime to Bank One under the $5 million
facility between Prime and Bank One. This effectively transferred the debt from Prime to
Bedford and relieved Bott and his trust of their liability under their guaranties. This new facility
was made possible in part by the personal guaranty of Baidas.
Under the terms of the $15 million facility, Bedford granted Bank One a security interest
in certain property “now owned, or at any time hereafter acquired,” including “all Mortgage
Notes and Mortgages . . . which from time to time are delivered, or caused to be delivered, to the
Bank . . . pursuant hereto or in respect of which an extension of credit has been made by the
Bank under the Credit Agreement.” Bank One instructed Bedford to bring all its notes and
mortgages to the closing, which included some notes that were funded solely by Prime. In
addition, Bank One had Bedford obtain UCC termination statements from several lenders,
including Prime. These termination statements purported to terminate the respective lenders’
security interests in Bedford’s instruments. However, at trial, Bott testified that he signed the
UCC termination statement in blank with the understanding that it only terminated his security
interest in those notes and mortgages that were jointly funded using funds from Prime and Bank
One, as opposed to those notes and mortgages funded solely by Prime.
By spring 2000, Bedford was no longer sending principal payments to Bank One.
Indeed, Bank One became aware that Bedford had conducted end-mortgage closings and
discharged many of the notes and mortgages securing its facility with Bedford. As a result, Bank
One’s loan to Bedford was seriously under-collateralized. In addition, Bank One learned that
Bedford had ceased operations and was liquidating its assets in violation of the credit agreement.
For these reasons, in May 2000, Bank One informed Bedford by letter that it considered Bedford
to be in default on the $15 million facility.
After Bedford defaulted, Bank One examined its exposure and, rather than try to liquidate
Bedford’s assets, it decided to call on the guaranty of Baidas. The bank determined that the total
debt owed was approximately $6.5 million. After some negotiations, Bank One settled with
Baidas in June 2000. The bank accepted payment of approximately $5.5 million in full
settlement of Baidas’s guaranty. As part of the settlement, Bank One agreed to transfer the
collateral it held under its agreement with Bedford to Baidas. This collateral included 23 notes
that were originated by Bedford using funds provided solely by Prime.
In addition to the millions of dollars that Bedford owed Bank One, Bedford owed Prime
almost $1.7 million. In May 2001, Prime settled this debt with Bedford and Hundley, who had
personally guaranteed the loan with his wife, for $825,000. Although Prime released Hundley
and his wife from their guaranties, Prime did not receive any of the settlement. Instead, the
agreement provided that Hundley would apply the $825,000 to reduce debts owed to the Bott
In October 2001, Prime sued Casey Vinton for conversion. In its complaint, Prime
alleged that Vinton, who was an employee of Bedford, had discharged several mortgages that
had been assigned to Prime. Prime alleged that Vinton had signed the discharges as an “officer
of Prime,” but had never been an officer and was not authorized by Prime to discharge the
In May 2002, Prime amended its complaint to include claims against Bank One. In the
amended complaint, Prime alleged that Bank One converted the “Edwards” check and converted
or mishandled other checks that were payable to Prime but deposited into Bedford’s account.
Prime later filed a second amended complaint, which alleged additional counts claiming that
Bank One converted the proceeds of certain loans in which Prime had a superior interest to Bank
One. Prime amended its complaint for a third time in March 2004.
In the third amended complaint, Prime alleged 10 counts against Bank One. Prime
alleged that Bank One (1) converted Prime’s interest in 24 notes and mortgages by assigning
them to Baidas, (2) was unjustly enriched when it “conveyed” to Baidas 22 loans that were
originated by Bedford with money from Prime, (3) was unjustly enriched when it assigned to
Baidas numerous loans that were jointly funded by Prime and Bank One, (4) aided and abetted
Bedford’s breach of fiduciary duty or conversion of loans funded solely by Prime, (5) aided and
abetted Bedford’s breach of fiduciary duty or conversion of loans funded jointly by Prime and
Bank One, (6) converted the “Edwards” check, (7) converted other checks payable to Prime, (8)
negligently mishandled the “Edwards” check, and (9) mishandled other checks. In addition to
these counts, Prime asked the court to impose a constructive trust to the extent that Bank One
received the proceeds of loans to which Prime had a superior interest.
Prime’s complaint eventually proceeded to trial. The trial court submitted five claims
against Bank One to the jury: (1) conversion, (2) unjust enrichment, (3) aiding and abetting
conversion, (4) aiding and abetting breach of fiduciary duty, and (5) conversion of the
“Edwards” check. The first four claims were all related to the 23 notes and mortgages originated
by Bedford using funds from Prime and eventually turned over to Bank One as collateral for the
$15 million facility. The jury ultimately returned a verdict in favor of Prime against Bank One in
the amount of $1,180,358.16.5 As the parties agree, this amount appears to be the face amount of
the 23 notes at issue minus the value of five notes for which Prime admitted that Bedford never
assigned the mortgage and minus the value of one other note that the proofs demonstrated had
been paid before Bank One received any notes as collateral. Hence, the verdict represented the
face value of 17 of the 23 notes at issue during trial; the verdict did not include the value of the
“Edwards” check. After the judgment in favor of Prime against Bank One, the trial court entered
several orders including orders granting Prime interest and awarding attorney fees to Prime in the
amount of $269,716.74.
This appeal followed.
II. Judgment Notwithstanding the Verdict
Because we find it dispositive of this appeal, we shall first address Bank One’s argument
that the trial court should have granted Bank One’s motion for JNOV.
A. Standard of Review for JNOV
This Court reviews de novo a trial court’s denial of a motion for JNOV. Reed v Yackell,
473 Mich 520, 528; 703 NW2d 1 (2005). In determining the propriety of the trial court’s
decision, we review the evidence and all legitimate inferences in the light most favorable to the
nonmoving party. Forge v Smith, 458 Mich 198, 204; 580 NW2d 876 (1998). “Only if the
evidence, when viewed in this light, fails to establish a claim as a matter of law should a motion
for . . . JNOV be granted.” Reed, supra at 528.
B. The Parties’ Interests in the Notes and Mortgages
In order to determine whether Bank One’s actions with regard to the notes and mortgages
can support Prime’s claims, one must first determine the nature and extent of the interests that
the parties held in the notes and mortgages at issue.
The jury also returned a verdict against Vinton in an amount in excess of $60,000. However,
that judgment is not at issue on appeal.
1. Bedford’s Interests in the Notes and Mortgages
It is undisputed that Bedford originated all the notes and mortgages at issue. As part of
its financing activities, Bedford lent money to consumers to assist them in purchasing and
constructing modular homes on real property. In exchange for this financing, the consumers
executed a promissory note by which they agreed to pay Bedford the principal plus interest and
fees. In addition, to secure the payment of the note, the consumers created a mortgage in favor
Under Michigan law, a mortgage is not an estate in land, Foote v City of Pontiac, 161
Mich App 60, 65; 409 NW2d 756 (1987), citing Plasger v Leonard, 312 Mich 561, 564; 20
NW2d 296 (1945); it is a lien on real property intended to secure performance or payment of an
obligation. McKeighan v Citizens Commercial & Savings Bank of Flint, 302 Mich 666, 670;
5 NW2d 524 (1942). But, although a mortgage is a contingent interest in real property, a note
secured by a mortgage is itself personal property. Union Guardian Trust Co v Nichols, 311 Mich
107, 115; 18 NW2d 383 (1945). And the owner of a note secured by a mortgage may transfer
the note to third parties. See Ginsberg v Capitol City Wrecking Co, 300 Mich 712, 717; 2 NW2d
892 (1942), citing Ladue v Detroit & Milwaukee R Co, 13 Mich 380 (1865). Consequently, after
the individual consumers executed the notes and mortgages at issue in favor of Bedford, Bedford
owned those notes as personal property, which it could in turn transfer or pledge to third parties.
However, Bedford could not transfer the mortgages separately from the underlying notes.
A mortgage is a mere security interest incident to an underlying obligation, and the transfer of a
note necessarily includes a transfer of the mortgage with it. Ginsberg, supra at 717. For the
same reason, a transfer of a mortgage without the underlying obligation “is a mere nullity.” Id.;
see also Cummings v Continental Tool Corp, 371 Mich 177, 183; 123 NW2d 165 (1963) (noting
that a mortgage without an underlying enforceable obligation fails as a matter of law). Thus, the
interests held by Prime and Bank One must be ascertained by determining whether and to what
extent Bedford granted an interest in the notes to Prime and Bank One.
2. Prime’s Interest in the Notes and Mortgages
a. Prior Article 9 of the UCC Applied to the Creation of the
Security Interests in the Notes at Issue
On appeal, the parties dispute whether Article 9 of Michigan’s Uniform Commercial
Code applied to the interests at issue. Bank One contends that Article 9 clearly applied and is
dispositive of the entire case. In contrast, Prime argues that Article 9 of the UCC did not apply
because an interest in a note secured by a mortgage constitutes an interest in real property.
Therefore, we shall first address whether and to what extent Article 9 of the UCC applies to the
interests at issue.
We note that the actions taken by Bank One, which Prime alleges to have been unlawful,
all occurred before the enactment of the current version of Article 9, which became effective on
July 1, 2001. See 2000 PA 348. Although the current version of Article 9 generally applies to
actions commenced after its effective date, even when the liens at issue were created before the
effective date, see MCL 440.9702(1) and (3) (2001); but cf. Fodale v Waste Mgt of Mich, Inc,
271 Mich App 11, 17; 718 NW2d 827 (2006) (concluding, without analyzing MCL 440.9702,
that § 5 of prior Article 9 governed the default at issue because the agreements and actions at
issue were made before 2001—even though the plaintiff did not sue until after 2001), because
Prime’s claims are common-law claims premised on the propriety of Bank One’s actions under
the prior version of Article 9, we conclude that Bank One’s actions must be analyzed in light of
its rights and duties under the prior act. Furthermore, where the relative priorities of parties were
established before the effective date of revised Article 9, the article “as in effect before this
amendatory act takes effect determines priority.” MCL 440.9709(1) (2001). Hence, to the
extent that prior Article 9 applied and established the respective priorities of the parties in the
notes at issue, that priority governs the parties’ security interests.
Prior Article 9 applied to “any transaction (regardless of its form) which is intended to
create a security interest in personal property or fixtures . . . .” MCL 440.9102(1)(a) (emphasis
added); cf. MCL 440.9109(1)(a) (2001); see also Shurlow v Bonthuis, 456 Mich 730, 735; 576
NW2d 159 (1998) (noting that Article 9 provides a “comprehensive scheme” of regulation that
governs “[a]ll transactions intended to create a security interest in personal property and fixtures
. . . .”). Furthermore, MCL 440.9104(j) provided that prior Article 9 did not apply “to the
creation or transfer of an interest in or lien on real estate . . . .” Hence, to the extent that the
transactions at issue purported to create or transfer a lien on real property, prior Article 9 did not
apply to the transaction. See In re Moukalled Estate, 269 Mich App 708, 715-719; 714 NW2d
400 (2006) (holding that prior Article 9 did not apply to the creation of a security interest in a
land contract vendee’s interest in real estate); cf. MCL 440.9109(4)(k) (2001).
However, even before the enactment of Michigan’s UCC, our Supreme Court determined
that a note secured by a mortgage is personal property. Union Guardian Trust Co, supra at 115.
Furthermore, by its plain terms, prior Article 9 applied to the creation of a security interest in
instruments. See MCL 440.9102(1)(a). An instrument means “a negotiable instrument as
defined in [MCL 440.3104] or any other writing which evidences a right to the payment of
money and is not itself a security agreement or lease and is of a type which is in ordinary course
of business transferred by delivery with any necessary indorsement or assignment.” MCL
440.9105(1)(i); cf. MCL 440.9102(1)(uu) (2001). Further, “[t]he application of this article to a
security interest in a secured obligation is not affected by the fact that the obligation is itself
secured by a transaction or interest to which this article does not apply.” MCL 440.9102(3); cf.
MCL 440.9109(2) (2001). A comment to prior Article 9 illustrated application of this rule:
The owner of Blackacre borrows $10,000 from his neighbor, and secures
his note by a mortgage on Blackacre. This Article is not applicable to the creation
of the real estate mortgage. Nor is it applicable to a sale of the note by the
mortgagee, even though the mortgage continues to secure the note. However,
when the mortgagee pledges the note to secure his own obligation to X, this
Article applies to the security interest thus created, which is a security interest in
an instrument even though the instrument is secured by a real estate mortgage.
This Article leaves to other law the question of the effect on rights under the
mortgage of delivery or non-delivery of the mortgage or of recording or non-
recording of an assignment of the mortgagee’s interest.
In the present case, Bedford originated the loans and obtained a security interest—a
mortgage—in the consumer’s real property. Because the mortgage created a lien on real
property, prior Article 9 did not apply to the creation of that interest. MCL 440.9104(j).
However, the transactions between Bedford and Prime did not create a new lien or transfer or
create an interest in property. Instead, the transactions involved the pledge of existing notes,
which were secured by existing mortgages. And by its plain terms, prior Article 9 applied to the
creation of a security interest in those notes—even though the notes were secured by mortgages.
MCL 440.9102(3). Consequently, prior Article 9 clearly applied to the creation of the security
interests in the notes at issue. See In re SGE Mortgage Funding Corp, 278 BR 653, 657-659
(MD Ga, 2001) (holding that prior Article 9 applied to the creation of security interests in notes
secured by mortgages and listing authorities holding the same); see also In re Atlantic Mortgage
Corp, 69 BR 321, 324 (ED Mich, 1987) (interpreting Michigan’s prior Article 9 to require courts
to separately analyze a secured party’s interest in the note under the UCC and in the mortgage
under real property law).
b. Prime Had a Security Interest in the Notes Rather Than an Ownership Interest
In its pleadings before the trial court and at trial, Prime’s counsel often used imprecise
language when referring to the loans and mortgages at issue and suggested that Prime actually
owned the notes at issue. Further, at oral arguments, Prime’s counsel continued to assert that
Prime had an ownership interest in the notes at issue by virtue of its security interest. Hence, we
will next address whether Bedford actually transferred ownership of the notes at issue to Prime
or whether Bedford merely pledged the notes and mortgages at issue as security.7
The intent of the parties to an agreement concerning an interest in property determines
whether the agreement transfers ownership of the property or whether the parties merely
intended the property to secure performance of an obligation. MCL 440.9102(1)(a); Yamaha
Motor Corp, USA v Tri-City Motors and Sports, Inc, 171 Mich App 260, 276; 429 NW2d 871
(1988); Shurlow, supra at 735 (“[T]he determinative factor is not the form of the transaction as
much as it is the intent of the parties in entering into the transaction.”). The parties’ intent can
best be discerned by examining the language actually used in the governing agreement. Rory v
Continental Ins Co, 473 Mich 457, 469 n 21; 703 NW2d 23 (2005). If an agreement is
unambiguous, its provisions are a matter of law for the court. See Quality Products & Concepts
Although the official comments do not have the force of law, they are useful aids to
interpretation and construction of the UCC. Further, the comments were intended to promote
uniformity in the interpretation of the UCC. Therefore, it is appropriate for this Court to
consider the official comments when interpreting Michigan’s UCC. See Yamaha Motor Corp,
USA v Tri-City Motors and Sports, Inc, 171 Mich App 260, 271; 429 NW2d 871 (1988).
Prior Article 9 did not apply to a true sale of notes as opposed to a transfer intended merely to
provide security. See MCL 440.9102, comments 1 and 4. In addition, if Bedford no longer had
any interest in the notes by reason of sale to Prime, Bedford could not have granted a security
interest in the notes to Bank One. See MCL 440.9203(1)(c).
Co v Nagel Precision, Inc, 469 Mich 362, 375; 666 NW2d 251 (2003) (“[A]n unambiguous
contractual provision is reflective of the parties’ intent as a matter of law.”).
In January 1998, Prime agreed to extend a $10 million facility to Bedford in order to help
Bedford originate loans for the purchase and construction of modular homes. Several documents
memorialized the terms of the facility. And when these documents are read as a whole, it is clear
that the parties unambiguously agreed that Prime would have only a security interest in the notes
and mortgages funded by Prime.
In the credit agreement, the parties defined the term “mortgage” to mean “a security
agreement or other similar security device or arrangement from a Mortgagor to [Bedford]
creating a valid first mortgage lien on a Project” and defined “mortgage note” to mean “a
mortgage note or other evidence of indebtedness from a Mortgagor to [Bedford], evidencing
Mortgagor’s obligation to make repayment of a Construction Loan . . . .” The parties also
defined the term “collateral” to mean “the collateral . . . described in the Pledge and Security
Agreement . . . and such other collateral as shall be given from time to time to secure the
Indebtedness, including . . . the Mortgages and Mortgage Notes relating to Projects.” The credit
agreement also required Bedford to execute a UCC-1 financing statement “granting a valid first
position security interest in the Collateral.” Moreover, in addition to other required
documentation, Bedford agreed to obtain an original note and mortgage from the consumer and
deliver the mortgage to Prime before it obtained an advance from Prime to fund the note.
In the “Pledge and Security Agreement,” Bedford granted Prime a security interest in
collateral, which included “[a]ll instruments now owned and hereafter acquired by [Bedford],
including but not limited to all mortgage notes . . . together with all other related documents,
including but not limited to mortgages, security agreements or other similar security devices or
arrangements securing such mortgage notes . . . which instruments are financed with the
proceeds of loans from [Prime] to [Bedford] . . . .” Bedford also warranted that the notes were
properly endorsed and assigned to Prime, as required by the credit agreement, and that the
mortgages securing the notes were valid first liens that were duly recorded. Bedford also
warranted that the assignments of the mortgages in favor of Prime were properly recorded with
the office of the county in which the real estate was located. Finally, Bedford agreed to protect
the collateral, to not encumber or transfer the collateral to third parties, and to “deliver physical
possession of any Instrument, including . . . any Mortgage Note and . . . mortgage, to [Prime] or
an agent of [Prime].”
These agreements, when read together, unambiguously provide that Bedford granted a
security interest to Prime in the notes and mortgages that it originated with funds drawn on the
facility with Prime. Bedford’s agreement to indorse and deliver the notes to Prime and to assign
the mortgages underlying the notes to Prime are merely the steps that Bedford agreed to take to
ensure that Prime’s security interest in the collateral was fully protected. Hence, the assignment
of the mortgages by Bedford did not, as a matter of law, effect a transfer in the ownership of the
notes and mortgages from Bedford to Prime. Quality Products & Concepts Co, supra at 375;
Yamaha Corp, supra at 276.
c. Prime’s Security Interest in the Notes Was Unperfected Under Prior Article 9
Under prior Article 9, in relevant part, a security interest is not enforceable against the
debtor or third parties with respect to the collateral unless (1) the secured party has obtained
possession of the collateral under an agreement or the debtor has signed a security agreement
that describes the collateral, (2) value has been given, and (3) the debtor has rights in the
collateral. MCL 440.9203(1). The security interest attaches “when it becomes enforceable
against the debtor with respect to the collateral.” MCL 440.9203(2). Under the agreements in
the facility between Prime and Bedford, Prime had an enforceable security interest in the notes
and mortgages originated by Bedford using funds drawn on the facility. Although Prime had a
security interest in the notes and mortgages, until Prime perfected its security interest in the notes
and mortgages, Prime’s rights were subordinate to the rights of certain third parties. See MCL
Under prior Article 9, a security interest typically became perfected when the secured
party filed a UCC-1 financing statement covering the collateral to which the security interest
attached. MCL 440.9302(1). However, under prior Article 9, a secured party could perfect its
interest in instruments only by taking possession of the instruments. MCL 440.9304(1).8 And
the perfected status remained only as long as the secured party retained possession. MCL
440.9305. Although a secured party could take possession through an agent, “the debtor or a
person controlled by him cannot qualify as such an agent for the secured party.” MCL 440.9305,
comment 2; cf. MCL 440.9313 (2001), comment 3 (stating that the “debtor cannot qualify as an
agent for the secured party for purposes of the secured party’s taking possession”).9
On appeal, Prime contends that comment 2 to MCL 440.9305 does not accurately reflect
the law. However, the majority of courts that have examined the issue have rejected the notion
that a secured party can perfect its security interest by designating the debtor as its agent. See,
e.g., Edibles Corp v West Ontario Street Ltd Partnership, 273 Ill App 3d 550; 653 NE2d 45
(1995); In re Rolain, 823 F2d 198 (CA 8, 1987); In re Atlantic Mortgage Corp, supra at 331;
Heinicke Instruments Co v Republic Corp, 543 F2d 700 (CA 9, 1976); Appeal of Copeland, 531
F2d 1195 (CA 3, 1976); see also 1A-6A Worley & McDonnell, Secured Transactions Under the
UCC § 6A.04 (noting that there are “important limitations to the general principle of possessionby-agency” and stating that the “most important of these limitations is that the secured party
cannot perfect its security interest by designating as its agent the debtor or someone closely
associated with the debtor”). A debtor cannot qualify as the agent for a secured party for
purposes of taking possession of collateral because the continued possession by the debtor
establishes the opportunity for fraud:
The point of requiring possession of collateral
provide notice to prospective third party creditors that
unfettered use of the collateral. (See Ingersoll-Rand
Nunley (4th Cir. 1982), 671 F.2d 842, 844-45.).
in the secured party is to
the pledgor no longer has
Financial Corporation v.
Although never defined,
But a secured party was automatically perfected for 21 days after the security interest attached
to an instrument. See MCL 440.9304(4).
Under revised Article 9, a secured party can perfect its security interest in instruments either by
filing or by taking possession. MCL 440.9312(1) (2001); MCL 440.9313(1) (2001). Thus,
under revised Article 9, Prime could have allowed Bedford to retain the notes without
jeopardizing its perfected status by filing a financing statement. See also MCL 440.9312 (2001),
“possession” is used in article 9 to establish a filing scheme and allow perfection
by means other than filing, such as possession in the third party. Under pre-code
law, a security interest was invalid if the debtor retained control of the collateral.
That control could perpetrate fraud on potential creditors who, unaware of another
creditor’s security interest, would assume the collateral belonged to the debtor.
See Benedict v. Ratner, 268 U.S. 353, 45 S. Ct. 566, 69 L. Ed. 991 (1925).
[Edibles Corp, supra at 554.]
Further, although Prime and Bedford could have varied the provisions of the UCC by
agreement, see MCL 440.1102(3), the “meaning of the statute itself . . . cannot be varied by
agreement.” MCL 440.1102, comment 2; see also Becker v Nat’l Bank and Trust Co, 222 Va
716, 719-721; 284 SE2d 793 (1981) (noting that parties are not able to vary the concepts and
definitions of the UCC by agreement and, therefore, the parties before the court could not agree
to permit an assignee to negotiate notes because that would necessarily alter the meaning of the
terms “holder,” “due negotiation,” and “holder in due course”). Hence, the meaning of
“possession” for purposes of perfection under prior Article 9 must be understood in light of
comment 2 and cannot be varied by the agreement of the parties. MCL 440.1102, comment 2.
In addition, the rights of third parties under Article 9 cannot be “destroyed by a clause in
the security agreement.” MCL 440.1102, comment 2. Because the provisions governing the
manner in which a secured party obtains a perfected security interest in collateral directly affects
the rights of third parties in the same collateral, the parties to a security agreement cannot vary
the manner in which the secured party may obtain perfection of its security interest through
possession; the secured party must have and retain possession consistent with the requirements
of MCL 440.9305, as explained in comment 2. For these reasons, we reject Prime’s contention
that it could designate Bedford as its agent for purposes of possessing the notes.
In the present case, notwithstanding the requirements of the credit and security
agreements, it is undisputed that Bedford retained possession of the notes at issue during all
relevant periods. And Bedford could not possess the notes at issue on Prime’s behalf. MCL
440.9305, comment 2. Consequently, under prior Article 9, Prime only had an unperfected
security interest in the notes.
d. Bedford’s Assignment of the Mortgages Did Not Alter the Nature of
Prime’s Unperfected Security Interest in the Notes
On appeal, Prime contends that the recorded assignments of the original mortgages gave
it a perfected security interest that was superior to that of Bank One. We do not agree.
First, it must be reiterated that, under the plain language of the agreements governing the
relationship between Bedford and Prime, the assignment of the mortgages at issue did not effect
a transfer in ownership from Bedford to Prime. Hence, this is not a case where the parties
intended to evidence a transfer of ownership of the note and mortgage through the recording of
an assignment of the mortgage. See In re SGE Mortgage Funding Corp, supra at 662 (noting
that the assignments at issue did not transfer an interest in land). Rather, because the parties only
intended Prime to have a security interest in the notes and mortgages, prior Article 9 clearly
governed the security interest in the notes.10 See MCL 440.9102(1)(a) and (3). Nevertheless,
courts have struggled with the effect, if any, that real estate law has on the perfection of a
security interest under prior Article 9 in a note that was itself secured by a mortgage. See 1C-16
McDonnell, Secured Transactions Under the UCC § 16.09 (examining how courts have handled
the problem of perfecting an instrument secured by a mortgage); see also In re SGE Mortgage
Funding Corp, supra at 659-662.
As already noted, prior Article 9 encompassed the creation of a security interest in an
instrument, even if that instrument was itself secured by an underlying mortgage. See MCL
440.9102, comment 4. However, comment 4 also left “to other law the question of the effect on
rights under the mortgage of delivery or non-delivery of the mortgage or of recording or nonrecording of an assignment of the mortgagee’s interest.” Id. This commentary has led some
courts to use a bifurcated approach in determining a secured party’s interest in a note and
mortgage. See In re Maryville Loan & Savings Corp, 743 F2d 413 (CA 6, 1984), clarified on
reconsideration 760 F2d 119 (CA 6, 1985); In re Atlantic Mortgage Corp, supra at 324 (relying
on In re Maryville for the proposition that Michigan’s UCC must be read to require a bifurcated
approach); Provident Bank v Community Home Mortgage Corp, 498 F Supp 2d 558, 565 (ED
NY, 2007). Under the bifurcated approach, prior Article 9 would govern priorities in the note,
but real property law would govern priorities in the mortgage. In re Maryville Loan & Savings,
supra at 415-417. Hence, where two parties have a security interest in a single note, which is
secured by a mortgage, one party could have priority in the note under prior Article 9 and the
other could have priority in the mortgage under real property law.
But other courts have recognized that separately analyzing the perfected
status of the note and mortgage is simply inconsistent with the basic principle that
the note controls the mortgage. In their view, this inconsistency means that
Comment 4 must be either ignored or limited in its application to contexts other
than determination of the perfection of the assignee’s interest. In this view, the
creditor gains a perfected security interest in the note and mortgage and their
proceeds so long as it is perfected as to the note, and it is not necessary to consult
real estate law to determine whether the creditor’s interest in the mortgage is
[1C-16 McDonnell, Secured Transactions Under the UCC §
We reject the notion that, under Michigan real property law, by recording an assignment
of mortgage incident to a secured transaction, a secured party can obtain a greater security
interest in a mortgage than it has in the note underlying the mortgage. This can best be
illustrated by applying Michigan’s real property law to the facts of this case.
We note that, unlike prior Article 9, revised Article 9 applies to the sale of notes. However,
under revised Article 9, a purchaser automatically obtains a perfected security interest when the
security interest attaches, see MCL 440.9309(d) (2001); there is no need to file a financing
statement or take possession of the note.
Prior Article 9 governed Prime’s security interest in the notes at issue. MCL
440.9102(1)(a) and (3). Hence, Bedford’s assignment of the mortgages to Prime had no legal
effect on Prime’s security interest in the corresponding notes. And as already noted, a mortgage
without an underlying obligation is a nullity. Ginsberg, supra at 717. Although Prime correctly
observes that there were valid notes underlying these mortgages, Bedford did not transfer
ownership of those notes to Prime. For that reason, the effectiveness of the assignments to
Prime—if they had any legal effect at all—were contingent on Prime’s obtaining ownership of
the notes. Id. But Prime never obtained ownership of the notes. Instead, Bank One asserted its
right to dispose of the notes after Bedford’s default. See MCL 440.9504(1); cf. MCL
440.9610(1) (2001). When Bank One asserted this right, it took ownership of the notes, the
underlying mortgages transferred to Bank One by operation of law, and the assignments to Prime
of the mortgages securing these notes became nullities. Ginsberg, supra at 717. Hence, under
Michigan’s real property law—the “other law” of comment 4 to MCL 440.9102—the assignment
of a mortgage securing a note as part of a secured transaction does not give the assignee any
greater rights to the note than the assignee would have had under prior Article 9. And, because
the mortgage follows the note, Ginsberg, supra at 717, the assignee of a mortgage cannot have a
greater security interest in the mortgage than it has in the underlying note. Cf. In re Atlantic
Mortgage Corp, supra at 325 (interpreting Michigan’s prior Article 9 and real property law and
concluding that, “if an investor’s interest in the underlying debt is subordinate to the trustee’s,
the investor’s superior interest in the mortgage does not give the investor any right to collect the
debt,” and, consequently, “an investor without possession of the underlying note retains no rights
incident to either the note or the mortgage”).
We note that this approach is consistent with the approach adopted by Michigan’s
Legislature with the enactment of revised Article 9. Revised Article 9 explicitly provides that
the “attachment of a security interest in a right to payment or performance secured by a security
interest or other lien on personal or real property is also attachment of a security interest in the
security interest, mortgage, or other lien,” MCL 440.9203(7) (2001), and “[p]erfection of a
security interest in collateral also perfects a security interest in a supporting obligation for the
collateral,” MCL 440.9308(4) (2001). Further, although revised Article 9 continues to provide
that the “application of this article to a security interest in a secured obligation is not affected by
the fact that the obligation is itself secured by a transaction or interest to which this article does
not apply,” MCL 440.9109(2) (2001), the commentary no longer leaves it to “other law” to
determine the effect “on rights under the mortgage of delivery or non-delivery of the mortgage or
of recording or non-recording of an assignment of the mortgagee’s interest.” MCL 440.9102,
comment 4. Instead, MCL 440.9109 (2001), comment 7, provides:
Subsection  is unchanged in substance from former Section 9-102(3).
The following example provides an illustration.
Example 1: O borrows $10,000 from M and secures its repayment
obligation, evidenced by a promissory note, by granting to M a mortgage on O’s
land. This Article does not apply to the creation of the real-property mortgage.
However, if M sells the promissory note to X or gives a security interest in the
note to secure M’s own obligation to X, this Article applies to the security interest
thereby created in favor of X. The security interest in the promissory note is
covered by this Article even though the note is secured by a real-property
mortgage. Also, X’s security interest in the note gives X an attached security
interest in the mortgage lien that secures the note and, if the security interest in the
note is perfected, the security interest in the mortgage lien likewise is perfected.
See Sections 9-203, 9-308.
It also follows from subsection  that an attempt to obtain or perfect a
security interest in a secured obligation by complying with non-Article 9 law, as
by an assignment of record of a real-property mortgage, would be ineffective.
Finally, it is implicit from subsection [(2)] that one cannot obtain a security
interest in a lien, such as a mortgage on real property, that is not also coupled with
an equally effective security interest in the secured obligation. This Article rejects
cases such as In re Maryville Savings & Loan Corp., 743 F2d 413 (CA 6, 1984),
clarified on reconsideration, 760 F2d 119 (1985). [Emphasis added.]
Thus, under revised Article 9, Bedford’s assignment of the mortgages securing the notes at issue
to Prime would also have had no effect on its security interest.
Prime did not obtain any greater rights to the notes at issue by recording assignments of
the underlying mortgages than it had under prior Article 9. Consequently, notwithstanding
Bedford’s assignment of mortgages to Prime, Prime had only unperfected security interests in the
notes at issue, which could be subordinate to the rights of other secured creditors.
3. Bank One’s Interest in the Notes at Issue
Although Bank One refers to Prime’s unperfected security interests in the notes as
unenforceable, under prior Article 9, even an unperfected security interest could have priority
over the interests of some third parties. See MCL 440.9312(6)(b); MCL 440.9301(1). Hence, in
order to ascertain whether Bank One had a superior interest in the notes and mortgages, it will be
necessary to first determine what, if any, interest Bank One had in the notes and mortgages.
Under the terms of the pledge and security agreement executed as part of the $15 million
facility between Bank One and Bedford, Bedford agreed to grant Bank One a security interest in
certain specified “property now owned, or at any time hereafter acquired . . . .” The property
included “all Mortgage Loans, including all Mortgage Notes and Mortgages evidencing such
Mortgage Loans and the related Mortgage Loan Documents, which from time to time are
delivered, or caused to be delivered, to the Bank . . . pursuant hereto or in respect of which an
extension of credit has been made by the Bank under the Credit Agreement . . . .” Therefore,
under the plain unambiguous terms of the pledge, Bedford granted Bank One a security interest
in all loans—regardless of when they were originated—that were delivered to Bank One
“pursuant” to the pledge.
Although the pledge contemplated that the majority of the loans would be delivered after
Bank One funded the loan, the pledge also provided for the delivery of “additional Mortgage
Loans” whenever the “Borrowing Base, as reflected in any Borrowing Base Certificate or as
otherwise determined by the Bank, shall, at any time, fall below the aggregate amount
outstanding under the Credit Agreement or the Note . . . .” Hence, the pledge clearly
contemplated that Bank One would take a security interest in any note and mortgage delivered
under the pledge, not just the notes and mortgages originated with funds drawn on the $15
million facility. Because these provisions are unambiguous, Prime’s reliance on trial testimony
that Bank One actually only intended to take a security interest in notes that had been funded
with Bank One’s money is inapposite. Quality Products & Concepts Co, supra at 375. Rather,
it is clear that any note delivered to Bank One under the terms of the pledge constituted
It is undisputed that Bank One asked Bedford to bring all its notes and mortgages, which
included the notes at issue, to the closing to secure the funds advanced by Bank One.
Consequently, by entering into the agreements and bringing the notes to the closing, Bedford
gave Bank One a perfected security interest in the notes at issue. MCL 440.9304(1).
Moreover, the fact that Bedford had already granted a security interest in the notes to
Prime and agreed not to further pledge them as security did not defeat Bedford’s ability to grant
a security interest in them to Bank One. See MCL 440.9311 (“The debtor’s rights in collateral
may be voluntarily or involuntarily transferred (by way of sale, creation of a security interest,
attachment, levy, garnishment or other judicial process) notwithstanding a provision in the
security agreement prohibiting any transfer or making the transfer constitute a default.”); cf.
MCL 440.9401(2) (2001). As comment 1 to MCL 440.9311 states, the purpose of this statutory
provision is to “make clear that in all security transactions under this Article,” the debtor retains
“an interest (whether legal title or an equity) which he can dispose of and which his creditors can
reach.”11 Likewise, because prior Article 9 was—with some exceptions not relevant here—a
“pure race” statute, see MCL 440.9312(6); Yamaha Corp, supra at 275, the fact that Bank One
may have known that Bedford had already pledged the notes to Prime did not affect Bank One’s
ability to obtain and perfect a security interest in the notes. See also Example 2 to MCL
440.9312 (“Whichever secured party first perfects his interest (by taking possession of the
collateral or by filing) takes priority and it makes no difference whether or not he knows of the
other interest at the time he perfects his own.”); cf. MCL 440.9322 (2001), comment 3 (“The
rules may be regarded as adaptations of the idea, deeply rooted at common law, of a race of
diligence among creditors.”).
For these reasons, as of the June 1999 closing, Bank One had a perfected security interest
in all of the notes at issue. Although Prime’s security interest in the notes was prior in time to
Bank One’s security interest in the same notes, because Prime’s interest was unperfected, Bank
One had a superior interest in the notes. MCL 440.9312(6)(a); cf. MCL 440.9322(1)(b) (2001).
And, after Bedford’s default, Bank One could lawfully “sell, lease or otherwise dispose of any or
all of the collateral . . . .” MCL 440.9504(1).
C. Prime’s Claims Against Bank One Fail as a Matter of Law
Having clarified the nature of the interests held by each of the parties in the notes and
mortgages, we will now examine Prime’s claims in light of these interests.
For this reason, we reject Prime’s contention that Bedford did not have “rights in the
collateral” within the meaning of MCL 440.9203(1)(c). We also reject Prime’s contention that
Bank One did not provide value in exchange for the security interest in these notes and
mortgages; the promise to lend Bedford up to $15 million coupled with an actual advance of
several million dollars clearly met the requirements of MCL 440.9203(1)(b).
1. Conversion and Unjust Enrichment
Conversion is “any distinct act of domain wrongfully exerted over another’s personal
property in denial of or inconsistent with the rights therein.” Foremost Ins Co v Allstate Ins Co,
439 Mich 378, 391; 486 NW2d 600 (1992). As already noted, the notes and mortgages at issue
were personal property under Michigan law. Union Guardian Trust Co, supra at 115. However,
Prime did not own the notes; Bedford did. Prime only had a security interest in the notes. And
Bedford could, consistent with prior Article 9, grant a security interest in the notes to Bank One
notwithstanding the fact that it had already granted a security interest in the same notes to Prime.
MCL 440.9311. Further, because prior Article 9 gave Bank One’s interest in the notes priority
over Prime’s interest, Bank One’s disposition of the notes could not—as matter of law—
constitute a wrongful act of dominion that was inconsistent with Prime’s rights.12 Foremost Ins,
supra at 391. For the same reason, Bank One’s actions cannot constitute unjust enrichment:
Prime’s interests in the notes were subordinate to Bank One’s interests under prior Article 9.
Therefore, Prime was not entitled to the collateral and Bank One’s disposition of the notes did
not result in an inequity to Prime.13 See Belle Isle Grill Corp v Detroit, 256 Mich App 463, 478;
666 NW2d 271 (2003) (noting that unjust enrichment involves the receipt of a benefit by the
defendant from the plaintiff, and an inequity resulting to the plaintiff because of the retention of
the benefit by the defendant).
Prior Article 9 did not require Bank One to act in Prime’s best interests; rather, it required
Prime to protect itself by taking the necessary steps to perfect its security interests, Yamaha
Corp, supra at 274-275 (noting that a secured creditor is not required to act in the best interests
of other secured creditors and is entitled to rely on compliance with the UCC’s requirements for
perfection), which Prime did not do. And the provisions for default under Article 9 governed
any rights that Prime may have had as a result of Bank One’s handling of the disposition of the
notes. See MCL 440.9501 et seq. and MCL 440.9601 (2001) et seq. Consequently, when prior
Article 9 is properly applied to the facts of this case, Prime’s claims for conversion and unjust
enrichment necessarily fail.
2. Aiding and Abetting Conversion and Breach of Fiduciary Duty
A person may be liable for conversion “by actively aiding or abetting or conniving with
another in such an act. Indeed, one may be liable for assisting another in a conversion though
acting innocently.” Trail Clinic, PC v Bloch, 114 Mich App 700, 706; 319 NW2d 638 (1982);
Because the mortgages follow the notes by operation of law, see Ginsberg, supra at 717, when
Bank One lawfully disposed of the notes it necessarily lawfully disposed of the corresponding
We note that there is no evidence that this case involves a situation where the disposition of
the collateral could have resulted in a surplus had it been conducted in a commercially
reasonable manner. See MCL 440.9502(2) (noting that the debtor has the right to surplus), MCL
440.9504(1)(c) (requiring the secured party to dispose of collateral in a commercially reasonable
manner and to pay surplus to junior lien holders) and MCL 440.9507(1) (granting other secured
parties the right to hold a secured party liable for losses occasioned by the failure to comply with
the provisions for default).
see also Bush v Hayes, 286 Mich 546, 549-550; 282 NW 239 (1938). Hence, Bank One could be
liable for aiding and abetting Bedford’s conversion of the notes at issue. But Bedford owned the
notes at issue, and it could not convert its own property. See Foremost, supra at 391. Likewise,
because it owned the notes, Bedford could pledge them as security for a further extension of
credit, even though such a pledge might have been a breach or default of its agreements with
Prime. See MCL 440.9311. Hence, Bedford’s grant of a security interest in the notes to Bank
One was not wrongful and cannot support a claim for conversion. Belle Isle Grill, supra at 478.
Finally, although Bank One could be liable for participating in the violation of a fiduciary
duty owed to Prime by Bedford, Hayes-Albion Corp v Kuberski, 421 Mich 170, 187; 364 NW2d
609 (1984), in order to establish liability, Prime had to first demonstrate that Bedford had a
fiduciary relationship with Prime. On appeal, Prime argues that Bedford was its agent for
purposes of possessing the notes and, therefore, had a fiduciary duty to act in Prime’s best
interest with regard to the notes. However, as noted above, a debtor cannot qualify as an agent
for purposes of perfecting a security interest. MCL 440.9305, comment 2. Hence, to the extent
that Prime claims that Bedford was an agent for this purpose, that agency relationship was
invalid. Further, examining the agreements between Bedford and Prime as a whole, it is clear
that the agreements established a simple debtor-creditor relationship rather than an agency
relationship with its accompanying fiduciary duties. See Meretta v Peach, 195 Mich App 695,
697; 491 NW2d 278 (1992) (noting that an agency relationship may arise “when there is a
manifestation by the principal that the agent may act on his account”); see also Portage
Aluminum Co v Kentwood Nat’l Bank, 106 Mich App 290, 294; 307 NW2d 761 (1981) (noting
that fiduciary duties arise from “the relation subsisting between two persons of such a character
that each must repose trust and confidence in the other and must exercise a corresponding degree
of fairness and good faith”). And prior Article 9 specifically contemplated that a debtor’s
interest in secured property could be voluntarily or involuntarily transferred to third parties
notwithstanding an agreement—even an agency agreement—to the contrary. MCL 440.9311.
Thus, Bedford did not have a fiduciary duty to refrain from further pledging the notes at issue.
Even if Bedford had some fiduciary duty toward Prime, Bank One had the right to rely on
the provisions of Article 9 governing the creation and perfection of security interests in
collateral. Yamaha Corp, supra at 275. Hence, under prior Article 9, Bank One could properly
assume that Bedford’s possession of the notes gave it the right to grant a security interest in those
notes. See MCL 440.9311. And Bank One had no obligation to determine whether Bedford’s
decision to grant Bank One a security interest in the notes was consistent with its contractual
obligations or fiduciary duties to Prime. To hold otherwise would be to inject inefficiency and
uncertainty into secured transactions, because potential creditors would have to weigh the
possibility that a debtor might have contractual or fiduciary duties to another creditor, which may
be impaired by the creation of a new security interest in the debtor’s property, against the
benefits of extending credit to the debtor. See Yamaha Corp, supra at 274-275 (noting that the
aim of prior Article 9 was to provide a simple and unified structure to enable secured
transactions to go forward with less cost and greater certainty). For these reasons, we conclude
that the claim that Bank One aided and abetted Bedford’s breach of fiduciary duty also fails as a
matter of law.
Because Prime’s claims of conversion, unjust enrichment, aiding and abetting
conversion, and aiding and abetting breach of fiduciary duty against Bank One were untenable as
a matter of law, these claims should never have been submitted to the jury. For the same reason,
the trial court should have granted Bank One’s motion for JNOV on these claims. Therefore, we
reverse the trial court’s denial of Bank One’s motion for JNOV on these claims. Given our
resolution of this issue, we need not address any of the remaining issues raised on appeal.
III. General Conclusion
There were no factual disputes concerning the nature of the interests held by the parties in
the notes at issue. Likewise, there were no factual disputes about the actual actions taken by
each of the parties. Because Bank One’s actions could not constitute conversion, unjust
enrichment, or aiding and abetting conversion or breach of fiduciary duty under the undisputed
facts of this case, the trial court should have granted Bank One’s motion for JNOV. Reed, supra
at 528. Therefore, we reverse the trial court’s denial of Bank One’s motion for JNOV and
remand for entry of judgment in favor of Bank One on these four claims. Further, because the
parties agree that the jury verdict did not reflect an award based on an alleged conversion of the
“Edwards” check, we instruct the trial court to enter judgment in favor of Bank One on this claim
Reversed and remanded for further proceedings consistent with this opinion. We do not
/s/ Michael R. Smolenski
/s/ Peter D. O’Connell
/s/ Joel P. Hoekstra