Litwiller Machine & Manufacturing, Inc. v. NBD Alpena Bank

NBD Alpena Bank (the Bank) (defendant) loaned money to Koss Industries (Koss) and took a security interest in, among other things, Koss’s then-owned and after-acquired inventory. The Bank perfected its security interest before 1984. In 1984, Litwiller Machine & Manufacturing, Inc. (Litwiller) (plaintiff) was awarded a contract to produce 39 boom assemblies for the government. Koss had already been awarded a government contract to produce identical boom assemblies and set up the process to produce them. Rather than setting up its own process, Litwiller entered into an unwritten agreement with Koss. Litwiller agreed to purchase the steel components needed for its assemblies and ship the components directly to Koss. Koss agreed to make the assemblies Litwiller needed along with the assemblies Koss produced for itself. After production, Litwiller was to ship its own assemblies to the government and pay Koss an agreed-upon price out of the proceeds of the government contract. Litwiller delivered the steel components (the subject components) to Koss. However, before Koss finished making Litwiller’s assemblies, Koss defaulted on its loan from the Bank. Thereafter, the Bank took possession of Koss’s assets, including the subject components. The Bank sold the subject components at a public sale. Accordingly, Litwiller sued the Bank for conversion. Litwiller argued that Koss did not own the subject components, so the Bank’s security interest never attached to them. The Bank argued that Koss had sufficient rights in the subject components such that its security interest attached. The trial court ruled for the Bank.