## Facts

- Litwiller Machine & Manufacturing, Inc. (Litwiller) and Koss Industries (Koss) held separate government contracts to produce identical boom assemblies.
- Litwiller arranged (without a written contract) for Koss to fabricate Litwiller’s 39 assemblies using steel components Litwiller purchased from a supplier.
- The supplier shipped the components directly to Koss’s shop, where components for both companies’ contracts were commingled and not physically segregated or labeled as Litwiller’s.
- Koss had a preexisting, perfected security agreement with NBD Alpena Bank (Bank) granting the Bank a security interest in all of Koss’s “inventory, raw materials, work in process and supplies now owned or hereafter acquired.”
- Before fabrication was completed, Koss defaulted on its loan to the Bank.
- Litwiller notified the Bank that it claimed ownership of components attributable to its 39 assemblies.
- The Bank took possession of Koss’s assets, including the components, and sold them at a public sale.
- Litwiller sued the Bank for conversion, alleging the Bank wrongfully exercised dominion over Litwiller’s property.

## Issues

1. Whether Koss had sufficient “rights in the collateral” under UCC Article 9 to permit the Bank’s perfected security interest to attach to steel components purchased by Litwiller but delivered to and held by Koss for fabrication.
2. Whether, given attachment and perfection, the Bank’s seizure and sale defeated Litwiller’s conversion claim as a matter of law.

## Decision

- The Michigan Court of Appeals affirmed summary disposition for the Bank and denied Litwiller’s motion.
- The court held that Koss had sufficient “rights in the collateral” for the Bank’s security interest to attach to the components.
- Because the Bank’s security interest attached and was perfected, Litwiller could not establish conversion based on the Bank’s possession and sale of the components.
- The court treated the case as presenting a legal question on undisputed facts, making summary disposition appropriate.

## Legal Principles

- Under UCC Article 9, attachment requires a signed security agreement describing the collateral, value given, and that the debtor has “rights in the collateral.”
- “Rights in the collateral” do not require the debtor to have full legal title; possessory and contractual rights can be sufficient.
- A debtor’s physical possession of goods, coupled with enforceable obligations and an economic stake in using or transforming the goods for compensation, may constitute sufficient rights to support attachment.
- A broad after-acquired collateral clause covering inventory, raw materials, and work in process can reach goods used in the debtor’s manufacturing operations even if a third party supplied or claimed ownership of the inputs.
- When material facts are not disputed and the outcome turns on whether the debtor’s interests satisfy Article 9’s “rights in collateral” requirement, the issue may be resolved as a matter of law on summary disposition.

## Conclusion

The court held that Koss’s possession and contractual fabrication rights gave it sufficient “rights in the collateral” to allow the Bank’s perfected security interest in Koss’s inventory and related categories to attach to components Litwiller had purchased and delivered to Koss, defeating Litwiller’s conversion claim.


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