## Facts

- Bedford Financial, Inc. made short-term construction loans evidenced by promissory notes and secured by mortgages on the borrowers’ real property.
- Prime Financial Services LLC provided Bedford a revolving credit facility; Bedford granted Prime a security interest in certain notes and assigned the related mortgages to Prime.
- Although Prime’s agreement required delivery of the notes, Prime allowed Bedford to retain possession of the original notes and did not perfect its interest in the notes by the Article 9 methods applicable to instruments.
- Bank One, N.A. later extended its own credit facility to Bedford and paid off a substantial portion of Bedford’s debt to Prime.
- Bedford granted Bank One a security interest in notes and related mortgages, including 23 notes connected to Prime’s earlier financing.
- At closing, Bedford delivered the original notes to Bank One, and Bank One maintained possession.
- Bedford defaulted owing large sums; Bank One later transferred the collateral (including the 23 notes and related mortgages) as part of a settlement involving a guarantor.
- Prime sued Bank One on tort theories (including conversion and unjust enrichment), alleging Prime had a superior interest based on its earlier security arrangement and recorded mortgage assignments.
- A jury found for Prime and awarded damages; the trial court denied Bank One’s motion for judgment notwithstanding the verdict (JNOV).

## Issues

1. Whether former UCC Article 9 governs the creation, perfection, and priority of security interests in promissory notes secured by real estate mortgages.
2. Whether recording assignments of the underlying mortgages can confer priority in, or greater rights to, the associated notes despite noncompliance with Article 9 perfection rules.
3. Whether Bank One’s possession-perfected security interest had priority over Prime’s earlier but unperfected interest in the disputed notes and related mortgages.
4. Whether Bank One could be liable for conversion, unjust enrichment, or aiding-and-abetting claims when its disposition of collateral was authorized by Article 9.

## Decision

- The court held that former UCC Article 9 governed security interests in the mortgage notes because the notes are personal property instruments and the mortgages follow the notes.
- The court held that a recorded mortgage assignment does not give the assignee greater rights in the note than the assignee holds under Article 9.
- The court held that Bank One perfected its security interest by taking possession of the notes and therefore had priority over Prime’s unperfected interest.
- The court held that Bank One’s Article 9-authorized disposition of collateral could not support Prime’s tort and aiding-and-abetting claims as a matter of law.
- The court reversed the denial of JNOV and remanded for entry of judgment for Bank One on all claims.

## Legal Principles

- Security interests in promissory notes secured by mortgages are governed by former UCC Article 9; the note is the primary collateral, and the mortgage is incident to the debt and follows the note.
- Priority in such notes is determined by Article 9 perfection rules, not by real property recording concepts.
- A mortgage assignment cannot be used to circumvent Article 9; recording the mortgage assignment does not perfect, or elevate, an unperfected interest in the related note.
- A secured party with a perfected, priority interest may enforce and dispose of collateral as permitted by Article 9, and those authorized acts do not constitute conversion or unjust enrichment against a subordinate claimant.

## Conclusion

The court ruled that former Article 9 controlled the priority dispute over mortgage notes, that Bank One’s possession-perfected interest prevailed over Prime’s unperfected interest despite Prime’s recorded mortgage assignments, and that Bank One’s Article 9-authorized disposition of the collateral defeated Prime’s tort-based claims.


Prime Fin. Servs. LLC v. Vinton, 279 Mich. App. 245, 761 N.W.2d 694 (Mich. Ct. App. 2008)