First Financial Bank Na v. Scott T Bosgraaf Trust
321004
Mich. Ct. App.Aug 11, 2015Background
- Scott and Suzanne Bosgraaf operated businesses including Auto Sports Unlimited (ASU) and owned the Franklin Property; they borrowed from Irwin Union (2005 loan secured by a mortgage on the Franklin Property and security interest in ASU assets).
- In 2006 the Bosgraafs refinanced much debt: Republic Bank received and recorded a mortgage on the Franklin Property (Republic Mortgage) and Huntington received a security interest in ASU assets; Irwin Union’s 2005 obligations were largely paid but an SLC remained unpaid.
- Irwin Union and the Bosgraafs later executed a Third Amendment (2006) and an Amended & Restated Loan Agreement (2007 Agreement). First Financial acquired Irwin Union’s loan portfolio from the FDIC and sued to foreclose after the Bosgraafs defaulted.
- Disputes centered on whether the 2005 Mortgage survived the later agreements (affecting priority between First Financial and Citizens Bank, successor to Republic) and on priority to ASU assets (First Financial v. Huntington).
- The trial court initially ruled the 2007 Agreement extinguished the 2005 Mortgage, but on reconsideration held the 2005 Mortgage survived and that First Financial had senior priority; the court also granted summary disposition against several Bosgraaf cross-claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the 2007 Agreement extinguished the 2005 Mortgage on the Franklin Property | Bosgraafs: the 2007 Agreement replaced the 2005 Agreement and thus extinguished the earlier mortgage | First Financial: the mortgage is a separate instrument that survived; 2007 Agreement does not expressly discharge it | The 2005 Mortgage survived; 2007 Agreement did not extinguish or subordinate it as a matter of law |
| Whether Bosgraafs have standing to contest priority of ASU assets between creditors | Bosgraafs: they challenged which creditor (First Financial or Huntington) had priority | First Financial: priority dispute is between creditors; debtor lacks a personal stake | Bosgraafs lacked standing to litigate creditor-priority dispute over ASU assets |
| Whether Bosgraafs’ cross-claims (breach of Third Amendment/2007 Agreement and conversion) should survive | Bosgraafs: bank breached by failing to discharge/release 2005 Mortgage and security agreement; conversion for asserting rent rights | First Financial: neither amendment/agreement required release; mortgage entitled bank to rents upon default | Summary disposition for First Financial; no contract breach or wrongful conversion by First Financial |
| Whether Citizens (successor to Republic) may enforce alleged contractual subordination or obtain equitable subrogation | Citizens: Third Amendment and 2007 Agreement show Irwin Union agreed that its interest would be second; alternatively equitable subrogation applies | First Financial: Citizens is a nonparty incidental beneficiary; no express promise to Citizens; Republic was a volunteer for subrogation purposes | Citizens cannot enforce contracts to which it is not an intended third‑party beneficiary; equitable subrogation denied (Republic was a mere volunteer) |
Key Cases Cited
- Rory v. Continental Ins. Co., 473 Mich. 457 (contract interpretation principles)
- Maiden v. Rozwood, 461 Mich. 109 (summary judgment and evidentiary standards)
- Richards v. Tibaldi, 272 Mich. App. 522 (Michigan is a race-notice recording state)
- Koenig v. South Haven, 460 Mich. 667 (third-party beneficiary / MCL 600.1405 interpretation)
- Washington Mut. Bank, F.A. v. ShoreBank Corp., 267 Mich. App. 111 (equitable subrogation principles; volunteer rule)
- French v. Grand Beach Co., 239 Mich. 575 (historical treatment of subrogation and equitable principles)