diff --git a/tracks/app/controllers/todos_controller.rb b/tracks/app/controllers/todos_controller.rb
index a92b0f58..c18cd994 100644
--- a/tracks/app/controllers/todos_controller.rb
+++ b/tracks/app/controllers/todos_controller.rb
@@ -130,13 +130,17 @@ class TodosController < ApplicationController
     @original_item_context_id = @item.context_id
     @original_item_project_id = @item.project_id
     @original_item_was_deferred = @item.deferred?
-    if params['item']['project_id'].blank? && !params['project_name'].blank? && params['project_name'] != 'None'
-      project = @user.projects.find_by_name(params['project_name'].strip)
-      unless project
+    if params['item']['project_id'].blank? && !params['project_name'].blank?
+      if params['project_name'] == 'None'
+        project = Project.null_object
+      else
+        project = @user.projects.find_by_name(params['project_name'].strip)
+        unless project
           project = @user.projects.build
           project.name = params['project_name'].strip
           project.save
           @new_project_created = true
+        end
       end
       params["item"]["project_id"] = project.id
     end
diff --git a/tracks/app/models/project.rb b/tracks/app/models/project.rb
index 2eb7b250..9f29b671 100644
--- a/tracks/app/models/project.rb
+++ b/tracks/app/models/project.rb
@@ -109,4 +109,8 @@ class NullProject
     true
   end
   
+  def id
+    nil
+  end
+  
 end
\ No newline at end of file
diff --git a/tracks/test/functional/todos_controller_test.rb b/tracks/test/functional/todos_controller_test.rb
index 4720ec9c..c0de5c49 100644
--- a/tracks/test/functional/todos_controller_test.rb
+++ b/tracks/test/functional/todos_controller_test.rb
@@ -64,6 +64,22 @@ class TodosControllerTest < Test::Unit::TestCase
     #assert_rjs :replace_html, "badge-count", '9' 
   end
   
+  def test_update_item_project
+    t = Todo.find(1)
+    @request.session['user_id'] = users(:admin_user).id
+    xhr :post, :update, :id => 1, :_source_view => 'todo', "context_name"=>"library", "project_name"=>"Build a working time machine", "item"=>{"id"=>"1", "notes"=>"", "description"=>"Call Warren Buffet to find out how much he makes per day", "due"=>"30/11/2006"}, "tag_list"=>"foo bar"
+    t = Todo.find(1)
+    assert_equal 1, t.project_id
+  end
+  
+  def test_update_item_project_to_none
+    t = Todo.find(1)
+    @request.session['user_id'] = users(:admin_user).id
+    xhr :post, :update, :id => 1, :_source_view => 'todo', "context_name"=>"library", "project_name"=>"None", "item"=>{"id"=>"1", "notes"=>"", "description"=>"Call Warren Buffet to find out how much he makes per day", "due"=>"30/11/2006"}, "tag_list"=>"foo bar"
+    t = Todo.find(1)
+    assert_nil t.project_id
+  end
+  
   def test_update_item
     t = Todo.find(1)
     @request.session['user_id'] = users(:admin_user).id