Jerke Constr., Inc. v. Home Fed. Sav. Bank - 2005 S.D. 19, 693 N.W.2d 59

Rule:

Under S.D. Codified Laws § 57A-9-203, to claim a valid, perfected security interest in collateral, the security interest must attach to the collateral. A security interest attaches when (1) there is an agreement that it attach; (2) value has been given by the secured party; and (3) the debtor has rights in the collateral.

Facts:

Defendant individual entered into an agreement to buy a bulldozer from a company. Later, the corporation gave a check to the company as a down payment for the bulldozer. Ultimately, the company issued a bill of sale to the corporation for the bulldozer, but it was delivered to the individual, who pledged the bulldozer as collateral for a loan from the bank. The trial court ordered that the corporation was entitled to possession because no security interest attached to the bulldozer. Defendant bank challenged the decision. 

Issue:

Was the corporation entitled to the possession of the bulldozer? 

Answer:

Yes.

Conclusion:

On appeal, the court affirmed. The individual only had naked possession of the bulldozer. Despite the agreement between the individual and company, the corporation wrote the check, received the bill of sale for the bulldozer, and claimed depreciation expenses. This was a prima facie showing that the corporation became the owner of the bulldozer. The bank failed to show that the individual had rights in the collateral to which a security interest could have attached under S.D. Codified Laws § 57A-9-203. The evidence supported the finding that the corporation did not cause the individual to appear as the bulldozer's owner. Thus, the trial court did not err in concluding that estoppel did not apply.