## Facts

- Nathan Shaull operated a cattle brokerage/feedlot business and financed operations through secured lending.
- Fin-Ag, Inc. financed Shaull beginning in 1997 and took a security interest in his cattle.
- In 1999 American Bank & Trust extended credit to Shaull and took a security interest in all cattle he owned and after-acquired cattle; American filed financing statements to perfect.
- In 2000 Feldman Brothers purchased several hundred cows from Shaull and left them on Shaull’s premises under a feeding/bailment-type arrangement, asserting it retained ownership.
- AgStar Financial Services, PCA later took a security interest from Feldman in Feldman’s cows.
- Neither Feldman nor AgStar filed financing statements to perfect any interest regarding the cows left in Shaull’s possession.
- In 2001 Shaull refinanced with American; American inspected the operation, observed roughly 900 cows, and relied on Shaull’s representation that the cows were his, although many were Feldman’s.
- American obtained updated security interests in Shaull’s inventory and farm products and filed to perfect; Fin-Ag subordinated its interest to American by agreement.
- In 2002 Shaull’s business failed; American pursued claim-and-delivery to determine rights to approximately 910 cows held by a receiver.
- The trial court found American held a first-priority perfected security interest, Fin-Ag held a perfected but subordinated interest, and Feldman’s ownership claim and AgStar’s claimed interest were inferior; Feldman and AgStar appealed.

## Issues

1. Whether Feldman’s asserted ownership of cattle left in Shaull’s possession (and AgStar’s related interest) could defeat American’s and Fin-Ag’s perfected security interests in cattle treated as Shaull’s collateral.
2. Whether Feldman was equitably estopped from asserting ownership against American because Feldman left the cattle with Shaull without filing or effective notice, allowing Shaull to appear as owner to lenders.
3. Whether American had notice or knowledge of Feldman’s or AgStar’s claims such that American could not take priority based on its security interest and reliance on Shaull’s apparent ownership.

## Decision

- The Supreme Court of South Dakota affirmed the circuit court’s priority judgment.
- American held a valid perfected first security interest in the cows at issue.
- Fin-Ag held a valid perfected security interest that was subordinate to American’s by subordination agreement.
- Feldman’s ownership claim and AgStar’s asserted security interest were subordinate to American’s and Fin-Ag’s interests.
- The court upheld application of equitable estoppel against Feldman based on Feldman’s conduct and American’s good-faith reliance.

## Legal Principles

- A secured creditor that properly perfects under Article 9 generally takes priority over unperfected or undisclosed competing claims in the same collateral.
- After-acquired property clauses and filings can attach and perfect a security interest in collateral the debtor represents as owned and holds out as part of the debtor’s inventory/farm products.
- Equitable estoppel may bar a true owner from asserting title against a good-faith creditor when the owner leaves goods with another in a manner that reasonably causes third parties to believe the possessor is the owner, and the creditor extends value in reliance on that appearance.
- Failure to use the public filing system to give notice of an asserted interest can shift the loss to the party who enabled misleading appearances, rather than to an innocent perfected creditor.
- Appellate review applies de novo review to legal conclusions and clearly erroneous review to factual findings.

## Conclusion

The court upheld first-priority status for American’s perfected security interest in the cattle because Feldman left cattle in Shaull’s possession without filing or effective notice, enabling Shaull’s apparent ownership and justifying estoppel against Feldman and any related unperfected claims by AgStar.


Am. Bank & Tr. v. Shaull, 678 N.W.2d 779 (S.D. 2004)