## Facts

- Justin Peck agreed in writing to buy a Caterpillar D-9 bulldozer from Sweetman Corporation for $20,000.
- Jerke Construction, Inc. funded the transaction by paying a $6,000 down payment and later issuing a $14,000 final payment to Sweetman.
- Jerke also paid $12,238.17 to repair the bulldozer’s transmission.
- After final payment, Sweetman issued a bill of sale to Jerke for the bulldozer.
- The bulldozer was delivered to Peck in 1996 and remained on his property and in his possession for several years.
- Peck described the arrangement as a loan or barter: he would repay Jerke by performing work for Jerke using the bulldozer; records supported, at most, partial credit for such work.
- In 1999, Peck obtained a $400,000 loan from Home Federal Savings Bank and granted the bank a security interest in his assets, listing the bulldozer as collateral.
- The bank’s loan officer saw the bulldozer on Peck’s property and performed a UCC search that showed no filed liens against Peck for the bulldozer.
- Shortly after the loan, Jerke removed the bulldozer and asserted ownership.
- Jerke filed a declaratory judgment action seeking a determination that it owned the bulldozer and that the bank had no valid security interest.

## Issues

1. Whether a security interest attached under UCC Article 9 where the debtor possessed the bulldozer but another party paid for it and held the bill of sale.
2. Whether the titled owner was estopped from denying the bank’s security interest because it allowed the debtor to possess and use the bulldozer in a manner that allegedly suggested ownership.

## Decision

- The Supreme Court of South Dakota affirmed judgment for Jerke.
- The court held the bank’s claimed security interest did not attach because Peck lacked sufficient rights in the bulldozer.
- The court held Jerke was not estopped from asserting ownership against the bank.
- Jerke was entitled to possession of the bulldozer; the bank had no enforceable security interest in it.

## Legal Principles

- Under UCC Article 9, a security interest cannot attach unless the debtor has rights in the collateral; mere possession, without legally cognizable ownership rights, is insufficient.
- Evidence of ownership such as payment of the purchase price and a bill of sale in the claimant’s name supports the conclusion that the possessor lacks attachment-enabling rights.
- A creditor asserting estoppel must show the true owner’s conduct materially enabled the debtor to appear as owner and that the creditor reasonably relied on that appearance; limited creditor investigation can defeat the reliance element.
- Allowing another to possess and use equipment does not, by itself, bar the owner from asserting title against a secured lender where the owner did not misrepresent ownership and the lender failed to verify ownership beyond possession and a UCC search.

## Conclusion

The court concluded that Peck’s long-term possession and use of the bulldozer did not supply the “rights in the collateral” required for attachment, and Jerke’s ownership—supported by its payments and bill of sale—defeated both the bank’s Article 9 attachment claim and its estoppel theory.


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