Jerke Construction, Inc. v. Home Federal Savings Bank

In December 1995, Justin Peck and Jerke Construction, Inc. (Jerke) (plaintiff) made a bartering agreement for Peck’s purchase of a used bulldozer. Peck had executed an agreement in writing with the seller of the bulldozer for its purchase, but Peck had later abandoned this agreement. Jerke paid the purchase price of $20,000 to the seller and paid $12,238.17 in repairs before delivering the bulldozer to Peck. In return, Peck was to repay the loan, in the amount of $32,238.17, by using the bulldozer on work projects for Jerke. The bulldozer was delivered to Peck, and for three years, Peck performed work projects for Jerke. Then, in March 1999, Peck acquired a $400,000 loan from Home Federal Savings Bank (Home Federal) (defendant) and gave the bank a security interest in his assets, including the bulldozer. The next week, Jerke removed the bulldozer from Peck’s property. Jerke sought a declaratory judgment to determine the ownership of the bulldozer. At trial, it was determined that Peck had never paid Jerke in full and had no evidence of how much work he had performed on Jerke’s behalf. Peck never sought a bill of sale or a written financing agreement, and he never listed the bulldozer on his taxes or took any other action to establish ownership. The court determined that Home Federal had made the loan to Peck without sufficient evidence of his ownership. A bank representative had seen the bulldozer on Peck’s property, and a property search showed no liens against the bulldozer in Peck’s name. The trial court ruled that Jerke owned the bulldozer and that no security interest attached when Peck used it as collateral. The court also ruled that Jerke did not mislead Home Federal by allowing Peck to appear as though he owned the bulldozer. Home Federal appealed to the South Dakota Supreme Court, arguing that Peck had ownership of the bulldozer and, therefore, rights in the collateral sufficient for attachment of Home Federal’s security interest. Home Federal further argued that Jerke allowed Peck to appear as though he was the owner, so Jerke should now be estopped from denying the existence of Home Federal’s security interest.