Opinion ID: 1642627
Heading Depth: 1
Heading Rank: 2

Heading: Ness had rights in the collateral sufficient for a security interest to attach.

Text: Before a security interest may attach to collateral, the debtor must have rights in the collateral. SDCL 57A-9-203(1). Full ownership by the debtor is not necessary, but the security interest will attach to the collateral only to the extent of the debtor's rights in the collateral. 2 J. White and R. Summers, Uniform Commercial Code § 24-6 at 322-3 (3d ed. 1988); see also D. Epstein, J. Landers, and S. Nickles, Debtors and Creditors 223 (3d ed. 1987) (When a debtor has rights in collateral, the security interest she creates is coextensive with her rights.). In that regard, mere possession of the collateral by the debtor is insufficient to enable a security interest to attach to the collateral. Rohweder v. Aberdeen Prod. Credit Ass'n, 765 F.2d 109 (8th Cir.1985); cf. First Nat'l Bank in Pierre, S.D. v. Feeney, 393 N.W.2d 458 (S.D.1986). Accordingly, the security interest of a bailee's creditor does not attach to goods which are the subject of a bailment. Rohweder, supra at 112. Although mere possession of collateral does not create sufficient rights in the collateral for a security interest to attach, the necessary rights, otherwise non-existent, may be created by means of estoppel. If the owner of collateral allows another to appear as the owner or to dispose of the collateral, such that a third party is led into dealing with the apparent owner as though he were the actual owner, then the owner will be estopped from asserting that the apparent owner did not have rights in the collateral. In re Pubs, Inc., 618 F.2d 432 (7th Cir.1980). FmHA does not claim that Pleasant View should be estopped from challenging Ness' rights in the collateral. As a result, FmHA's security interest will attach to the calves only to the extent of Ness' interest therein. Pleasant View claims that Ness held the calves pursuant to a bailment, resulting in insufficient rights for a security interest to attach. However, the oral agreement between Pleasant View and Ness, as found by the trial court, provides otherwise. Under the agreement, Ness was to keep the entire 1986 calf crop, but he was required to  compensate  Pleasant View out of the calf crop for any death loss to the original herd. This arrangement indicates that the calf crop belongs to Ness because Pleasant View could not be compensated with something it presently owned. In other words, a calf belonged to Ness from conception until it was selected as a death loss replacement. Therefore, Ness' ownership of the calf crop provided sufficient rights in the collateral to enable FmHA's security interest to attach. WUEST, C.J., and MORGAN and MILLER, JJ., concur. HENDERSON, J., concurs in result.