## Facts

- Glen and Elizabeth Garrett and their sons operated a 5,400-acre South Dakota farm and cattle ranch and had borrowed operating funds from BankWest since 1978.
- In 1980, the Garretts expanded operations by installing an irrigation system; the irrigation equipment was financed by a John Hancock affiliate secured by a first mortgage on the ranch, while BankWest provided operating credit secured by a second mortgage and liens on livestock, crops, and machinery.
- After 1982, declines in farm prices and land values caused serious cash-flow problems for the Garretts and reduced their borrowing capacity.
- As finances worsened, the Garretts and BankWest entered a memorandum of understanding requiring asset sales to reduce debt, restricting financial activity, and requiring BankWest approval for large cash transfers.
- The Garretts later sought additional funds from BankWest to cover obligations associated with the Hancock first-mortgage loan; BankWest declined to advance new funds, attempted (unsuccessfully) to negotiate to acquire the Hancock loan, and Hancock foreclosed.
- Under foreclosure pressure and outstanding debt, the parties entered a liquidation agreement requiring transfer of the ranch to BankWest in satisfaction of unpaid debts.
- The Garretts sued BankWest and a bank officer asserting contract and tort theories, including breach of fiduciary duty and breach of the implied covenant of good faith and fair dealing, based on the bank’s refusal to extend credit and its conduct leading to liquidation.

## Issues

1. Whether the evidence created a genuine issue of material fact that the bank-borrower relationship became a fiduciary relationship, and if so, whether the bank breached that duty.
2. Whether the lender’s refusal to extend additional credit and its conduct in negotiating a liquidation agreement could constitute breach of the implied covenant of good faith and fair dealing or other actionable bad-faith conduct.
3. Whether summary judgment for the bank and its officer was proper on the borrowers’ claims.

## Decision

- The Supreme Court of South Dakota affirmed summary judgment for BankWest and the bank officer.
- No fiduciary relationship existed on the record; the relationship remained a debtor-creditor relationship despite increased monitoring and restrictions during distress.
- The bank had no contractual obligation to provide new funds or pay off the first-mortgage loan, and refusing to extend additional credit was not actionable bad faith under the asserted theories.
- The borrowers failed to produce specific facts showing genuine, material disputes requiring trial.

## Legal Principles

- Summary judgment is appropriate when the movant shows no genuine issue of material fact and entitlement to judgment as a matter of law; the nonmovant must respond with specific facts establishing a triable issue.
- A fiduciary relationship requires more than borrower reliance or lender oversight; it generally requires a position of superiority and a duty to act primarily for the other party’s benefit, not merely to protect one’s collateral.
- In commercial lending, the implied covenant of good faith and fair dealing governs performance and enforcement of existing contractual obligations and does not, without a contractual commitment, impose a duty to extend, renew, or expand credit.
- Negotiated liquidation under foreclosure pressure, without evidence of legally actionable overreaching and absent a fiduciary duty or breached lending commitment, does not support tort liability.

## Conclusion

The court held that an intensively monitored farm-credit relationship during financial distress did not become fiduciary, and that a lender’s refusal to advance additional funds or assume a senior loan—absent a contractual obligation—did not support bad-faith or related tort claims; the borrowers’ failure to show material factual disputes warranted summary judgment for the bank and its officer.


Garrett v. BankWest, Inc., 459 N.W.2d 833 (S.D. 1990)