## Facts

- Ned Maryott, a licensed cattle dealer with a long-standing relationship with First National Bank of Eden, operated a cattle-dealing business and had multiple secured loans with the bank.
- After one of Maryott’s major customers defaulted, two sight drafts Maryott deposited were returned when that customer’s lender revoked the customer’s line of credit.
- Bank officers then observed three large checks drawn on Maryott’s account payable to Tri-County Livestock, Schaffer Cattle Company, and Central Livestock Company.
- Based on the returned drafts and the size of the checks, the bank treated the activity as suspicious, dishonored the three checks, froze Maryott’s accounts, declared itself insecure, and applied funds associated with the dishonored items to Maryott’s loan balance.
- Central Livestock had agreed to hold a separate check from Maryott after he disclosed temporary insufficient funds, but the bank refused to honor it due to the account freeze.
- After learning of the dishonors, Schaffer and Central filed claims against Maryott’s required dealer bond; the claims exceeded the bond amount, triggering loss of Maryott’s dealer license and effectively ending his business.

## Issues

1. Whether sufficient evidence showed the bank’s wrongful dishonor was a substantial factor (proximate cause) of Maryott’s business shutdown and economic losses.
2. Whether emotional-distress damages are recoverable as consequential damages for wrongful dishonor under SDCL 57A-4-402, and under what conditions.
3. Whether the jury instructions on proximate cause and emotional distress were legally correct, including whether the emotional-distress instruction was overbroad.

## Decision

- The Supreme Court of South Dakota affirmed liability for wrongful dishonor and affirmed the economic-damages award for lost income and loss of business value.
- The court held the evidence permitted a finding that the bank’s dishonor was a substantial factor in causing the bond claims, resulting license forfeiture, and business losses.
- The court held emotional-distress damages may be available as consequential damages under SDCL 57A-4-402 only if the plaintiff proves the elements of either intentional infliction of emotional distress (IIED) or negligent infliction of emotional distress (NIED).
- The court reversed the emotional-distress award and remanded because the jury was instructed using an expansive definition of emotional distress that did not require findings meeting IIED or NIED elements.

## Legal Principles

- Under SDCL 57A-4-402 (U.C.C. § 4-402), a bank is liable for damages proximately caused by wrongful dishonor; consequential damages are recoverable when they are the natural and probable result of the dishonor and were reasonably foreseeable.
- Proximate cause in this context applies the substantial-factor test; the bank’s conduct need not be the sole cause if it materially contributed to the injury.
- Emotional-distress damages are not categorically barred in wrongful-dishonor cases, but recovery requires proof satisfying South Dakota’s tort requirements for IIED (including extreme and outrageous conduct and severe distress) or NIED (including duty, breach, and legally sufficient emotional harm under state standards).
- A jury instruction permitting recovery for generalized unpleasant feelings (including worry or inconvenience) without requiring IIED or NIED elements is erroneous.

## Conclusion

The court upheld substantial consequential economic damages where wrongful dishonor foreseeably led to bond claims, loss of a required license, and business failure under a substantial-factor causation standard, but it set aside the emotional-distress award because emotional harm is compensable in this setting only upon proof of IIED or NIED and the jury was not properly instructed on those requirements.


Maryott v. First Nat'l Bank of Eden, 624 N.W.2d 96 (S.D. 2001)