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FARM CREDIT SERVICES OF AMERICA,
f/k/a FARM CREDIT SERVICES OF AMERICA, PCA,

Plaintiff and Appellee,

v.
DANIEL R. DOUGAN, a/k/a DANIEL REX DOUGAN;
BEVERLY DOUGAN,

Defendants and Appellants.
[2005 SD 94]
South Dakota Supreme Court
Appeal from the Circuit Court of
The Seventh Judicial Circuit
Pennington County, South Dakota

Hon. A. Peter Fuller, Judge

TIMOTHY M. ENGEL of
May, Adam, Gerdes and Thompson
Pierre, South Dakota

Attorneys for plaintiff and appellee.

JAMES P. HURLEY of
Bangs, McCullen, Butler, Foye & Simmons
Rapid City, South Dakota

Attorneys for defendants and appellants.

Argued on August 25, 2004

Opinion Filed 8/24/2005

#23102

KONENKAMP, Justice
[¶1.] While a lender was in the process of foreclosing on its mortgage loan, the borrowers managed to obtain a new loan to pay off the debt and the foreclosure was dismissed.  But the borrowers persisted in their counterclaim against the lender, seeking damages for breach of the implied covenant of good faith and fair dealing for the lender’s conduct in attempting to foreclose.  The essential complaint was that the lender only granted a two-month extension on a late installment payment instead of the longer extension the borrowers sought.  Because the lender held adequate security, the borrowers believe there was no good faith economic reason for not giving the requested extension.  The circuit court granted summary judgment dismissing the counterclaim.  On appeal, we conclude that because the lending agreement specifically permitted the lender’s actions, there could be no breach of the covenant of good faith and fair dealing, and therefore summary judgment was properly granted.

Background
[¶2.] Defendants Daniel and Beverly Dougan own a ranch in rural Pennington County.  Their earnings come primarily from raising wheat, livestock, and registered horses.  They inherited the ranch along with considerable debt when Daniel’s grandmother passed away.  To pay off the debt and to continue operating the ranch, they obtained several loans in the spring of 2001 from Farm Credit Services of America (FCS).  In April, they received a revolving line of credit for $100,000 (Note 101) and an installment loan of $25,000 (Note 151).  In May, they borrowed $791,000 (Note 201), secured by a mortgage on the real property, and another $60,000 (Note 152), secured by their personal property. In August, they took an installment loan of $15,000 (Note 153).
[¶3.] Financial conditions for the ranch deteriorated after the horrific events of September 11, 2001. Along with all the other nationwide economic repercussions, prices for livestock and commodities plunged. And to compound these troubles, western South Dakota fell under a severe drought.  When the Dougans were unable to make their first installment payment for the real estate loan (Note 201) on March 1, 2002, they asked for an extension until October 1, 2002.  FCS refused to grant the requested extension, but it did agree to extend the due date to May 1, 2002.  On April 1, FCS and the Dougans signed a “Loan Agreement Amendment and/or Revision of Promissory Note

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South Dakota Law