Riverview Co-op., Inc. v. First Nat. Bank and Trust Co. of Michigan

• Decision Date: 01 April 1983
• Docket Number: Docket No. 67253
• Citation: 337 N.W.2d 225,417 Mich. 307,37 UCC Rep.Serv. 179
• Parties: RIVERVIEW COOPERATIVE, INC., A Michigan Non-Profit Corporation, Plaintiff-Appellant, v. The FIRST NATIONAL BANK AND TRUST COMPANY OF MICHIGAN, A National Banking Association, Defendant-Appellee. ,
• Court: Michigan Supreme Court

Page 225

337 N.W.2d 225

RIVERVIEW COOPERATIVE, INC., A Michigan Non-Profit Corporation, Plaintiff-Appellant, v. The FIRST NATIONAL BANK AND TRUST COMPANY OF MICHIGAN, A National Banking Association, Defendant-Appellee.

Docket No. 67253, April Term, 1983.

Calendar No. 9.

417 Mich. 307, 337 N.W.2d 225, 37 UCC Rep.Serv. 179

Supreme Court of Michigan.

Argued April 6, 1983.

Decided Aug. 22, 1983.

David S. Snyder, Snyder & Handler, P.C., Birmingham, for plaintiff-appellant.

John W. Allen and Rita L. Repko, Howard & Howard Attys., P.C., Kalamazoo, for defendant-appellee.

Before the Entire Bench (except CAVANAGH, J.).

RYAN, Justice.

This is an action against a bank for wrongfully honoring checks drawn upon the appellant's account by a drawer not authorized to do so.

Riverview Cooperative, Inc., is a nonprofit corporation established to provide low- and moderate-income housing in the Kalamazoo area. In 1973, its board of directors retained the services of Consumers System, Inc., hereinafter Consumers, a real-estate management firm, to oversee the day-to-day operations of Riverview. Consumers established bank accounts on Riverview's behalf with the appellee bank in October 1973. In 1974, Consumers was succeeded in appellant's service by ELM Associates, Inc., hereinafter ELM, which was owned and operated by Elaine DiBiasio. Although DiBiasio was a former employee of Consumers, she had never been authorized by corporate resolution or otherwise to sign checks for the withdrawal of funds from the Riverview account. Despite that fact, DiBiasio wrote and negotiated checks for the withdrawal of more than $20,000 from the Riverview account upon her sole signature and allegedly with the bank's knowledge that she was not authorized to do so.

On August 16, 1977, Riverview filed suit against ELM and DiBiasio, alleging conversion, fraud, and breach of fiduciary duty, claiming damages in the amount of $18,000. Approximately a week later, Riverview filed suit against the bank, alleging breach of contract and possibly alleging conversion in wrongfully honoring checks drawn upon the Riverview account by DiBiasio. On September 29, 1977, a default was taken against ELM and DiBiasio, and judgment was entered against them for $18,000 plus costs.

The bank then moved for accelerated judgment under GCR 1963, 116, alleging the defense of election of remedies. The trial court ruled on December 28, 1979, that Riverview's claim against appellee was barred by the doctrine of election of remedies. The Court of Appeals affirmed in an unpublished per curiam opinion, Riverview Cooperative, Inc. v. First National Bank & Trust Co. of Michigan, decided April 27, 1981 (Docket No. 49402), declaring itself bound by this Court's decision in Ielmini v. Bessemer National Bank, 298 Mich. 59, 298 N.W. 404 (1941).

We granted leave to appeal ¹ in order to determine whether the doctrine of election of remedies precludes Riverview from proceeding against appellee in this case, since Riverview has already obtained judgment, although unsatisfied, against the third-party converters, ELM and DiBiasio.

I

The doctrine of election of remedies has been much criticized as harsh and inequitable. Much scholarly writing has addressed the alleged inequities of the doctrine, and the case has been repeatedly advanced in the literature for restricting the application of the doctrine and even suggesting its abolition. ²

We are not required to evaluate the validity of the doctrine in this case, however, because we conclude that the doctrine is inapplicable in the sense that it does not preclude Riverview from proceeding against the bank. In order to appreciate why the doctrine of election of remedies is not a bar to Riverview's action against the bank, it is necessary to appreciate the nature of the doctrine and the requirements for its application.

While scholarly definitions of the doctrine of election of remedies abound, it suffices to say that, in the context of this case, the doctrine is merely a procedural rule which precludes one to whom there are available two inconsistent remedies from pursuing both. United States v. Oregon Lumber Co., 260 U.S. 290, 304, 43 S.Ct. 100, 104, 67 L.Ed. 261 (1922) (Brandeis and Holmes, JJ., and Taft, C.J., dissenting ), citing Hine, Election of Remedies, A Criticism, 26 Harv.L.Rev. 707, Griffith, Election Between Alternative Remedies, 16 L.Q.Rev. 160, and Galbraith, Election Between Alternative Remedies, 16 L.Q.Rev. 269; Bernstein v. United States, 256 F.2d 697 (CA 10, 1958), cert. dis. 358 U.S. 924, 79 S.Ct. 296, 3 L.Ed.2d 298 (1959); Ray v. Beneficial Finance Co., 92 N.J.Super. 519, 224 A.2d 143 (1966); Montgomery v. Cook, 76 N.M. 199, 413 P.2d 477 (1966). Its purpose is not to prevent recourse to alternate remedies, but to prevent double redress for a single injury. Dobbs, Remedies, Sec. 1.5, p. 15; St. Paul Fire & Marine Ins. Co. v. Michigan National Bank of Detroit, 660 F.2d 196 (CA 6, 1981); Bank of Commerce v. Paine, Webber, Jackson & Curtis, 39 Wis.2d 30, 158 N.W.2d 350 (1968); Cashen v. Owens, 225 Minn. 25, 29 N.W.2d 440 (1947). See Roberts v. Sears, Roebuck & Co., 617 F.2d 460 (CA 7, 1980), cert. den. 449 U.S. 975, 101 S.Ct. 386, 66 L.Ed.2d 237 (1980). In order that the election of remedies doctrine apply in any context, three prerequisites must be met. They were identified by this Court in Ielmini, supra, quoting 18 Am.Jur., Election of Remedies, Sec. 9, pp. 132-133:

" 'It is apparent from the definition and character of the doctrine of election of remedies already given that certain well recognized conditions must exist before the election becomes operative. These may be termed the "elements of election," and their presence is essential in every instance in which the doctrine is to be successfully invoked. Since election presupposes a choice, it is obvious that a first inquiry in all cases where it is sought to charge a litigant with the consequences of having elected a remedy must be directed to the question whether at the time of the election there were two or more remedies available to him. If it is found that alternate remedies existed, their character must then be looked into in order to ascertain whether they are consistent and cumulative or inconsistent, for, as will be seen, the doctrine of election of remedies has application only where the remedies are of the latter character. Available and inconsistent remedies being disclosed, it must further appear that the party has actually chosen and pursued the one to the exclusion of the other or others. Stated briefly, the essential conditions or elements of election of remedies are: (1) The existence of two or more remedies; (2) the inconsistency between such remedies; and (3) a choice of one of them. If any one of these elements is absent, the result of preclusion does not follow.' " Ielmini, 298 Mich. 66-67, 298 N.W. 404 (emphasis supplied).

Whether the doctrine bars prosecution of Riverview's claim in this case depends therefore upon a determination whether, at the time the cause of action against the bank accrued, the three conditions for application of the doctrine obtained. Clearly the first condition was met: two remedies existed, one against the converters of the funds, ELM and DiBiasio, and one against the bank for wrongful payment of the funds. The third requirement, a choice between available remedies, was likewise met because Riverview elected to proceed initially against ELM and DiBiasio and, in fact, obtained a judgment, although it remains unsatisfied. There remains the question whether the second of the necessary requirements for application of the doctrine obtained: inconsistency of the remedies.

The Court of Appeals found the requisite inconsistency, relying upon the analysis employed by this Court in the factually comparable Ielmini case. Certainly, it is indisputable that Ielmini is a statement of the majority rule in this country concerning the doctrine of election of remedies in the context of separate lawsuits by a depositor against a third-party converter and a bank for unauthorized payment to the converter of sums on deposit in the bank, and, if the reasoning of Ielmini is sound, it controls the issue before us and precludes Riverview's action against the bank.

In Ielmini, Mr. Negri, who was treasurer of a local lodge of a voluntary fraternal association, was ordered by the supreme lodge to liquidate the affairs of the local organization. In doing so, Negri withdrew $1,137 on deposit in a savings account at the defendant bank. The bank received a written indemnity from Negri holding it harmless for this withdrawal. A lawsuit was later initiated by the local lodge against Negri and the supreme lodge for restitution of the funds withdrawn, and the plaintiffs ultimately prevailed. Unable to satisfy the judgment, the plaintiffs then sued the defendant bank for conversion. Although the bank raised the affirmative defense of election of remedies, the plaintiffs again prevailed. This Court reversed, concluding that the two remedies pursued by the plaintiffs were inconsistent. In reaching its decision, this Court first discussed the doctrine of election of remedies and then concluded:

"In the chancery suit [against the converters] the trial court determined that the Supreme Grove [lodge] and Frank Negri wrongfully appropriated the moneys belonging to plaintiffs. Such a determination was the basis for the decree entered. See Koontz v. Bay Circuit Judge, 224 Mich. 463, 194 N.W. 1018 (1923). It was also determined that defendants wrongfully possessed money belonging to plaintiffs rather than money belonging to the bank. Otherwise, plaintiffs could not have been defrauded or had a decree entered in their favor. The chancery action was a ratification by plaintiffs of the action of the bank in paying the money to Negri as treasurer of the local lodge. The present action against defendant bank is based upon the theory that the bank has in...