So, you’ve been asked to sign an affidavit or verify some fact, possibly as factual support for – or in response to – a motion for summary judgment; maybe it is just signing the “verification” for your company’s responses to written interrogatories. The fact is you are being asked to verify “facts”. Before you commit your name to the signature line, wouldn’t it be a good idea to know that the “facts” you are attesting to are, indeed, facts?
The dictionary I keep behind my desk says “verify” means: “To prove the truth of by the presentation of evidence or testimony; substantiate.” And, with a cryptic reference indicating “law”, it says: “To affirm formally or under oath.” Sounds pretty serious.
A while back, one of our more seasoned litigators defended a case for a large financial institution. The plaintiff also was a financial institution (a smaller, more localized bank) and, the heart of the case was, as between the two of them, which should bear the loss on a bogus half-million dollar check? The check appeared to have been drawn on an account at the plaintiff bank; our client was the bank where the bad guy elected to deposit the check. The plaintiff claimed the check was an “altered” item. The case looked straightforward.
Doing what good lawyers do, my colleague began the process of sifting facts from the allegations. As he would in any check case – even instinctively – he reached for his dog-eared copy of the Texas Business and Commerce Code, the “UCC”. He knew the UCC allocates responsibility for an altered check – a bona fide check issued by the drawer that someone has changed. For example, a check written to ABC Co. for $500.00 that gets pilfered from a mailbox and changed from $500.00 to $50,000.00; or, a check written to ABC Co. for $50,000.00, then taken by a clever fellow who changes “ABC Co.” to “ZABC Co.”, fills out and files an assumed name certificate so now he is “Clever Fellow doing business as ZABC Co.”, then deposits the check into his newly opened ZABC Co. account at Unsuspecting Bank, N.A. Generally, based on UCC warranties, the bank of first deposit will take the hit for an altered check, a basic premise being, he who deals with the bad guy bears responsibility.
As he worked up the case, my colleague came to realize that there was a bit of a gulf between the plaintiff’s allegations and what the discovery process was telling him. On the near side of that gulf was the plaintiff’s pleading, claiming the check was altered. The true facts were slightly different: the check was actually a counterfeit. Not a real check changed by the bad guy but, a new and different document made to look a lot like the real thing but, no part of which was the real thing. Our lawyer discovered that, after receiving its bank statement, the plaintiff’s customer notified its bank there was a problem. The customer filled out the usual fraud claim form and “verified” that no one authorized by the customer had signed the bogus check; it was a “forgery”. And, discovery showed my partner that the “real” check, the one the plaintiff claimed was altered – one with a similar, if not identical check number, also showed up on a bank statement. This real item had been paid days before the supposedly altered check was presented. The facts, as opposed to the pleading, strongly indicated “counterfeit”, not “alteration”.
The UCC, of course, covers that situation, too. A bank is presumed to know its customer’s signature. And, if an item that the customer did not sign – like the bogus check in our case – is presented for payment, the drawee bank may not pay it. It is not “properly payable” and the bank, therefore, is not authorized to disperse its customer’s funds – no matter how “artful” the forgery may be. As to the heart of our case then, the result should be clear. If the check was altered, our client was likely to take the loss; if it was a counterfeit, the plaintiff never should have debited its customer’s account and never should have sued.
Nevertheless, the plaintiff bank’s lawyer had pleaded alteration and, in spite of the evidence, he stuck with that theory. He stuck with it, perhaps, because no court had answered the narrow question the lawyer constructed: If one makes a copy of a legitimate check, without changing the original, and then manipulates the copy, is the manipulated copy an “alteration” of the original check for UCC warranty purposes?
The plaintiff bank’s lawyer moved for summary judgment. To support the motion, he prepared several affidavits. They all said much the same thing including that essential phrase, “I [the affiant] have personal knowledge of the facts stated and the facts stated are true and correct.” Each of three witnesses signed such an affidavit verifying, among other things, that the check was “intercepted in transit and altered”, words the lawyer must have felt were necessary to prove his alteration theory. That might have happened but, did any of the witnesses have “personal knowledge” of these supposed facts? Each signed, swearing he did and saying all the facts in the affidavit were “true and correct”. Remember, the company already had “sworn” on the bank’s fraud form that it did not issue the check at all. The bank statements proved that the real check, unaltered (a copy of which came into evidence), had been presented and paid just as the company intended.
After unsuccessfully trying to get opposing counsel to see the light, my colleague deposed the witnesses, the customer who signed the fraud claim and two affiants from the bank, and asked them to explain how they obtained “personal knowledge” that the check was “intercepted in transit and altered” as each testified and sworn to be “true and correct”? None had a good answer. Of course, it was clearly apparent that no one from the company had any personal knowledge about a check the company never issued. It was equally apparent, even obvious, that no one from the bank had the slightest inkling that the check even existed before it was presented for payment, much less “personal knowledge” that it was “intercepted in transit and altered”. One of the witnesses said, quite candidly, that he had relied on the lawyer to prepare the affidavit, he had relied on “others” as to the accuracy of the facts and, that he, the witness, had given the affidavit only a cursory review before signing.
Even though the true facts had been revealed, the trial court granted our opponent’s motion for summary judgment! I can’t explain why except to speculate – we got “home-towned”. We took the matter up on appeal and my speculation was confirmed several months later. With the excellent record built in the trial court by my colleague – including the witnesses’ obvious contradictions and good legal analysis applying the UCC – our client’s victory was won, if delayed. The court of appeals reversed the trial court and rendered a “take nothing” for our client on the plaintiff’s claims.
The court of appeals also sent the case back to the trial court on an improperly denied counterclaim – a counterclaim with the potential to cause the plaintiff bank (and its lawyer) to reimburse a substantial amount in unnecessary fees and costs. Much of those fees and costs could have been avoided if the plaintiff bank’s lawyer had limited the affidavits to facts his witnesses could actually verify from their personal knowledge rather than “facts” that might have happened and just happened to suit a legal theory.
We think it is not just “a good idea” but, it is essential, that you are fully informed and understand anything we may ask you to sign.
See Bank of America, N.A. v. Amarillo Nat. Bank, 156 S.W.3d 108, 55 UCC Rep.Serv.2d 496 (Tex. App. – Amarillo 2004, no pet.).
The court held that a forged check presented to drawee bank, which was copy of original check from drawer, but with name of payee, amount, and date changed on the copy, did not involve alteration of original instrument and instead involved alteration of copy of original instrument, and thus, depository bank did not owe warranty to drawee bank, under Uniform Commercial Code (UCC), that draft presented for payment had not been altered.