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Clearfield Tr. Co. v. United States - 318 U.S. 363, 63 S. Ct. 573 (1943)

Rule:

The rights and duties of the United States on commercial paper that it issues are governed by federal rather than local law. When the United States disburses its funds or pays its debts, it is exercising a constitutional function or power.

Facts:

On April 28, 1936, a check was drawn on the Treasurer of the United States through the Federal Reserve Bank of Philadelphia to the order of Clair A. Barner in the amount of $ 24.20. It was dated at Harrisburg, Pennsylvania, and was drawn for services rendered by Barner to the Works Progress Administration. The check was placed in the mail addressed to Barner at his address in Mackeyville, Pa. Barner never received the check. Some unknown person obtained it in a mysterious manner and presented it to the J. C. Penney Co. store in Clearfield, Pa., representing that he was the payee and identifying himself to the satisfaction of the employees of J. C. Penney Co. He endorsed the check in the name of Barner and transferred it to J. C. Penney Co. in exchange for cash and merchandise. Barner never authorized the endorsement nor participated in the proceeds of the check. J. C. Penney Co. endorsed the check over to the Clearfield Trust Co. which accepted it as agent for the purpose of collection and endorsed it as follows: "Pay to the order of Federal Reserve Bank of Philadelphia, Prior Endorsements Guaranteed." Clearfield Trust Co. collected the check from the United States through the Federal Reserve Bank of Philadelphia and paid the full amount thereof to J. C. Penney Co. Neither the Clearfield Trust Co. nor J. C. Penney Co. had any knowledge or suspicion of the forgery. Each acted in good faith. On or before May 10, 1936, Barner advised the timekeeper and the foreman of the W. P. A. project on which he was employed that he had not received the check in question. This information was duly communicated to other agents of the United States and on November 30, 1936, Barner executed an affidavit alleging that the endorsement of his name on the check was a forgery. No notice was given the Clearfield Trust Co. or J. C. Penney Co. of the forgery until January 12, 1937, at which time the Clearfield Trust Co. was notified. The first notice received by Clearfield Trust Co. that the United States was asking reimbursement was on August 31, 1937. In 1939, the United States filed suit against the Clearfield Trust Co. in federal district court based on the express guaranty of prior endorsements made by the Clearfield Trust Co. J. C. Penney Co. intervened as a defendant. The case was heard and the district court held that the rights of the parties were to be determined by the law of Pennsylvania. Since the United States unreasonably delayed in giving notice of the forgery to the Clearfield Trust Co., it was barred from recovery. It accordingly dismissed the complaint. On appeal, however, the court of appeals reversed. Thus, Clearfield appealed.

Issue:

Was the United States barred from recovery because it delayed in giving notice of the forgery of a check?

Answer:

No

Conclusion:

The United States Court held that one who accepted a forged signature of a payee was allowed to shift the loss to the drawee only on a clear showing that the drawee's delay in notifying him of the forgery caused damage. The Court held that Clearfield and Penney failed to show that the delay by the United States had caused them a manifest loss.

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