318 U.S. 363
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, dated at Harrisburg, Pennsylvania for services rendered by Barner to the Works Progress Administration, and placed in the mail addressed to Barner at his address in Mackeyville, Pa., but Barner never received the check.1
Some unknown person obtained the check 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, but Barner never authorized the endorsement nor participated in the proceeds of the check.2 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.”3
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.4 Neither the Clearfield Trust Co. nor J. C. Penney Co. had any knowledge or suspicion of the forgery.5 Each acted in good faith.6
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, and this information was duly communicated to other agents of the United States.7 On November 30, 1936, Barner executed an affidavit alleging that the endorsement of his name on the check was a forgery.8 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, and the first notice received by Clearfield Trust Co. that the United States was asking reimbursement was on August 31, 1937.9
This suit was instituted in 1939 by the United States against the Clearfield Trust Co., the jurisdiction of the federal District Court being invoked pursuant to the provisions of 28 U.S.C. § 41(1). The cause of action was based on the express guaranty of prior endorsements made by the Clearfield Trust Co., J. C. Penney Co. intervened as a defendant, and the case was heard on complaint, answer and stipulation of facts.10 The District Court dismissed the complaint. On appeal the Circuit Court of Appeals reversed.11 The Supreme Court granted certiorari because of the importance of the problems raised and the conflict between the decision below and a decision from the Ninth Circuit.12
Whether the rights and duties of the United States on commercial paper which it issues are governed by federal rather than local law?13
The rights and duties of the United States on commercial paper which it issues are governed by federal rather than local law.14 When the United States disburses its funds or pays its debts, it is exercising a constitutional function or power.15 The authority to issue the check had its origin in the Constitution and the statutes of the United States and was in no way dependent on the laws of Pennsylvania or of any other state.16 In absence of an applicable Act of Congress it is for the federal courts to fashion the governing rule of law according to their own standards.17 The desirability of a uniform rule is plain.18 The issuance of commercial paper by the United States is on a vast scale and transactions in that paper from issuance to payment will commonly occur in several states.19 The application of state law would subject the rights and duties of the United States to exceptional uncertainty and lead to great diversity in results.20
Yes. The check was issued for services performed under the Federal Emergency Relief Act of 1935, and the authority to issue the check had its origin in the Constitution and the statutes of the United States.21 The District Court applied Pennsylvania law from Market Street Title & Trust Co. v. Chelten Trust Co., but that was erroneous because the rights and duties find their roots in federal sources.22 The Erie rule does not apply to this action because the United States was exercising a constitutional function when it disbursed its funds through the check drawn on the Treasurer.23
The rights and duties of the United States on commercial paper which it issues are governed by federal rather than local law.
Whether delay by the United States in giving notice of a forgery on a check bars recovery against a bank that guaranteed prior endorsements?24
Delay by the United States in giving notice of a forgery on a check may bar recovery against a bank that guaranteed prior endorsements. This occurs if it is shown that the drawee on learning of the forgery did not give prompt notice of it and that damage resulted.25 The drawee’s right to recover accrues when the payment is made.26 The United States as drawee of commercial paper stands in no different light than any other drawee.27 The damage occasioned by the delay must be established and not left to conjecture.28 The bank should be allowed to shift that loss to the drawee only on a clear showing that the drawee’s delay in notifying him of the forgery caused him damage.29
No. Although the United States delayed notice until January 12, 1937, and demand until August 31, 1937, no damage from the delay has been shown by Clearfield Trust Co.30 The stipulation showed only that if a check is returned unpaid a short time after it is cashed, employees can often locate the person who cashed it.31 When notified none of the employees was able to remember anything about the transaction.32 This falls short of a showing that the delay caused a manifest loss, as Clearfield Trust Co. can still recover from J. C.
Penney Co.33
Delay by the United States in giving notice of a forgery on a check does not bar recovery against a bank that guaranteed prior endorsements where no damage from the delay is shown.34