falsum

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. 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. 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, and this information was duly communicated to other agents of the United States. 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, and the first notice received by Clearfield Trust Co. that the United States was asking reimbursement was on August 31, 1937. 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. The District Court dismissed the complaint. On appeal the Circuit Court of Appeals reversed. 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.

Paul Weems served as a disbursing officer of the Bureau of Coast Guard and Transportation in the Philippine Islands. He was prosecuted for falsifying a public cash book. The complaint charged that he entered sums of 208 pesos and 408 pesos as wages paid for lighthouse service at Capul and Matabriga when those amounts had not been disbursed. The complaint described Weems as an official of the United States Government of the Philippine Islands and alleged that the falsification was committed corruptly with intent to deceive that government. A demurrer to the complaint was overruled. Weems was convicted after trial. The trial court imposed a sentence of fifteen years of cadena temporal together with a fine of four thousand pesetas and the accessory penalties of civil interdiction, perpetual absolute disqualification, and subjection to surveillance for life. The sentence required service at hard and painful labor while carrying a chain at the ankle hanging from the wrists and with no assistance from outside the penal institution. The Supreme Court of the Philippine Islands affirmed the conviction and sentence. Weems obtained a writ of error from the United States Supreme Court. The assignments of error challenged the sufficiency of the complaint based on the governmental description used. They also claimed that the punishment was cruel and unusual, although that contention had not been presented to the Philippine courts. The record before the Supreme Court contained no trial evidence. The penalty of cadena temporal included not only the term of imprisonment but also perpetual accessories that continued after release. Those accessories encompassed disqualification from exercising parental or marital authority, loss of rights to vote or hold office, and the requirement to notify authorities of any change in domicile while remaining under their inspection.

Osborne Computer Corporation was founded in 1980 by entrepreneur Adam Osborne and began manufacturing the Osborne I portable personal computer for the mass market, with shipments starting in 1981. By fall 1982, sales of the company's sole product had reached $10 million per month, making the company one of the fastest growing enterprises in the history of American business. In 1981 and again in 1982, the company retained Arthur Young & Company to audit its financial statements and issue audit reports. Arthur Young issued unqualified audit opinions on the company's 1981 and 1982 financial statements. The 1982 opinion was issued on February 11, 1983, appeared on Arthur Young's letterhead addressed to the company, and 100 copies of the professionally printed opinion were personally delivered to the company. The 1982 financial statements reported a modest net operating profit of $69,000 on sales of more than $68 million. In late 1982 the company postponed a planned initial public offering and instead issued warrants to investors in exchange for bridge financing loans or letters of credit. Plaintiffs, a group that included individuals as well as pension and venture capital funds, invested in the company in early 1983; one plaintiff, Robert Bily, purchased 37,500 shares of stock from Adam Osborne for $1.5 million. With one exception, plaintiffs testified that they made their investments in reliance on Arthur Young's unqualified 1982 audit opinion. After the warrant transaction closed on April 8, 1983, sales declined sharply because of manufacturing problems with the company's new Executive model computer, the public offering never occurred, and the company filed for bankruptcy on September 13, 1983, causing plaintiffs to lose their investments. Plaintiffs brought separate lawsuits against Arthur Young in Santa Clara County Superior Court that were consolidated for trial. Plaintiffs' expert witness identified more than 40 deficiencies in the 1982 audit amounting to gross professional negligence, including an understatement of liabilities by approximately $3 million that turned the reported $69,000 profit into a loss of more than $3 million, and testified that Arthur Young had discovered but failed to disclose material weaknesses in the company's internal accounting controls. After a 13-week trial the jury returned a verdict for plaintiffs on the professional negligence claim and awarded approximately $4.3 million in compensatory damages, but found for Arthur Young on the fraud and negligent misrepresentation claims. The trial court granted Arthur Young's motion for judgment notwithstanding the verdict on the negligence claim. The Court of Appeal reversed the judgment in favor of Arthur Young. The Supreme Court of California granted review.