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United States - Wikipedia

Clearfield Trust Co. v.
United States
Clearfield  Trust  Co.  v.  United
States, 318 U.S. 363 (1943), was a case
Clearfield Trust Co. v.
in which the Supreme Court of the
United States
United States held that federal
negotiable instruments were governed
by federal law, and thus the federal
court had the authority to fashion a
common law rule.[1]
Supreme Court of the United
States
Argued February 5, 1943
Contents Decided March 1, 1943
Facts & procedural history Full case Clearfield Trust
Decision
name Company, et al. v. United
States
See also
Citations 318 U.S. 363 (https://sup
External links reme.justia.com/us/318/
363/case.html) (more)
63 S. Ct. 573; 87 L. Ed.
Facts & procedural 838; 1943 U.S. LEXIS
1298
history Prior On writ of certiorari from
On April 28, 1936, the Federal Reserve
history the United States Court
of Appeals for the Third
Bank of Philadelphia mailed a check for
Circuit
$24.20, drawn on the Treasurer of the
Holding
United States, to Clair Barner. The
Federal negotiable instruments are
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check was Barner's paycheck from the governed by federal law, therefore
Works Progress Administration (WPA). the federal court has the authority to
Barner never received the check, which
fashion a federal common law rule.
was stolen by an unknown party. The Court membership
thief forged Barner's signature and Chief Justice
cashed the check at the J.C. Penney Harlan F. Stone
department store in Clearfield, Associate Justices
Pennsylvania, where the thief assumed Owen Roberts · Hugo Black
Stanley F. Reed · Felix Frankfurter
the identity of Mr. Barner. J.C. Penney
William O. Douglas · Frank
then turned the check over to Clearfield Murphy
Trust Co. as its collection agent. Robert H. Jackson · Wiley B.
Clearfield Trust Co. collected the check Rutledge
from the Federal Reserve Bank, Case opinions
knowing nothing about the forgery. Majority Douglas, joined by
unanimous
On May 10, 1936, Barner informed his
Justices Murphy and Rutledge took
supervisors at the WPA that he had not
no part in the consideration or
received his paycheck. His complaint decision of the case.
made its way up the chain of command,
and on November 30, 1936, Barner signed an affidavit alleging that the
endorsement of his name on the check was forged. Neither J.C. Penney Co. nor
Clearfield Trust Co. had any notice of the forgery until January 12, 1937, when the
U.S. government sent its first notice about it. The United States sent its initial
request for reimbursement on August 31, 1937, and filed suit against Clearfield
Trust Co. in the United States District Court for the Western District of
Pennsylvania on November 16, 1939. The government based its cause of action on
the express guaranty of prior endorsements by Clearfield Trust Co.

The District Court determined that the dispute should be governed by the state law
of Pennsylvania. It then dismissed the government's complaint on grounds of
laches, holding that because the United States unreasonably delayed in notifying

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Clearfield Trust Co. of the forgery, it was barred from recovery. The United States
Court of Appeals for the Third Circuit reversed the dismissal.

Decision
Justice Douglas, writing for a unanimous United States Supreme Court, first
distinguished the case from Erie Railroad Co. v. Tompkins, holding that because
the U.S. government was exercising a constitutionally-permitted function in
disbursing its own funds and paying its debts, the commercial paper it issues
should be governed by federal law rather than state law. Thus, the Erie doctrine
rule -- that a United States District Court must apply the law of the state in which it
is sitting -- did not apply. In the absence of an applicable Act of Congress, a federal
court had the right to fashion a governing common law rule by its own standards.

While the Court's decision explicitly retained the option of applying state law in
fashioning a federal common law rule, the Court chose instead to fashion its own
rule based on prior decisions. Justice Douglas identified a major federal interest in
permitting the Court to fashion its own rule: uniformity in dealing with the vast
amount of negotiable instruments and commercial paper issued by the federal
government. Douglas reasoned that if each transaction were subject to the
application of a multiplicity of different state laws, confusion and uncertainty in the
administration of federal programs would be the result.

Justice Douglas chose to follow the rule set forth in United  States  v.  National
Exchange Bank of Providence, 214 U.S. 302 (https://supreme.justia.com/cases/fed
eral/us/214/302/) (1909), in which the U.S. Supreme Court held that the U.S.
government, “as drawee of commercial paper stands in no different light than any
other drawee” and could recover on a check as a drawee from a person who had
cashed a pension check with a forged endorsement, despite the government's
protracted delay in giving notice of the forgery. The National Exchange Bank case
held the government to conventional business terms, but said nothing about
whether lack of prompt notice was a defense for nonpayment of a check. The Court
held that the Pennsylvania state law -- requiring prompt notice from the drawee --
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presumed injury to the defendant by the mere fact of delay. In this case, not only
did Clearfield Trust Co. fail to demonstrate that it had suffered a loss because of the
delay in notice, it could still recover the amount of the check from J.C. Penney,
because none of its employees detected the fraud. The court chastised both
companies for their "neglect and error" in accepting the forged check, and
suggested that they should only be permitted to shift the loss to the drawee only
when he can demonstrate that the delay in notice caused him damage.

See also
List of United States Supreme Court cases, volume 318

External links
^ Text of Clearfield Trust Co. v. United States, 318 U.S. 363 (1943) is available
from:  CourtListener (https://www.courtlistener.com/opinion/103794/clearfield-tr
ust-co-v-united-states/)  Findlaw (https://caselaw.findlaw.com/us-supreme-cour
t/318/363.html)  Google Scholar (https://scholar.google.com/scholar_case?cas
e=2654380351756788000)  Justia (https://supreme.justia.com/cases/federal/u
s/318/363/case.html)  Library of Congress (http://cdn.loc.gov/service/ll/usrep/u
srep318/usrep318363/usrep318363.pdf) 

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