Clearfield Trust Company v. United States

Supreme Court of the United States · 1943 · Civil Procedure

318 U.S. 363 (1943)

Updated July 29, 2026

Civil ProcedureFederal common lawCommercial paperEriegovernment checksforged endorsementdrawee liabilitynotice of forgery

Facts

The United States issued and mailed a check payable to Clair A. Barner for services rendered to the Works Progress Administration, but Barner never received it. An unknown person forged Barner's endorsement, cashed the check at J. C. Penney Co., and the check was then passed through Clearfield Trust Co., which guaranteed prior endorsements and collected payment from the United States through the Federal Reserve Bank of Philadelphia. Barner informed WPA personnel by May 10, 1936 that he had not received the check, and executed an affidavit of forgery on November 30, 1936, but Clearfield Trust Co. was not notified of the forgery until January 12, 1937, and first learned the United States sought reimbursement on August 31, 1937. The parties stipulated that Clearfield Trust Co. and J. C. Penney Co. acted in good faith and lacked knowledge or suspicion of the forgery.

Issue

Whether the rights and duties arising from a federally issued check are governed by state law or federal law, and whether the United States was barred from recovering from the collecting bank because it delayed giving notice of the forged payee endorsement. More specifically, the Court had to decide whether delay alone defeats the drawee's claim or whether the bank must show damage caused by the delay.

Rule

The rights and duties of the United States on commercial paper it issues are governed by federal law, not local state law, and in the absence of an applicable Act of Congress federal courts may fashion the governing rule. Under that federal rule, a drawee who pays a check bearing a forged payee endorsement may recover from the presenter or collecting party because the right accrues at payment and is not dependent on notice or demand; however, if the drawee fails to give prompt notice after learning of the forgery, recovery is barred only upon a clear showing that the delay caused actual damage.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

The United States mails a disaster-relief check to Elena Ruiz in Albuquerque, New Mexico. The check is stolen, bears a forged payee endorsement, and is presented through Sand Mesa Bank, a fictional New Mexico bank, which obtains payment from the Treasury; in the government's reimbursement suit, Sand Mesa argues New Mexico law governs because every transfer occurred within New Mexico.

Which source of law should the court apply to determine the rights and duties arising from the check?

Explanation. The majority held that Erie does not control this kind of dispute. When the United States issues and pays its own commercial paper, it acts pursuant to federal constitutional and statutory authority, so the resulting rights and duties are governed by federal rather than state law. That remains true even if the transaction happened wholly within one state.