Clearfield Trust Co. v. United States

Facts

On April 28, 1936, the Government (Plaintiff) issued a check to Barner in the amount of $24.20 for services rendered to the Works Progress Administration.  Unexplainably, Barner did not receive the check.  Apparently the check was stolen and the endorsement forged, and the check was transferred to J.C. Penney Co. in exchange for cash and merchandise.  J.C. Penney endorsed the check over to Clearfield Trust Co. (Defendant) and Clearfield (Defendant) endorsed the check over to the Federal Reserve Bank of Philadelphia.  Defendant guaranteed prior endorsements as required by Treasury regulations.  Neither Defendant nor Penney were aware of or suspected a forgery.  Barner informed his foreman on May 10, 1936, that he never received the check.  Defendant and Penney learned of the forgery January 12, 1937.  Defendant was first notified that the Government (Plaintiff) was seeking reimbursement on August 31, 1937.  The Plaintiff’s cause of action was based upon the guarantee of the endorsement and was brought in federal district court in Pennsylvania.  The court held that Pennsylvania law applied under the Erie Doctrine, and because the Plaintiff unreasonably delayed in giving notice of forgery, the action was barred.  The court of appeals reversed, and Defendant appealed.