Clearfield Trust Co v. United States

• Decision Date: 01 March 1943
• Docket Number: No. 490,490
• Citation: Clearfield Trust Co v. United States, 318 U.S. 363, 63 S.Ct. 573, 318 U.S. 744, 87 L.Ed. 838 (1943)
• Parties: CLEARFIELD TRUST CO. et al. v. UNITED STATES
• Court: U.S. Supreme Court

318 U.S. 363

63 S.Ct. 573

318 U.S. 744

87 L.Ed. 838

CLEARFIELD TRUST CO. et al.

v UNITED STATES.

No. 490.

Argued and Submitted Feb. 5, 1943.

Decided March 1, 1943.

As Amended Mar. 15, 1943.

Mr. Paul A. Freund, of Washington, D.C., for respondent.

Mr. Roswell Dean Pine, Jr., of New York City, for petitioners.

Mr. Justice DOUGLAS delivered the opinion of the Court.

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. It was dated at Harrisburg, Pennsylvania and was drawn for services rendered by Barner to the Works Progress Administration. The check was placed in the mail addressed to Barner at his address in Mackeyville, Pa. Barner never received the check. Some unknown person obtained it 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. 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.'¹ 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. This information was duly communicated to other agents of the United States and 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. 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 § 24(1) of the Judicial Code, 28 U.S.C. § 41(1), 28 U.S.C.A. § 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. The case was heard on complaint, answer and stipulation of facts. The District Court held that the rights of the parties were to be determined by the law of Pennsylvania and that since the United States unreasonably delayed in giving notice of the forgery to the Clearfield Trust Co., it was barred from recovery under the rule of Market Street Title & Trust Co. v. Chelten T. Co., 296 Pa. 230, 145 A. 848. It accordingly dismissed the complaint. On appeal the Circuit Court of Appeals reversed. 3 Cir., 130 F.2d 93. The case is here on a petition for a writ of certiorari which we granted, 317 U.S. 619, 63 S.Ct. 258, 87 L.Ed. —-, because of the importance of the problems raised and the conflict between the decision below and Security-First Nat. Bank v. United States, 103 F.2d 188, from the Ninth Circuit.

We agree with the Circuit Court of Appeals that the rule of Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487, does not apply to this action. The rights and duties of the United States on commercial paper which it issues are governed by federal rather than local law. When the United States disburses its funds or pays its debts, it is exercising a constitutional function or power. This check was issued for services performed under the Federal Emergency Relief Act of 1935, 49 Stat. 115, 15 U.S.C.A. §§ 721—728. 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. Cf. Board of Commissioners v. United States, 308 U.S. 343, 60 S.Ct. 285, 84 L.Ed. 313; Royal Indemnity Co. v. United States, 313 U.S. 289, 61 S.Ct. 995, 85 L.Ed. 1361. The duties imposed upon the United States and the rights acquired by it as a result of the issuance find their roots in the same federal sources.² Cf. Deitrick v. Greaney, 309 U.S. 190, 60 S.Ct. 480, 84 L.Ed. 694; D'Oench, Duhme & Co. v. Federal Deposit Ins. Corp., 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956. 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. United States v. Guaranty Trust Co., 293 U.S. 340, 55 S.Ct. 221, 79 L.Ed. 415, 95 A.L.R. 651, is not opposed to this result. That case was concerned with a conflict of laws rule as to the title acquired by a transferee in Yugoslavia under a forged endorsement. Since the payee's address was Yugoslavia, the check had 'something of the quality of a foreign bill' and the law of Yugoslavia was applied to determine what title the transferee acquired.

In our choice of the applicable federal rule we have occasionally selected state law. See Royal Indemnity Co. v. United States, supra. But reasons which may make state law at times the appropriate federal rule are singularly inappropriate here. 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. The application of state law, even without the conflict of laws rules of the forum, would subject the rights and duties of the United States to exceptional uncertainty. It would lead to great diversity in results by making identical transactions subject to the vagaries of the laws of the several states. The desirability of a uniform rule is plain. And while the federal law merchant developed for about a century under the regime of Swift v. Tyson, 16 Pet. 1, 10 L.Ed. 865, represented general commercial law rather than a choice of a federal rule designed to protect a federal right, it nevertheless stands as a convenient source of reference for fashioning federal rules applicable to these federal questions.

United States v. National Exchange Bank, 214 U.S. 302, 29 S.Ct. 665, 53 L.Ed. 1006, 16 Ann.Cas. 1184, falls in that category. The Court held that the United States could recover as drawee from one who presented for payment a pension check on which the name of the payee had been forged, in spite of a protracted delay on the part of the United States in giving notice of the forgery. The Court followed Leather Mfrs.' Bank v. Merchants Bank, 128 U.S. 26, 9 S.Ct. 3, 32 L.Ed. 342, which held that the right of the drawee against one who presented a check with a forged endorsement of the payee's name accrued at the date of payment and was not dependent on notice or demand. The theory of the National Exchange Bank case is that the who presents a check for payment warrants that he has title to it and the right to receive payment.³ If he has acquired the check through a forged endorsement, the warranty is breached at the time the check is cashed. See Manufacturers' Trust Co. v. Harriman Nat. Bank Trust Co., 146 Misc. 551, 262 N.Y.S. 482; Bergman v. Avenue State Bank, 284 Ill.App. 516, 1 N.E.2d 432. The theory of the warranty has been challenged. Ames, The Doctrine of Price v. Neal, 4 Harv.L.Rev., 297, 301—302. It has been urged that 'the right to recover is a quasi contractual right, resting upon the doctrine that one who confers a benefit in misreliance upon a right or duty is entitled to restitution.' Woodward, Quasi Contracts (1913) § 80; First Nat. Bank v. City Nat. Bank, 182 Mass. 130, 134, 65 N.E. 24, 94 Am.St.Rep. 637. But whatever theory is taken, we adhere to the conclusion of the National Exchange Bank case that the drawee's right to recover accrues when the payment is made. There is no other barrier to the maintenance of the cause of action. The theory of the drawee's responsibility where the drawer's signature is forged (Price v. Neale, 3 Burr. 1354; United States v. Chase Nat. Bank, 252 U.S. 485, 40 S.Ct. 361, 64 L.Ed. 675, 10 A.L.R. 1401) is inapplicable here. The drawee, whether it be the United States or another, is not chargeable with the knowledge of the signature of the payee. United States v. National Exchange Bank, supra, 214 U.S. at page 317, 29 S.Ct. at page 669, 53 L.Ed. 1006, 16 Ann.Cas....