## Facts

- The United States issued a \$24.20 Treasury check payable to Clair A. Barner for WPA wages and mailed it to him; he never received it.
- An impostor obtained the check, forged Barner’s endorsement, and cashed it for cash and merchandise at a J.C. Penney store.
- J.C. Penney endorsed the check to Clearfield Trust Company, which presented it through the Federal Reserve Bank of Philadelphia with a guaranty of prior endorsements and remitted the proceeds to J.C. Penney.
- Clearfield and J.C. Penney acted in good faith and had no knowledge of the forgery.
- Federal officials learned within weeks that Barner had not received the check, and Barner later executed an affidavit of forgery, but the United States did not notify J.C. Penney or Clearfield until months later and did not demand reimbursement from Clearfield until more than a year after payment.
- The United States sued Clearfield to recover on the guaranty of prior endorsements; J.C. Penney intervened as a defendant.

## Issues

1. Whether the rights and duties of the United States on a Treasury check are governed by federal law rather than state law.
2. Under the governing law, whether the United States’ delay in giving notice of the forged endorsement bars recovery against the collecting bank that guaranteed prior endorsements.

## Decision

- The Supreme Court affirmed judgment for the United States.
- Federal law, not state law, governs the United States’ rights and duties on commercial paper it issues in the course of disbursing federal funds.
- In the absence of an applicable federal statute, federal courts may formulate governing federal common law rules for such instruments.
- Under the applicable federal rule, delay in notice of a forged endorsement bars the drawee’s recovery only upon proof that the delay caused actual damage.
- Because the claimed prejudice from the United States’ delay was not adequately proven, Clearfield remained liable to the United States on its guaranty.

## Legal Principles

- When the United States issues and pays checks as part of disbursing federal funds, its rights and obligations on those instruments present a federal question governed by federal law.
- If Congress has not supplied a controlling rule, federal courts may create federal common law to govern federal commercial paper, with an emphasis on nationwide uniformity.
- A drawee’s claim to recover money paid on a check bearing a forged payee endorsement accrues at the time of payment.
- The drawee is not charged with knowledge of the payee’s signature and may rely on a collecting bank’s guaranty of prior endorsements.
- A drawee’s delay in giving notice of a forgery defeats recovery only if the party resisting repayment proves actual damage caused by the delay; speculative or conjectural harm is insufficient.

## Conclusion

The Court held that Treasury checks are governed by federal common law and that a collecting bank that guarantees prior endorsements must reimburse the United States for payment on a forged endorsement unless the bank proves it suffered actual damage from the government’s delayed notice.


Clearfield Tr. Co. v. United States, 318 U.S. 363 (1943)