Clearfield Trust Co. V. United States - Facts & Procedural History

Facts & Procedural History

On April 28, 1936, the Federal Reserve Bank of Philadelphia mailed a check for $24.20, drawn on the Treasurer of the United States, to Clair Barner. The check was Barner's paycheck from the Works Progress Administration (WPA). Barner never received the check, which was stolen by an unknown party. The thief forged Barner's signature and cashed the check at the J.C. Penney department store in Clearfield, Pennsylvania, where the thief assumed the identity of Mr. Barner. J.C. Penney then turned the check over to Clearfield Trust Co. as its collection agent. Clearfield Trust Co. collected the check from the Federal Reserve Bank, knowing nothing about the forgery.

On May 10, 1936, Barner informed his supervisors at the WPA that he had not received his paycheck. His complaint 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 Clearfield Trust Co. of the forgery, it was barred from recovery. The United States Court of Appeals for the Third Circuit reversed the dismissal.