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

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U.S. Supreme Court

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

Clearfield Trust Co. v. United States

No. 490

Argued February 5, 1943

Decided March 1, 1943

318 U.S. 363

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE THIRD CIRCUIT

1. When the United States disburses its funds or pays its debts, it is exercising a constitutional function or power; and its rights and duties on commercial paper so issued are governed by federal, rather than local, law. United State v. Guaranty Trust Co., 293 U. S. 340, distinguished. P. 318 U. S. 366.

2. In the absence of an applicable Act of Congress, it is for the federal courts to fashion the governing rule of federal law according to their own standards. P. 318 U. S. 367.

3. Reasons which at times may make state law an appropriate federal rule are singularly inappropriate in determining the rights and duties of the United States on commercial paper which it issues, since the desirability of a uniform rule in such cases is plain. P. 318 U. S. 367.

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Primary Holding

A federal court can make a common-law rule regarding federal negotiable instruments, since they are controlled by federal law.

Facts

A check issued by the federal government was intercepted in the mail before it reached the intended recipient. J.C. Penney Co. endorsed it after it was cashed there by the person who intercepted it and forged the endorsement. Clearfield Trust Co. also endorsed the check with a guaranty of all prior endorsements and collected the appropriate sum from the Federal Reserve. Eight months after it discovered the forgery, the federal government demanded Clearfield to pay on the guaranty. It brought an action against Clearfield when it refused to comply, but the trial court ruled that it could no longer bring the claim because it had delayed so long. The appellate court disagreed and reinstated the action.

Opinions

Majority

  • William Orville Douglas (Author)
  • Harlan Fiske Stone
  • Owen Josephus Roberts
  • Hugo Lafayette Black
  • Stanley Forman Reed
  • Felix Frankfurter
  • Robert Houghwout Jackson

The Constitution grants the federal government authority over disbursing funds or paying its debts. Federal courts may use their own standards to create the applicable rules of law for issues regarding commercial paper, since Congress is silent on this subject. Using state rules would be counterproductive because of the divergences among them, while a single overarching standard would create a useful uniformity. The eight-month delay should not have prevented the case from being heard.

Recused

  • Frank Murphy (Author)
  • Wiley Blount Rutledge

Case Commentary

In the situations when the U.S. is a party to an action and its rights and obligations are implicated, federal common law still may be applicable for the court to use in interpreting those rights and obligations. It also can use its powers to create rules based on those precedents that bind parties in the future.

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