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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 Trust Co., 296 Pa. 230, 145 A. 848. It accordingly dismissed the complaint. On appeal the Circuit Court of Appeals reversed. 130 F. 2d 93. The case is here on a petition for a writ of certiorari which we granted 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, 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. 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, 313 U.S. 289. 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. Cf. Deitrick v. Greaney, 309 U.S. 190; D'Oench, Duhome & Co. v. Federal Deposit Ins. Corp., 325 U.S. 447. 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, 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, 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, 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 Manufacturers Bank v. Merchants Bank, 128 U.S. 26, 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 he who presents a check for payment warrants that he has title to it and the right to receive payment. 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 National 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 National Bank v. City National Bank, 182 Mass. 130, 134, 65 N.E. 24. 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. Neil, 3 Burr, 1354; United States v. Chase National Bank, 252 U.S. 485) 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 Ecchange Bank, supra, p. 317; State v. Broadway National Bank, 153 Tenn. 113.


The National Exchange Bank case went no further than to hold that prompt notice of the discovery of the forgery was not a condition precedent to suit. It did not reach the question whether lack of prompt notice might be a defense. We think it may. If it is shown that the drawee on learning of the forgery did not give prompt notice of it and that damage resulted, recovery by the drawee is barred. See Ladd & Tilton Bank v. United States, 30 F. 2d 334; United States v. National City Bank, 28 F. Supp. 144. The fact that the drawee is the United States and the laches those of its employees are not material. Cooke v. United States, 91 U.S. 389, 398. The United States as drawee of commercial paper stands in no different light than any other drawee. As stated in United States v. National Exchange Bank, 270 U.S. 527, 534, "The United States does business on business terms." It is not excepted from the general rules governing the rights and duties of drawees "by the largeness of its dealings and its having to employ agents to do what if done by a principal in person would leave no room for doubt. Id, p. 535. But the damage occasioned by the delay must be established and not left to conjecture. Cases such as Market St. Title & Trust Co. v. Chelten Trust Co., supra, place the burden on the drawee of giving prompt notice of the forgery--injury to the defendant being presumed by the mere fact of delay. See London & River Plate Bank v. Bank of Liverpool, [1896] 1 Q.B. 7. But we do not think that he who accepts a forged signature of a payee deserves that preferred treatment. It is his neglect or error in accepting the forger's signature which occasions the loss. See Bank of Commerce v. Union Bank, 3 N.Y. 230, 236. He should be allowed to shift that loss to the drawee only on a clear showing

that the drawee's delay in notifying him of the forgery caused him damage. See Woodward, Quasi Contracts (1913) 8 25. No such damage has been shown by Clearfield Trust Co. who so far as appears can still recover from J. C. Penny Co. The only showing on the part of the latter is contained in the stipulation to the effect that if a check cashed for a customer is returned unpaid or for reclamation a short time after the date on which it is cashed, the employees can often locate the person who cashed it. It is further stipulated that when J. C. Penny Co. was notified of the forgery in the present case none of its employees was able to remember anything about the transaction or check in question. The inference is that the more prompt the notice the more likely the detection of the forger. But that falls short of a showing that the delay caused manifest loss. Third National Bank v. Merchant's National Bank, 76 Hun 475, 27 N.Y.S. 1070. It is but another way of saying that mere delay is enough.


G. Requirement of a Writing


C. A. D. C. (1974)

494 F2d 1059

WILKEY, Circuit Judge:

This appeal was taken from an order of the District Court which, in effect, held that the Commodity Credit Corporation (CCC), a government agency, could enforce an oral charter agreement with a private shipping firm, the American Renaissance Lines, Inc. [ARL]. The District Judge denied defendant ARL's motion for judgment on the pleadings, however, believing that there was "a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation." The District Judge certified the oral contract question to this court for an interlocutory appeal. After consideration of the certified question, we view the matter differently from the District Court and remand for action consistent with this opinion.

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In May 1966 the CCC issued by telephone and telegraph a general invitation to private enterprise to bid on the carriage of a large amount of foodstuffs from the United States to South Vietnam. The invitation to bid required that all offers be delivered either in person or by telephone. Acting through its agent Universal Shipping Corporation, ARL entered a bid. On 9 May 1966 oral agreement was reached with CCC's agent, the Ocean Transportation Division of the Foreign Agricultural Service of the U.S. Department of Agriculture. ARL proposes the SS Eviliz to transport the foodstuffs under charter to the U.S. Government. The oral agreement was subject to the terms of the telegraphed invitation to bid, and the USDA Grain Charter Party (1 March 1963 Revision). On 11 May 1966 the parties orally agreed through their agents to allow ARL to substitute another ship for the SS Eviliz, which ARL had been unable to purchase.

ARL repudiated the oral agreement on 18 May 1966 and refused performance. However, ARL did offer by telegram to pay any extra storage charges until other carriage was obtained. This refusal of performance occurred before

The parties to this litigation urge contrary interpretations of this provision. On the one hand, the Government urges that the statute is simply a recordation statute to facilitate auditing and has no effect on government contracts with private parties. On the other hand, ARL argues that the provision, in conjunction with certain regulations, establishes virtually a statute of frauds for such government contracts as involved here. Sustaining the goverrment position here would remove reciprocally the protection of the Government which was the initial intent of the statute, and this we decline to do.

[2] We hold that the statute does establish a requirement that government contracts of this type be in writing, and that contracts which are merely oral are not enforceable. We agree with the Government that this statute does not follow the typical statute of frauds format. But we do not believe that to be determinative. Rather, we feel that the Congress was concerned that the executive might avoid spending restrictions by asserting oral contracts, and so enacted the requirement of a writing.

The Supreme Court long ago considered a similar question in Clark v. United States. Although the statute there involved has since been repealed, it was similar to the statute here in that it required government contracts of certain departments to be in writing. The Supreme Court held that this statute effectively established a statute of frauds. The oral agreement made by the Government to charter a steamer from a private party was hence void. The Court, however, did allow the owner of the steamer to recover from the Government for the value of services rendered, on a theory of quantum meruit. Justice Bradley wrote for the Court:

The facility with which the government may be pillaged by the present-
ment of claims of the most extraordinary character, if allowed to be sus-
tained by parol evidence, which can always be produced to any required
extent, renders it highly desirable that all contracts which are made the
basis of demands against the government should be in writing. Perhaps the
primary object of the statute was to impose a restraint upon the officers
themselves, and prevent them from making reckless engagements for the
government; but the considerations referred to make it manifest that
there is no class of cases in which a statute for preventing frauds and
perjuries is more needed than in this.

While the Clark case dealt with a private party trying to collect from the Government, the principles enunciated above remain true when the situation is reversed and the Government is seeking damages. The requirement of a written contract protects both sides from the possibility of fraud or misinterpretation by the other. And, on the principle of mutuality, it is not appropriate for the Government to assert the lack of a written contract when it wishes an agreement to lapse, but to waive such an objection when it wishes to enforce an agreement.

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