The United States issued a check to an employee of the Works Progress Administration in April 1936. The check was mailed to the employee’s home. At some point, the check was intercepted and stolen by an unknown party. The thief then brought the check to a J.C. Penney Co. (defendant) store where he forged the employee’s signature as an endorsement and exchanged the check for merchandise. J.C. Penney then endorsed the check to Clearfield Trust Co. (defendant), who endorsed it and submitted it with several other checks to the Federal Reserve Bank of Philadelphia. Twelve days after the check was issued, in May 1936, the federal employee informed his supervisor that he had not yet received his check. His supervisor then informed other members of the government. In August 1937, the United States filed suit in United States District Court against Clearfield Trust, seeking to recover the lost funds. J.C. Penney eventually intervened as a defendant. The district court ruled that Pennsylvania, rather than federal law dictated the outcome of the case. The court then held for Clearfield, finding that under Pennsylvania law the government had unreasonably delayed in informing Clearfield Trust that the check was a forgery. The court of appeal reversed. Clearfield Trust appealed.