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.

Douglas reasoned that if each transaction were subject to the application of a multiplicity of different state laws, confusion and uncertainty in the administration of federal programs would be the result.

The National Exchange Bank case held the government to conventional business terms, but said nothing about whether lack of prompt notice was a defense for nonpayment of a check.

In this case, not only did Clearfield Trust Co. fail to demonstrate that it had suffered a loss because of the delay in notice, it could still recover the amount of the check from J.C. Penney, because none of its employees detected the fraud.

The court chastised both companies for their "neglect and error" in accepting the forged check, and suggested that they should only be permitted to shift the loss to the drawee only when he can demonstrate that the delay in notice caused him damage.