Bank Of America National Trust & Savings Association v. Parnell

352 U.S. 29 (1956)

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Nature of the Case

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Facts

The bonds involved in the dispute were bearer bonds with payment guaranteed by the United States. They carried interest coupons calling for semi-annual payment. They were due to mature May 1, 1952, but pursuant to their terms, had been called on or about May 1, 1944. On May 2, 1944, the bonds disappeared P was getting them ready for presentation to the Federal Reserve Bank for payment. In 1948 they were presented to the First National Bank (D) for payment by Parnell (D) on behalf of Rocco (D). The First National Bank (D) forwarded them to the Federal Reserve Bank of Cleveland. It cashed them and paid the First National Bank (D), which issued cashier's checks to Parnell (D). Parnell (D) then turned the proceeds over to Rocco (D) less a fee -- there was conflicting testimony as to whether the fee was nominal or substantial. P sued Ds under diversity for the conversion of the bonds. The Federal Reserve Bank was dismissed, and Rocco (D) did not appeal from the District Court's judgment. The issue at the trial was whether Ds took the bonds in good faith, without knowledge or notice of the defect in title. The judge placed the burden of proof on that issue on Ds. P got the verdict. The Court of Appeals reversed holding that the District Court had erred in treating the case as an ordinary diversity case and in regarding state law as governing the rights of the parties and the burden of proof. It held that under Clearfield Trust Co. v. United States, 318 U.S. 363, that federal law placed the burden of proof on P to show notice and lack of good faith on the part of Ds. The court further found that there was no evidence of bad faith by the First National Bank (D) since the bonds were not 'overdue' as a matter of federal law when presented to it and therefore directed entry of judgment for it. P appealed.