Bank of Am. Nat'l Tr. & Sav. Ass'n v. Parnell - 352 U.S. 29, 77 S. Ct. 119 (1956)

Rule:

Federal law governs the interpretation of the nature of the rights and obligations created by the Government bonds themselves. A decision with respect to the "overdueness" of the bonds is therefore a matter of federal law. 

Facts:

Alleging diversity of citizenship, Bank of American National Trust & Savings Association, a bank in California, sued in a Federal District Court in Pennsylvania to recover the value of certain bonds alleged to have been converted in Pennsylvania. They were bearer bonds of the Home Owners' Loan Corporation, guaranteed by the United States, maturing in 1952 but called for redemption in 1944. They disappeared from the Bank’s possession in 1944, and respondent Parnell, acting for one Rocco, presented them in 1948 to respondent bank in Pennsylvania, which collected the proceeds and paid them to Parnell, who paid them to Rocco. On the theory that state law governed, the District Court instructed the jury that respondents had the burden of showing that they took the bonds in good faith, without knowledge or notice of defect in title. Verdicts and judgments were for the Bank; but the Court of Appeals reversed on the ground that, under federal law, the bonds were not "overdue" when presented to respondent bank and the Bank had the burden of showing notice and lack of good faith on the part of respondents.

Issue:

Did the appellate court err in applying federal law on the bonds?

Answer:

Yes.

Conclusion:

Securities issued by the Government generate immediate interests of the Government. These were dealt with in Clearfield Trust and in National Metropolitan Bank v. United States. But they also radiate interests in transactions between private parties. The present litigation was purely between private parties and did not touch the rights and duties of the United States. The only possible interest of the United States in a situation like the one here, exclusively involving the transfer of Government paper between private persons, was that the floating of securities of the United States might somehow or other be adversely affected by the local rule of a particular State regarding the liability of a converter. This was far too speculative, far too remote a possibility to justify the application of federal law to transactions essentially of local concern.