## Facts

- Bank of America possessed bearer bonds issued by the Home Owners’ Loan Corporation, a federally chartered corporation; the bonds were guaranteed by the United States.
- The bonds disappeared from Bank of America’s possession in 1944.
- In 1948, Parnell, acting for Rocco, presented the bonds to a Pennsylvania bank, which forwarded them to the Federal Reserve Bank of Cleveland.
- The Federal Reserve collected the redemption proceeds and paid them to Parnell, who paid them to Rocco.
- Bank of America sued in federal court under diversity jurisdiction, alleging the bonds were stolen and seeking recovery from Parnell, Rocco, the Pennsylvania bank, and the Federal Reserve Bank.

## Issues

1. In a conversion dispute between private parties involving federally guaranteed bearer bonds, does state law or federal law govern good faith and the allocation of the burden of proof?
2. Is the determination whether the bonds were “overdue” governed by state law or federal law?

## Decision

- The Supreme Court reversed the Third Circuit and remanded.
- State law (Pennsylvania) governed the issues of good faith and burden of proof because the controversy was between private parties and did not affect the rights or duties of the United States.
- Federal law governed whether the bonds were “overdue,” as that status concerns the character of the federal obligations themselves.
- The Court declined to reinstate the District Court judgments automatically, requiring further proceedings consistent with the governing-law framework.

## Legal Principles

- Federal common law under Clearfield applies primarily to the rights and duties of the United States on its own commercial paper; it does not automatically control every dispute involving federal securities.
- In disputes “purely between private parties” that do not implicate federal rights or obligations, state law governs issues such as conversion liability rules, good faith, and burden of proof absent a concrete conflict with federal interests.
- Speculative or remote effects on federal borrowing or financial operations do not justify displacing state law with federal common law.
- Federal law governs questions defining the status or terms of federal obligations themselves, including whether such instruments are “overdue.”

## Conclusion

The Court held that Pennsylvania law controlled the private-party allocation of loss (including good faith and burden of proof) in a conversion action over federally guaranteed bonds, while federal law controlled whether the bonds were overdue, and it remanded for further proceedings under that split choice-of-law approach.


Bank of Am. Nat’l Tr. & Sav. Ass’n v. Parnell, 352 U.S. 29 (1956)