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Conflicts Keyed to Currie
Bank of America v. Parnell
Facts
In 1944, 73 Home Owners’ Loan Corporation bonds, belonging to Bank of America (Plaintiff) and insured by the federal government (making them government commercial paper) disappeared while being prepared for presentation for payment. Though they were originally to mature in 1952, they were called in 1944. They showed up in 1948 at the First National Bank in Indiana (Defendant) where Parnell (Defendant) presented them for payment. First National (Defendant) forwarded them to the Federal Reserve Bank of Cleveland (Defendant), which cashed them and permitted First National (Defendant) to pay Parnell (Defendant). Bank of America (Plaintiff) sued all to recover the value of the bonds. At trial, the issue of burden of proof shifts to Parnell (Defendant) and the banks (to establish that they acquired the bonds “innocently, honestly, and in good faith”) after Bank of America (Plaintiff) establishes that the bonds were stolen. Using this standard, the trial court jury brought in verdicts against all defendants. However, the court of appeals reversed on the grounds that, because commercial paper was involved, the proper standard for burden of proof should be federal common law, as commercial paper necessarily involves the interests of the federal government as a party. Under federal common law, the burden is upon Bank of America to show that Parnell (Defendant), et al., acted in bad faith. Since the bonds were not “overdue” under federal law at the time of presentation (whereas they would be under state law), Defendant, et. al., could not be found in bad faith as they would not be under notice that they could not be properly cashed. Because of this, the court of appeals ordered the trial court to direct a verdict for all defendants. Bank of America (Plaintiff) appealed.
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