In the case of Bank of Rondout v. Smith in 1894, the U.S Supreme Court was tasked with resolving a dispute over a loan agreement between the two parties. The bank had lent money to Smith under an arrangement that allowed it to collect interest on both principal and unpaid interest amounts (compound interest). However, when Smith defaulted on his payments, he argued that this compound interest provision violated New York state law which prohibited usury - charging excessively high rates of interest. The court ruled in favor of the bank stating that while New York's laws did indeed prohibit usury, they only applied to initial loan agreements and not subsequent modifications or renewals such as those involved in this case. Therefore, since these additional charges were part of a later modification agreed upon by both parties rather than being included in the original contract itself, they did not constitute usurious practices under state law.

The dissenting opinion in the case of Bank of Rondout v. Smith argued that the majority's decision was a departure from established legal principles regarding negotiable instruments and their transfer. The dissent contended that, according to these principles, when an instrument is transferred before maturity without endorsement, it carries with it all equities attached to it at the time of its transfer. Therefore, if there were any defenses available against the original payee or holder (in this case Mr. Smith), they would also be valid against subsequent holders who acquired possession prior to maturity but without endorsement - such as Bank of Rondout in this instance. This view contradicts with majority's ruling which held bank immune from such defenses due to its status as a bona fide purchaser for value despite lack of proper endorsement on note by Mr.Smith.