In Borchard et al. v. California Bank et al., the U.S Supreme Court was tasked with deciding whether a bank could be held liable for damages when it wrongfully dishonored checks due to an error in its bookkeeping system, even if the depositor did not suffer any actual financial loss as a result of this action. The case arose after Mr. and Mrs. Borchard's checks were returned by their bank due to insufficient funds, despite having enough money in their account at the time of writing these checks. The court ruled that while banks have a contractual obligation to honor validly drawn checks from accounts with sufficient funds, they are only liable for actual damages suffered by depositors as a direct result of wrongful dishonor; punitive or speculative damages cannot be awarded without proof of actual harm caused by the bank's actions. This decision clarified that under California law (which governed this case), banks can't be held responsible for potential damage to reputation or credit standing unless there is concrete evidence showing such harm occurred directly because of their mistake.

In the dissenting opinion for Borchard et al. v. California Bank et al., Justice Black disagreed with the majority's ruling that a bank could not be held liable for mistakenly paying out on a forged check, arguing it was contrary to established principles of equity and justice. He believed that if an innocent party suffered loss due to another’s mistake, then the mistaken party should bear the cost of their error rather than passing it onto someone else who had no part in causing it. In this case, he argued that since the bank made an error by cashing a forged check without properly verifying its authenticity, they should bear responsibility for their negligence instead of forcing Borchard to suffer financial loss through no fault of his own.