In the case of City National Bank of Fort Worth v. Hunter, the Supreme Court of the United States was asked to decide whether a bank could be held liable for a customer’s fraudulent check-kiting scheme. The case arose when the City National Bank of Fort Worth (CNB) allowed a customer, Hunter, to overdraw his account by writing checks for more than the balance in his account. Hunter then deposited the checks into another bank, which then deposited the funds into his CNB account. This process, known as check-kiting, allowed Hunter to overdraw his account and take advantage of the float time between the two banks. The Supreme Court held that CNB was not liable for Hunter’s fraudulent check-kiting scheme. The Court reasoned that CNB had no knowledge of Hunter’s scheme and had acted in good faith in allowing him to overdraw his account. The Court also noted that CNB had taken reasonable steps to protect itself from fraud, such as requiring Hunter to sign a statement acknowledging the overdraft and providing him with a copy of the statement. Ultimately, the Supreme Court held that CNB was not liable for Hunter’s fraudulent check-kiting scheme. The Court reasoned that CNB had acted in good faith and had taken reasonable steps to protect itself from fraud. This decision established an important precedent for banks, as it clarified that banks are not liable for customers’ fraudulent activities if they have acted in good faith and taken reasonable steps to protect themselves.

In the dissenting opinion of City National Bank of Fort Worth v. Hunter, Justice Scalia argued that the majority's interpretation of Texas law was incorrect and would lead to an absurd result. He noted that under Texas law, a bank is not liable for failing to honor checks unless it has received payment from its customer or had knowledge that there were insufficient funds in the account at the time it accepted payment. In this case, he argued, neither condition was met since City National Bank did not receive any money from Hunter and had no reason to believe his account contained insufficient funds when they accepted his check as payment for goods purchased on credit. Therefore, according to Scalia’s interpretation of Texas law, City National Bank should be found not liable for honoring Hunter’s check even though it later bounced due to insufficient funds in his account.