In the 1902 case of Lockwood v. Exchange Bank, the United States Supreme Court was asked to determine whether a bank could be held liable for cashing checks that were fraudulently endorsed. The plaintiff, Lockwood, had issued two checks to a third party who then fraudulently endorsed them over to another individual. This person deposited these checks into his account at the defendant's bank (Exchange Bank), which accepted and cashed them without verifying their authenticity. When Lockwood discovered this fraudulent activity, he sued Exchange Bank for negligence in failing to verify the endorsements on his checks before accepting them. The court ruled in favor of Exchange Bank stating that it is not within a bank's duty or responsibility to investigate every check endorsement unless there are clear signs of forgery or irregularity present; otherwise it would create an unreasonable burden on banks' operations. Therefore, since there was no evidence suggesting any obvious signs of forgery with respect to these particular transactions made by its customer (the endorser), the court found that Exchange Bank acted appropriately under existing banking laws and practices.

In the dissenting opinion for Lockwood v. Exchange Bank, it was argued that the majority's decision to uphold a lower court ruling against Mr. Lockwood was incorrect because it failed to consider his rights as an individual who had entered into a contract with another party (the bank). The dissenting justices believed that Mr. Lockwood should have been allowed to present evidence in support of his claim and challenge the validity of the bank's actions, rather than having his case dismissed outright based on technicalities related to bankruptcy law. They also disagreed with the majority's interpretation of certain legal principles and felt that their colleagues were setting a dangerous precedent by allowing banks and other financial institutions too much power over individuals who may be struggling financially but still have legitimate claims or defenses under contract law.