In the case of National Live Stock Bank of Chicago v. First National Bank of Geneseo, 1906, the U.S Supreme Court was tasked with determining whether a bank could be held liable for accepting and cashing checks that were fraudulently endorsed. The dispute arose when an employee at a grain company stole several checks made payable to his employer and then forged endorsements on them before depositing them into his personal account at the First National Bank of Geneseo. When these checks were presented for payment to the drawee banks (including National Live Stock), they honored them without knowledge of any wrongdoing. The court ruled in favor of First National Bank stating that it had acted in good faith and without negligence when it accepted those deposits from its customer who had been entrusted by his employer with possession and control over such instruments. Therefore, under existing law, as long as a bank acts within these parameters - good faith and absence of negligence - it is not responsible if one party defrauds another using fraudulent endorsements on negotiable instruments like checks.

The dissenting opinion in the case of National Live Stock Bank of Chicago v. First National Bank of Geneseo argued that the majority's decision was inconsistent with previous rulings and legal principles regarding checks and drafts. The dissent emphasized that a check is not an assignment of funds, but rather an order to pay which becomes effective only upon acceptance or payment by the bank on which it is drawn. Therefore, when a check is deposited into another bank for collection, this does not constitute a transfer of ownership rights over those funds to the collecting bank until such time as it has been paid by the drawee bank. Thus, if there are insufficient funds in the drawer’s account at that point or if for any reason payment cannot be obtained from said drawee bank (as happened here due to its insolvency), then no right can pass onto either depositor or collecting banks against these non-existent funds; they simply bear their own losses accordingly without recourse against each other nor indeed anyone else except perhaps directly against original drawer himself who issued them his worthless check(s) initially.