In the Pacific National Bank v. Eaton case of 1890, the U.S. Supreme Court ruled in favor of Pacific National Bank after it sued a debtor, George W. Eaton, for failing to pay off his debts as agreed upon in their contract. The bank had initially loaned money to Eaton with an agreement that he would repay them through installments over time; however, when he defaulted on these payments and declared bankruptcy instead, the bank took legal action against him. The court's decision was based on its interpretation of federal law regarding bankruptcies at that time - specifically Section 5118 of Revised Statutes which stated that any person who owes debts can be discharged from those obligations if they declare themselves bankrupt and meet certain conditions set by law. However, Justice Stephen J Field argued that this provision did not apply to cases where there is a specific contractual agreement between two parties about how debt should be repaid (as was the case here). He reasoned that allowing individuals like Eaton to escape their financial responsibilities simply by declaring bankruptcy would undermine trust in contracts and could potentially lead to economic instability. Therefore, despite having declared bankruptcy under federal law provisions designed to protect debtors from unmanageable financial burdens - such as insurmountable debts - Mr.Eaton was still held liable for his outstanding loans due because he had previously entered into a legally binding contract with Pacific National Bank agreeing explicitly how these funds were supposed to be paid back.

In the dissenting opinion for Pacific National Bank v. Eaton, Justice Lamar disagreed with the majority's ruling that a bank could not recover funds from an individual who had fraudulently obtained them. He argued that while it was true that banks should exercise caution in their transactions to prevent fraud, this did not mean they were without recourse if defrauded. In his view, when a person obtains money through fraudulent means and then uses it to pay off debts or obligations, those payments are illegitimate because they were made with stolen money. Therefore, he believed the bank should be able to recover its lost funds from Mr. Eaton since he had received payment using these ill-gotten gains.