In the case of Smith et al. v. Third National Exchange Bank of Sandusky, Ohio, et al., 1916, the Supreme Court was asked to determine whether a bank could be held liable for accepting and cashing checks that were fraudulently endorsed by an employee who had stolen them from his employer. The court ruled in favor of the bank stating that it was not responsible for verifying endorsements on checks presented to it unless there were clear signs or suspicions of forgery or fraud. The decision established a precedent protecting banks from liability in such cases if they act without negligence and in good faith when handling transactions involving negotiable instruments like checks.

In the dissenting opinion for Smith et al. v. Third National Exchange Bank of Sandusky, Ohio, et al., Justice Holmes disagreed with the majority's decision to uphold a lower court ruling that allowed a bank to recover money it had mistakenly paid out due to an error in bookkeeping. He argued that the bank should bear responsibility for its own mistake and not be able to shift this burden onto others who were unaware of any wrongdoing at the time they received their payments from the bank. The justice believed that such errors are part of business risks and should be absorbed by businesses themselves as costs associated with conducting their operations rather than being passed on to innocent third parties.