In the case of Third National Bank of Buffalo v. Buffalo German Insurance Company, 1903, 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 by an insurance company's secretary without its knowledge or consent. The court ruled in favor of the bank stating that it had acted in good faith and without negligence when it accepted and paid out on these checks. It further stated that there was no legal obligation for banks to investigate every check presented to them for payment as this would place an unreasonable burden on banking operations. Therefore, unless there is clear evidence suggesting potential fraud or forgery, banks are not required to question the validity of each transaction they process.

In the dissenting opinion for the case Third National Bank of Buffalo v. Buffalo German Insurance Company, Justice Harlan argued that the majority's decision was inconsistent with previous rulings and principles of equity. He contended that a bank should not be able to profit from its own negligence or misconduct by retaining funds it mistakenly paid out due to its own error. In this particular case, he believed that once the bank discovered its mistake in paying out on a forged check, it had an obligation to take immediate action to recover those funds rather than waiting until after they were used up by an innocent third party who had no knowledge of any wrongdoing. By failing to do so promptly, he felt that the bank effectively ratified its initial payment and therefore forfeited any right it might have otherwise had to reclaim those funds later on.