The U.S. Supreme Court case Atlantic Trust Company v. Chapman, Receiver of the Woodbridge Canal and Irrigation Company in 1907 revolved around a dispute over property rights and debt obligations related to irrigation canals in California. The Atlantic Trust Company had invested heavily into bonds issued by the Woodbridge Canal and Irrigation company, which later defaulted on its debts leading to bankruptcy proceedings. A receiver was appointed for the bankrupt company's assets who then sought to sell them off without honoring the bondholders' claims first - an action that Atlantic Trust contested arguing they held mortgage lien over those assets as security against their investment in bonds. The court ruled in favor of Atlantic Trust stating that under California law, water rights associated with land are considered part of real estate property; therefore these were included within the scope of mortgage lien held by bondholders like Atlantic Trust Co., thus giving them priority claim during asset liquidation process before other creditors could be paid from sale proceeds.

In the dissenting opinion for Atlantic Trust Company v. Chapman, it was argued that the majority had erred in their interpretation of California law and its application to this case. The dissent contended that under California law, a mortgage is not considered an absolute conveyance of property but merely a lien or security interest. Therefore, when Woodbridge Canal and Irrigation Company defaulted on its loan from Atlantic Trust Company, the latter did not automatically become owner of all assets pledged as collateral; rather they only held a claim against those assets until foreclosure proceedings were completed. This view contradicted with the majority's decision which treated mortgages as outright ownership transfers upon default. Furthermore, according to this perspective, since no foreclosure occurred before Woodbridge declared bankruptcy and appointed Chapman as receiver, he should have been allowed to manage all company properties including those mortgaged to Atlantic Trust without interference from them.