The U.S. Supreme Court case Bankers Trust Company v. Texas and Pacific Railway Company in 1915 revolved around a dispute over the payment of bonds issued by the railway company. The Bankers Trust, as trustee for bondholders, sued to enforce their rights after the railway defaulted on its payments due to financial difficulties. The court had to determine whether or not it was appropriate for an equity receiver (a person appointed by a court to manage and preserve property during litigation) who had been put in charge of managing the railroad's assets could be compelled to pay interest on income bonds that were past due before paying off other debts owed by the railroad company. The Supreme Court ruled against Bankers Trust, stating that while bondholders have certain rights under their trust agreement with a debtor corporation, they do not have priority over other creditors when it comes time for repayment if there is no specific provision granting them such priority within their contract or trust indenture.

In the dissenting opinion for Bankers Trust Company v. Texas and Pacific Railway Company, Justice Holmes disagreed with the majority's decision to allow a trustee in bankruptcy to recover dividends paid by an insolvent company. He argued that if a company is able to pay its debts as they come due, it should be considered solvent regardless of whether or not it could pay off all its liabilities at once. Furthermore, he contended that even if insolvency was determined based on total assets versus total liabilities, there was insufficient evidence presented in this case to prove insolvency at the time when dividends were declared and paid out. Therefore, according to Justice Holmes' interpretation of law and analysis of facts presented in this case, those dividends should not have been subject for recovery by the trustee.