In the case of Gratiot County State Bank v. Johnson, the U.S. Supreme Court was asked to determine whether a bank could claim priority over other creditors for funds deposited in a bankrupt company's account shortly before it declared bankruptcy. The St. Louis Chemical Company had borrowed money from the Gratiot County State Bank and repaid part of its loan by depositing money into an account at the bank just days before declaring bankruptcy. The trustee for the bankrupt company, Johnson, argued that these funds should be distributed among all creditors rather than being claimed solely by the bank. The Supreme Court ruled against Gratiot County State Bank stating that under Section 60b of US federal law regarding bankruptcy (Bankruptcy Act), any payment made within four months prior to filing for bankruptcy can be deemed as preferential if it enables any one creditor to obtain a greater percentage of his debt than some other creditor of same class; such payments may thus be recovered back unless they were taken in good faith without knowledge or reason to believe that insolvency is imminent. Therefore, since this repayment favored one creditor (the bank) over others during impending insolvency period, it was considered voidable preference and hence recoverable back for equal distribution amongst all creditors.

The dissenting opinion in the case of Gratiot County State Bank v. Johnson, as Trustee of the St. Louis Chemical Company, argued that a bankruptcy court should not have jurisdiction over property located outside its district unless it has actual or constructive possession of said property. The justice disagreed with the majority's interpretation of Section 70e of the Bankruptcy Act and believed that this section did not grant nationwide service and execution to bankruptcy courts but only provided for transfer between districts where assets were already under control by one such court. He contended that allowing a Michigan-based trustee to seize assets in Missouri violated principles of federalism and comity among states, potentially leading to conflicts between state laws regarding debtor-creditor relations.