In the case of Hiscock, Trustee in Bankruptcy, v. Mertens (1906), the United States Supreme Court was asked to determine whether a trustee in bankruptcy could recover property that had been transferred by the bankrupt party prior to filing for bankruptcy. The defendant, Mertens, argued that he received the property as payment for services rendered and thus it should not be considered part of the bankrupt estate. However, Hiscock contended that this transfer was fraudulent because it occurred when insolvency was imminent and therefore should be voided under federal law. The Supreme Court ruled in favor of Hiscock stating that such transfers made on eve of bankruptcy with intent to prefer certain creditors over others were indeed fraudulent under federal law and hence could be recovered by trustees.

In the dissenting opinion for Hiscock, Trustee in Bankruptcy v. Mertens, it was argued that a trustee in bankruptcy should have the right to recover assets transferred by an insolvent debtor prior to declaring bankruptcy. The dissenting justices believed that such transfers were fraudulent and detrimental to creditors who had legitimate claims on those assets. They contended that allowing these transactions would undermine the purpose of bankruptcy laws which is to ensure fair distribution of a bankrupt's estate among his or her creditors. This view contradicted with majority’s ruling which held that trustees could not set aside transfers made before insolvency if they did not involve actual fraud.