In the 1906 case of Hiscock v. Varick Bank of New York, the United States Supreme Court ruled on a matter involving bankruptcy and debt collection. The plaintiff, Hiscock, was an assignee in bankruptcy for a company that owed money to the defendant bank. The bank had previously obtained judgments against two other companies who were also indebted to it and had levied executions upon their property before they declared bankruptcy. When these companies went bankrupt, their assets became part of their respective estates in bankruptcy proceedings which included debts owed to them by the original debtor company represented by Hiscock. Hiscock argued that he should be able to collect from those assets as part of his efforts to recover funds for his debtor's estate but this claim was rejected by lower courts leading him appeal up until reaching Supreme Court level. The Supreme Court held that under federal law at time (Bankruptcy Act), once a creditor has begun execution proceedings prior to its debtor’s declaration of bankruptcy then such creditor is entitled priority over any claims made by subsequent creditors or assignees even if latter are involved in separate insolvency proceedings related with same initial debtor.

In the dissenting opinion for Hiscock v. Varick Bank of New York, it was argued that the majority's decision to uphold a lower court ruling - which held that a bank could not be held liable for accepting and crediting deposits from an insolvent depositor without knowledge or notice of insolvency - was incorrect. The dissenting justices believed this interpretation contradicted established principles of commercial law and equity. They contended that when a debtor is insolvent, any payment made by them should be considered as being in fraud of their creditors' rights unless it is made in the ordinary course of business or under circumstances indicating good faith on both sides. Therefore, they asserted, if an insolvent debtor makes payments into his account with intent to prefer one creditor over others (which can often occur through banking transactions), such payments are voidable at suit either by legal representatives or by judgment creditors who have obtained liens upon all property belonging to the debtor before he became bankrupt.