In the 1956 case Jaffke v. Dunham, Trustee in Bankruptcy, the U.S Supreme Court dealt with a dispute over property rights in bankruptcy proceedings. The petitioner, Jaffke, had purchased a house from his brother-in-law who later filed for bankruptcy. The trustee of the bankrupt estate claimed that this transaction was fraudulent and sought to reclaim the property as part of the bankrupt's estate. However, Jaffke argued that he had made substantial improvements on it which increased its value significantly and should be compensated if it were reclaimed by the trustee. The court ruled against Jaffke stating that under Section 67d(2) (a) of Bankruptcy Act any liens obtained through legal or equitable proceedings within four months before filing for bankruptcy could be preserved only if they are bona fide and not subject to avoidance by statutory provisions relating to preferences or fraudulent transfers. Therefore, even though Jaffke had improved upon his brother-in-law’s home after purchasing it from him prior to his declaration of bankruptcy; those improvements did not protect him from having said home repossessed due to its original purchase being deemed fraudulent.

In the dissenting opinion for Jaffke v. Dunham, the justice argued that the majority's decision was inconsistent with previous rulings and failed to adequately consider relevant state laws. The justice contended that under Illinois law, which should govern this case as it involves a local transaction in Illinois, an oral agreement is sufficient to create a trust if there is clear and convincing evidence of such an agreement. In this case, he believed there was enough evidence presented by Jaffke to prove his claim of having created an oral trust with Dunham before bankruptcy proceedings began. He also disagreed with the majority's interpretation of federal bankruptcy law, arguing that it does not automatically invalidate trusts established through oral agreements under state law. Therefore, he concluded that both federal and state laws support recognizing Jaffke’s claim against Dunham’s assets in bankruptcy.