In the 1912 case of James v. Stone & Company, the United States Supreme Court was asked to determine whether a bankruptcy court had jurisdiction over property that was in possession of a third party at the time when bankruptcy proceedings were initiated. The appellant, Mr. James, argued that he should be able to recover certain assets from Stone & Company as part of his bankruptcy estate because they were rightfully his property but held by Stone & Co due to an alleged fraudulent conveyance prior to filing for bankruptcy. The Supreme Court ruled against Mr. James and upheld lower courts' decisions stating that while federal law governs bankruptcies, state laws define what constitutes 'property' within those proceedings - including any potential fraudulent transfers or conveyances thereof. Therefore, since under applicable state law (Kentucky), no fraud could be proven regarding transfer of said assets before declaring insolvency; these remained with their current holder (Stone & Co) rather than being included in debtor's estate for distribution among creditors.

In the dissenting opinion for James v. Stone & Company, Justice Holmes disagreed with the majority's interpretation of bankruptcy law and its application to this case. He argued that a bankrupt person should not be allowed to discharge their debt if they have committed an act of fraud or deceit in obtaining it. In his view, allowing such individuals to escape their financial obligations would undermine public confidence in the legal system and encourage dishonest behavior. Furthermore, he contended that creditors who were deceived into extending credit should not bear the burden of a debtor's fraudulent actions. Instead, those who commit fraud should be held accountable for their debts regardless of bankruptcy proceedings.