In the 1915 case Johnson, Trustee in Bankruptcy of Warren Construction Company v. Root Manufacturing Company, the U.S Supreme Court was tasked with determining whether a claim for damages could be considered as an existing debt at the time of bankruptcy. The dispute arose when Root Manufacturing Company filed a claim against Warren Construction for breach of contract after it had declared bankruptcy. The trustee in bankruptcy, Johnson, argued that this claim should not be recognized because it did not exist at the time of filing for bankruptcy and therefore couldn't be considered as part of Warren's liabilities. However, Root contended that their damage claims were indeed debts owed by Warren since they resulted from a contractual obligation prior to its insolvency. The court ruled in favor of Root Manufacturing Co., stating that even though no legal action had been taken before the declaration of bankruptcy to determine if there was any liability on part of Warren Construction Co., such potential obligations arising out from pre-bankruptcy contracts can still constitute 'debts' under federal law governing bankruptcies.

In the dissenting opinion for Johnson v. Root Manufacturing Company, Justice Holmes argued that the majority's decision was inconsistent with previous rulings and principles of bankruptcy law. He contended that a trustee in bankruptcy should not be able to recover payments made by an insolvent debtor prior to declaring bankruptcy if those payments were made in good faith and without knowledge of insolvency. In this case, Warren Construction Company had paid Root Manufacturing for goods received before it went bankrupt. The trustee sought to recover these payments on behalf of other creditors who were left unpaid when Warren declared bankruptcy. However, Justice Holmes believed that allowing such recovery would unfairly penalize businesses like Root Manufacturing who conducted transactions in good faith and without any indication of impending insolvency from their trading partners.