In the 1929 case Kansas City Southern Railway Company v. Guardian Trust Company et al., the U.S. Supreme Court ruled in favor of Kansas City Southern Railway (KCSR). The dispute centered around whether KCSR was obligated to pay interest on bonds that were issued by a subsidiary company, Louisiana & Arkansas Railway Co., which had defaulted on its payments. Guardian Trust and other bondholders argued that KCSR was liable as it had guaranteed the bonds' payment upon their issuance. However, KCSR contended they were not responsible for these debts because their guarantee only applied if there was a surplus after liquidation of Louisiana & Arkansas's assets - which there wasn't. The court agreed with KCSR’s interpretation, stating that while it did guarantee payment of principal and interest on the bonds, this obligation was contingent upon there being sufficient funds left over after paying off all senior debt obligations following liquidation or reorganization of Louisiana & Arkansas's assets.

In the dissenting opinion for Kansas City Southern Railway Company v. Guardian Trust Company et al., Justice Stone argued that the majority's decision to allow a reorganization plan was inconsistent with previous rulings and violated principles of equity. He contended that the court had previously ruled against similar plans, which unfairly disadvantaged bondholders by diluting their interests without providing adequate compensation or protection. Furthermore, he believed that allowing such a plan would set a dangerous precedent, enabling corporations to manipulate bankruptcy laws in order to evade their financial obligations. In his view, this not only undermined faith in corporate bonds as secure investments but also threatened overall economic stability by encouraging reckless financial behavior.