In the 1916 case Jaffe et al., Surviving Members of the Firm of Knauth, Nachod & Kuhne v. Lovell, as Custodian, &c., and as Trustee in Bankruptcy of Knight, Yancey & Co et al., the U.S Supreme Court was tasked with determining whether a bankruptcy trustee could recover payments made by an insolvent debtor to its creditor prior to declaring bankruptcy. The creditors argued that they had received these payments in good faith without knowledge of insolvency. However, under Section 60b of the Bankruptcy Act which prohibits preferential transfers within four months before filing for bankruptcy if it enables any one creditor to obtain a greater percentage than other creditors would receive from estate property; such transactions are voidable by trustee even if recipient is innocent or unaware about debtor's financial condition at time payment was made. The court ruled in favor of Lovell (the Trustee), stating that regardless of their innocence or ignorance regarding insolvency status at time payment was received; they were still required to return funds so all debts could be equally distributed among remaining creditors.

In the dissenting opinion for JAFFE et al., SURVIVING MEMBERS OF THE FIRM OF KNAUTH, NACHOD & KUHNE, v. LOVELL, AS CUSTODIAN, &C., AND AS TRUSTEE IN BANKRUPTCY OF KNIGHT, YANCEY & CO., Justice Holmes argued that the majority's decision was inconsistent with previous rulings and principles of equity. 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, he believed that the payment received by Knauth Nachod & Kuhne from Knight Yancey Co before it declared bankruptcy was legitimate as there was no evidence suggesting they knew about their client’s financial situation or had any intent to defraud other creditors. Therefore according to him such transactions shouldn't be reversed simply because one party later becomes bankrupt.