In the case of Mechanics' and Metals National Bank of the City of New York v. Ernst et al., trustees in bankruptcy for Humphrey, the U.S Supreme Court ruled on a dispute involving a bank's right to set off its debtor's credit balance against his overdrafts in other accounts at different branches. The court held that where a bank has received money from one person on deposit, it cannot apply that money towards payment of an independent debt owed by him without some agreement or understanding to do so. It was also determined that each branch should be treated as separate entities when dealing with deposits and debts; hence, funds deposited into one branch could not be used to offset debts incurred at another branch unless there was explicit consent from the depositor.

In the dissenting opinion for Mechanics' and Metals National Bank of New York v. Ernst et al., it was argued that the majority's decision to allow a bank to recover funds from a bankrupt customer's account, despite having knowledge of their insolvency, contradicted previous rulings. The dissenting justices believed that this ruling would encourage banks to act in bad faith by continuing transactions with insolvent customers in order to protect their own interests at the expense of other creditors. They contended that such behavior should not be rewarded or protected by law as it undermines fair business practices and trust within financial institutions. Furthermore, they disagreed with the majority’s interpretation of “preference” under bankruptcy laws, arguing instead that any transaction made while knowing about a debtor’s insolvency should be considered preferential treatment regardless if there is an existing debt relationship between parties involved.