In the case of Schwartz et al. v. Irving Trust Co., Trustee in Bankruptcy, et al., 1936, the U.S Supreme Court ruled on a dispute involving bankruptcy and stockholder rights. The plaintiffs were minority shareholders in a corporation that had declared bankruptcy and was being liquidated by Irving Trust Company as trustee. They claimed they should have received dividends from surplus profits before any payments to preferred stockholders or bondholders because their common shares represented ownership of the company's assets after all debts were paid off. However, the court disagreed with this interpretation of corporate law principles and upheld lower court decisions favoring creditors over equity holders during insolvency proceedings. It held that upon dissolution or reorganization under bankruptcy laws, secured creditors are entitled to be satisfied out of their security before unsecured creditors receive anything; then unsecured creditors must be fully paid before any distribution is made to preferred stockholders; only then can common shareholders claim remaining assets if any exist.

In the dissenting opinion for Schwartz et al. v. Irving Trust Co., Justice Cardozo argued that the majority's decision to allow a trustee in bankruptcy to recover payments made by an insolvent debtor was incorrect and unjust. He contended that these payments were not fraudulent transfers, as they were made in good faith and without knowledge of insolvency, but rather legitimate transactions between parties who had no reason to suspect any financial instability. Furthermore, he asserted that such recovery would unfairly penalize those who had conducted business with the bankrupt party on fair terms and could potentially discourage future trade due to fear of similar repercussions. In his view, this interpretation contradicted both common law principles and legislative intent behind bankruptcy laws designed to protect honest creditors from bearing undue losses resulting from a debtor's insolvency.