In the case of Union Joint Stock Land Bank of Detroit v. Byerly, 1939, the U.S Supreme Court ruled in favor of the bank. The court held that a debtor could not use federal bankruptcy law to avoid paying a debt secured by property if state law did not permit such avoidance. This decision was based on an interpretation of Section 70(e) of the Federal Bankruptcy Act which stated that trustees in bankruptcy were given rights and powers subject to any generally applicable laws regarding fraudulent transfers or obligations voidable under local law. In this case, Mr. Byerly had taken out two loans from Union Joint Stock Land Bank using his farm as collateral but later filed for bankruptcy before repaying them fully. He attempted to use federal bankruptcy laws to discharge these debts without losing his farm; however, Michigan state law did not allow this kind of avoidance scheme for mortgages on real estate properties.

In the dissenting opinion for Union Joint Stock Land Bank of Detroit v. Byerly, Justice Black argued that the majority's decision was inconsistent with previous rulings and violated principles of federalism by allowing a national bank to avoid state law. He contended that Congress did not intend to exempt national banks from state laws when it passed legislation regulating them. Furthermore, he believed that this exemption would give an unfair advantage to national banks over local ones in states where they both operate. This could potentially disrupt the balance between federal and state powers, as well as harm competition within banking industry at large.