In the 1920 case of Vallely v. Northern Fire & Marine Insurance Company, the U.S. Supreme Court was tasked with determining whether a bankruptcy trustee could recover funds transferred by an insolvent company prior to its declaration of bankruptcy. The Northern Fire & Marine Insurance Company had transferred assets to another insurance company before declaring bankruptcy, and Vallely, as their trustee in bankruptcy, sought to reclaim these assets for distribution among creditors. The court ruled that under Section 60b of the Bankruptcy Act (which allows trustees to void preferential transfers made within four months of filing for bankruptcy), Vallely was entitled to recover those funds on behalf of the bankrupt estate's creditors because they were transferred while Northern Fire & Marine was insolvent and within four months prior to filing for bankruptcy.

In the dissenting opinion for Vallely v. Northern Fire & Marine Insurance Company, Justice Holmes disagreed with the majority's decision to allow a trustee in bankruptcy to recover funds transferred by an insolvent company prior to declaring bankruptcy. He argued that this ruling contradicted established principles of common law and equity, which traditionally protected bona fide transactions made without knowledge of insolvency. Holmes contended that these protections should extend even when such transactions result in preferential treatment for certain creditors over others. Furthermore, he expressed concern about the potential implications of this ruling on commercial trust and confidence if businesses could not rely on their transactions being upheld unless they had investigated their counterparties' solvency beforehand.