In the case of American Surety Company of New York v. Shulz, 1914, the U.S Supreme Court was asked to determine whether a surety company could be held liable for damages when their principal defaulted on an agreement. The dispute arose from a contract between Shulz and another party in which American Surety had acted as guarantor. When Shulz failed to fulfill his contractual obligations, the other party sought compensation from American Surety under its bond guaranteeing performance by Schulz. The court ruled that while sureties are generally obligated to pay if their principal defaults on an obligation, this liability is not absolute and can be limited by terms specified in the bond itself. In this particular case, it was found that there were specific limitations within the bond issued by American Surety which restricted its liability. Therefore, despite Schulz's default on his contractual obligations with third parties - who then sought recovery from American Surety - these claimants were unable to recover full damages due to restrictions outlined in the original bonding agreement made between Schultz and American Surety.

In the dissenting opinion for the case of American Surety Company of New York v. Shulz, it was argued that a surety company should not be held liable for an employer's failure to pay wages in accordance with state law if such liability is not explicitly stated in the bond agreement between the surety and employer. The dissenting justices contended that while public policy may favor protecting employees' wage claims, this does not justify imposing obligations on a surety beyond those it has expressly agreed to under its contract with an employer. They further asserted that any ambiguity in a bond agreement should be resolved against extending coverage rather than broadening it, as doing otherwise would unfairly penalize sureties who have no control over their principals' conduct or ability to comply with wage laws.