In the 1939 case of United States for the Use and Benefit of Midland Loan Finance Co. v. National Surety Corp., et al., the Supreme Court ruled on a dispute involving payment bonds under federal law. The plaintiff, Midland Loan Finance Company, had loaned money to a contractor who was working on a federally funded project but failed to repay its debt. As per standard practice in such projects, National Surety Corporation had issued a bond guaranteeing that all bills would be paid by the contractor; however, they refused to pay Midland when called upon after default by their principal (the contractor). The court held that since these bonds are intended as protection for those supplying labor or materials for public works projects against non-payment due to insolvency or dishonesty of contractors, it should cover loans made specifically for financing work performed or materials furnished in carrying out contract obligations with government agencies too. Therefore, National Surety Corporation was liable and ordered them to honor their obligation towards Midland.

In the dissenting opinion for the case between Midland Loan Finance Co. and National Surety Corp., it was argued that a surety company should not be held liable for payments made by a contractor to its laborers and materialmen, unless there is an explicit agreement stating otherwise. The dissenting justices contended that under the Miller Act, which governs federal construction contracts, only those who have direct contractual relationships with a subcontractor can claim against a surety bond provided by such subcontractor. They believed this interpretation of law would protect sureties from unexpected liabilities and encourage them to provide bonds for government projects at lower costs. Furthermore, they disagreed with majority's view on "use" in "for use of", arguing it does not extend liability to all persons supplying labor or materials but rather limits it to those used directly in performance of contract work.