The Fifth Circuit, in the case of In re Contractor Technology, Ltd v. Century Asphalt Materials, LLC., _____ F.3d _____, 2008 WL 2153836 (C.A.5 (Tex.) May 23 2008), held that a bankruptcy court cannot alter the deadlines in the Texas McGregor Act in order to protect a materials supplier who is forced to disgorge a payment made to it during its time period for timely filing a claim.

      Under the Texas McGregor Act, notice of a bond claim must be sent to a surety by the "fifteenth day of the third month after the materials delivered." In the present case, the materials supplier, Century Asphalt Materials (CAM), delivered materials to the general contractor, Contractor Technology (CT), in March 2005. CAM received payments for the materials in May, but CT filed for bankruptcy before the checks had cleared. Over a year later, the bankruptcy court ordered CAM to relinquish the payments back to CT because they were "unauthorized post-petition transfers." The bankruptcy court’s order provided that the repayment would have the effect of returning the parties to the positions they were in when the checks were first delivered and that the obligations owed between the parties would run from the date of repayment. Based on the order, CAM attempted to receive payment from CT’s surety by making a bond claim and sending notice to the surety on August 28, 2006 under the requirements of the Act. The surety asserted that the notice was not timely because the Act requires that notice be provided by "the fifteenth day of the third month after the materials were delivered," and thus notice was due by June 15, 2005.

      The bankruptcy court found in favor of CAM, and held that notice was timely under the Act. The court based its decision on CAM’s "substantial compliance" with the Act, and on equitable tolling. The court reasoned that the repayment date became the date when CT defaulted on its obligation to pay CAM and, as such, the Act required notice to be provided by the fifteenth day of the third month after the date of repayment.

      The Fifth Circuit disagreed with the bankruptcy court and found in favor of the surety. The court reasoned that no matter how liberally the Act is construed, the notice provisions in the Act are based on the date of delivery and not on the date of payment. Even if the repayment date signaled CT’s default of its obligation to pay, the repayment date did not also make the materials "undelivered" in March of 2005. The court further emphasized that the notice provided to the surety within three days of the repayment date, which was seventeen months after CAM delivered the materials, was not in substantial compliance with the requirements of the Act. CAM, through no fault of its own, was barred from recovery under the Act.