What Happens to Bond Claim Rights When a Notice is Served but Not Received

What Happens to Bond Claim Rights When a Notice is Served but Not Received?

What happens to payment bond rights when the required preliminary notice is served but never received? In Wyandotte Electric Supply Company V. Electric Technology Systems, Inc., the claimant was able to retain their rights to a claim against the payment bond, even though the general contractor never received the preliminary notice.

The Ladder of Supply

General contractor, KEO & Associates, Inc. (KEO), hired subcontractor, Electrical Technology Systems, Inc. (ETS) and ETS hired sub-subcontractor, Wyandotte Electric Supply Company (Wyandotte), for the improvement to the Detroit Public Library, a public project in Michigan.

Because of the contract amount, KEO was required to obtain a payment bond and satisfied that requirement through Westfield Insurance Company.

Statute: Few Facts for Public Projects in Michigan

  • Generally, a payment bond is required when a general contract exceeds $50,000.
  • A preliminary notice should be served within 30 days from first furnishing materials or services.
  • A bond claim should be served within 90 days from last furnishing materials or services.
  • Suit should be filed after 90 days from last furnishing materials or services, but within one year from the date on which final payment was made to the prime contractor.

What Happened?

ETS failed to pay Wyandotte in full, so Wyandotte sought recovery from the surety via a bond claim. Unfortunately, Westfield denied Wyandotte’s claim based on “lack of liability”, which led Wyandotte to file suit against ETS, KEO & Westfield. During the suit phase, KEO contested the validity of Wyandotte’s bond claim.

But They Served the Notice

According to the supreme court review, Wyandotte served the required preliminary notice upon all parties, via certified mail. However, KEO did not receive a copy of that notice.

“…Wyandotte sent KEO a 30-day “Notice of Furnishing” in accordance with MCL 129.207, explaining that it was one of ETS’s suppliers. Wyandotte also sent copies of the letter to Westfield, the library, and ETS. As specified by MCL 129.207, Wyandotte sent these notices by certified mail. Additionally, Wyandotte sent the notices with return receipts requested. The notices to Westfield, ETS, and the library were all received. It is unclear what happened to the notice sent to KEO—United States Postal Service tracking indicated that it was at the Detroit Post Office on March 13, 2010, but it apparently never reached its destination. KEO states that it never received the 30-day notice.”

Because KEO claimed it did not receive the preliminary notice, it argued that Wyandotte did not comply with statutory requirements, making Wyandotte’s bond claim invalid. Fortunately, the court’s decision was in Wyandotte’s favor, stating the law does not specify the notice has to be “received” by the party, only “served” by the claimant.

“…MCL 129.207 specifies that “notice shall be served by mailing the same by certified mail, postage prepaid…” To accept defendants’ argument would render that phrase nugatory. In order to give effect to this phrase, we must conclude that service is accomplished when a complainant mails the required information to the proper destination by certified mail within the required time frame.”

It’s a Fine Line

Actually, the line isn’t that fine. Courts often interpret statute for just the words as they appear on the page. In this case, the words on the page said the notice had to be served, not received. Be aware, if this had happened in another state, the outcome could have been different, as some statutes require actual receipt of the notice.

This has gone in Wyandotte’s favor, though Wyandotte could have taken an extra precaution to eliminate KEO’s argument. Had Wyandotte monitored the USPS tracking, it would have noticed that KEO’s document was not delivered and Wyandotte could have resent the document. Lucky for Wyandotte, serving the notice was enough!

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