Fraud in the Execution Voids Collective Bargaining Agreement

Plaintiff union pension funds ("Funds") sued Nyeholt Steel ("Nyeholt"), a 15-employee steel fabricator and erector, for approximately $500,000 in delinquent fringe benefit contributions. Nyeholt had twice signed a blanket agreement purporting to bind it to the terms of a collective bargaining agreement requiring the contributions. However, on each occasion, Nyeholt had been told that the agreement was for purposes of a single construction project only.

The court granted Nyeholt's motion for summary judgment based on fraud in the execution. Such fraud arises, as provided in Restatement (Second) of Contracts §163, when "a misrepresentation as to the character or essential terms of a proposed contract induces conduct that appears to be a manifestation of assent by one who neither knows nor has reasonable opportunity to know of the character or essential terms of the proposed contract." Here, Nyeholt was, in one instance, faced with an imminent strike and was rushed into signing the document to avoid this occurrence. The agreement was represented to be a "one-job agreement." In the other instance, Nyeholt was desperate to obtain union labor quickly for a single project, and was told that it had to sign an "interim agreement," which intimated that it was limited in duration to that project. Any reasonable jury would deem Nyeholt's ignorance of the terms of the collective bargaining agreement it signed excuseable under the circumstances, including the facts that Nyeholt had never been operated as a union business, had provided its own fringe benefits to its employees, and had not been made aware that it was allegedly a party to the agreement until six years later.

Iron Workers Local No. 25 Pension Fund v. Nyeholt Steel, Inc., Civil Action No. 95-40415 Aug. 21, 1997) (Gadola, J.) (Docket No. 54, 23 pp.).
This article was written by Ronald S. Longhofer, a partner in our Litigation Department, and previously appeared in the November 1997 edition of the Michigan Bar Journal.