HERBERT A. ROSS
U.S. Bankruptcy Judge

      The bankruptcy trustee claims that there was an understanding between Alaska Fence Company and the Union that fringe benefits would only be due on Davis-Bacon work, and specifically not on residential fence construction.

      The Trust Funds requested a threshold hearing to see if they could prevail on the law, based upon undisputed facts, before the parties were required to present evidence. At the threshold hearing on February 6, 1991, the court agreed with the Trust Funds that employees were covered for the benefits claimed for non-Davis-Bacon work on residential jobs.

      The parties still need to liquidate the exact amount due. There still may be an issue, also, whether the 15% liquidated damages is a penalty which should be subordinated under 11 U.S.C. § 726(a)(4). Finally, Trust Funds gave notice it may seek to amend its claim upward due to some recent computations.

      The Compliance Agreement provides that Alaska Fence Company would make fringe benefit payments to the Health and     1 ABR 367  Welfare Trust Funds, Pension Funds, Training Funds, and other applicable funds as incorporated by reference. The Compliance Agreement does not on its face exclude any of Alaska Fence Company's employees from the fringe benefit obligations. Representatives of the Alaska Fence Company understood, apparently both before entering the agreement and afterwards, that the contract was not to include fringe benefits for residential construction. They would testify that the Union's representatives had agreed to exclude residential work from benefit coverage.

      The Trust Funds brought a collection action in the U.S. District Court in 1983 concerning some unpaid benefits (not the benefits for residential construction). In a letter from the Trust Funds' counsel, Brad Owens, he indicated:

      In particular, Local 341 agrees that the compliance agreement with Alaska Fence Company does not cover residential work. However, it was the understanding and intention of Local 341 that the compliance agreement with Alaska Fence Company would apply to all non-residential work, including commercial as well as Davis-Bacon. Thus, while it would be appropriate to exclude any hours in the payroll audit which reflect residential work performed by employees of Alaska Fence Company, that would not be true of commercial work.

      In Operating Engineers Pension Trust v. Giorgi, 788 F.2d 620 (9th Cir. 1986), an employer claimed that a union business agent had said the benefit agreement would only cover hours an employee worked as a "skiploader." The agreement did not contain such a limitation. The business agent denied he had said the agreement was limited. The court of appeals said at 622:

The district court correctly concluded that any oral agreement between Giorgi [the employer] and the business agent [of the union] that contributions would be limited to covered employment is unenforceable.

See, also Audit Services, Inc. v. Rolfson, 641 F.2d 757 (9th Cir. 1981); Southern California Retail Clerks Union v. Bjorklund, 728 F.2d 1262 (9th Cir. 1984); and Waggoner v. Dallaire, 649 F.2d 1362, 1366 (9th Cir. 1981):

      A rule permitting oral modification of written trust arrangements would defeat the elaborate protection section 302 provides trust beneficiaries. Employees, basing their futures on the promise of an old-age pension provided in a union contract, may discover in later years to their surprise that an oral side- agreement had eroded the worth of their pension rights. The rule may also tempt local union representatives and employers to enter corrupt bargains since no written record would exist delineating the employer's trust obligations.

      Relying upon these considerations, the Third Circuit has held that an employer and a union may not orally modify the terms of employee trust     1 ABR 369  provisions in a collective bargaining agreement. See Lewis v. Seanor Coal Co., 382 F.2d 437, 441-44 (3d Cir. 1967) (employer urged that oral representations by union official estopped trust from claiming trust contributions), cert. denied, 390 U.S. 947, 88 S.Ct. 1035, 19 L.Ed.2d 1137 (1968). Accord, Boyle v. North Atlantic Coal Corp., 331 F.Supp. 1107, 1108 (W.D.Pa.1971) (oral understandings at variance with written agreements regarding trust contributions are of no legal effect). The Fourth Circuit reached the opposite result in Lewis v. Lowry, 295 F.2d 197, 199 (4th Cir. 1961), cert. denied, 368 U.S. 977, 82 S.Ct. 478, 7 L.Ed.2d 438 (1962). Lowry, however, wholly ignores the statutory framework provided in section 302, weakening the reasoning underlying the court's decision. See generally, id. at 201-02 (Sobeloff, C.J., dissenting).

      There is no evidence of any written agreement modifying the Compliance Agreement. The only writing upon which the bankruptcy trustee relies is Mr. Owens' letter. Mr. Owens spoke, however, not for the Union, but for the Trust Funds. The Compliance Agreement was between the Union and Alaska Fence Company, the employer. The Trust Funds are third-party beneficiaries, and not the contracting party. Cf. Operating Engineers Pension Trust v. Cecil Backhoe Service, Inc., 795 F.2d 1501, 1507 (9th Cir. 1986) and Pierce County Hotel Employees and Restaurant Employees Trustees v. Elks Lodge, B.P.O.E. No. 1450, 827 F.2d 1324, 1327 (9th Cir. 1987).

      While, under regular contract law, a third-party beneficiary might be subject to defenses that could be raised against its donor, this is generally not the case with respect to benefit trusts. See Southern California Retail Clerks Union v. Bjorklund at 1265.

      If the parties cannot settle this matter by February 28, 1991, an additional hearing to liquidate the amount shall be requested by the bankruptcy trustee.