United States Ex Rel. Trane Co. v. Bond
1991 Md. LEXIS 49, 322 Md. 170, 586 A.2d 734 (1991)
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Rule of Law:
A contract is void for duress, and thus unenforceable even by an innocent third party, only if the victim's consent was obtained through actual physical compulsion or through a threat of imminent physical violence sufficient to cause a reasonable person to fear loss of life, serious physical injury, or imprisonment.
Facts:
- Mech-Con Corporation entered into a contract with the United States for work at Walter Reed Army Medical Center.
- As a condition of the contract, Mech-Con, its principal Albert Bond, and his wife Lorna Bond were required to execute a payment bond, with Lorna acting as a surety.
- Albert Bond physically threatened and abused Lorna Bond to coerce her into signing the payment bond and other documents.
- Lorna Bond signed the payment bond as a surety under duress from her husband.
- The United States, the beneficiary of the bond, was unaware of the coercion Albert Bond exerted on Lorna Bond.
- Mech-Con subsequently failed to comply with its contract obligations.
- Both Mech-Con and Albert Bond filed for bankruptcy.
Procedural Posture:
- The United States sued Lorna Bond as surety on a payment bond in the United States District Court for the District of Columbia.
- Lorna Bond raised the affirmative defense of duress, claiming her husband coerced her signature.
- The United States moved for summary judgment, arguing duress by a third party is not a defense against an innocent obligee.
- Finding an unsettled question of state law, the U.S. District Court certified the question to the Court of Appeals of Maryland, the state's highest court.
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Issue:
May a party whose consent to a contract was coerced assert the defense of duress against a counterparty who neither knew of nor participated in the coercive acts?
Opinions:
Majority - Murphy, C.J.
Yes, a party may assert the defense of duress against an innocent counterparty, but only if the duress was severe enough to render the contract void, rather than merely voidable. The court distinguishes between two types of duress. The first, duress by threat, makes a contract voidable by the victim; however, this defense is ineffective against a party who, in good faith and without knowledge of the duress, gives value or materially relies on the contract. The second, duress by physical compulsion, prevents the formation of a contract altogether, rendering it void. A void contract is a nullity and unenforceable by any party, including an innocent one. The court rejects the strict Restatement view that only actual physical compulsion (e.g., grabbing a person's hand to sign) can render a contract void. Instead, it holds that a contract is void in Maryland if consent is obtained through either (1) the actual application of physical force or (2) a threat of imminent physical violence so severe that a reasonable person in the victim's position would fear death, serious personal injury, or actual imprisonment. Because the facts presented only state Lorna was 'physically threatened... and abused,' the case is returned to the federal court to apply this legal standard to the specific facts.
Analysis:
This decision clarifies and modernizes Maryland's law on duress by formally adopting the void/voidable distinction prevalent in modern contract law and the Restatement (Second) of Contracts. However, the court notably expands the definition of duress that renders a contract void beyond the Restatement's narrow scope of 'physical compulsion.' By including severe threats of imminent violence, the Maryland high court created a state-specific standard that offers greater protection to victims of extreme coercion. This establishes a clearer, two-tiered framework for future duress cases involving innocent third parties, balancing the protection of victims against the need for commercial certainty for parties who rely on executed agreements in good faith.
