United States Ex Rel. Trane Co. v. Bond

MURPHY, Chief Judge. This case has been certified to us by the United States District Court for the District of Columbia, pursuant to the Maryland Uniform Certification of Questions of Law Act, Maryland Code (1974, 1989 Repl.Vol.), §§ 12-601 — 12-609 of the Courts and Judicial Proceedings Article. 1 The question of state law presented is “[w]hether a party whose consent to entering a contract is coerced may assert the defense of duress against a party who neither knew of nor participated in the infliction of the coercive acts.” I. The statement of facts outlined by the federal district court in its certification order discloses that Mech-Con Corporation contracted with the United States in Maryland to perform certain work upon the heating and air-conditioning systems at the Walter Reed Army Medical Center in Washington, D.C. Mech-Con, as principal, and Albert Bond and his wife, Lorna Bond, as sureties, executed a payment ¹⁷² bond to cover labor and materials expended by persons working on the project. Mech-Con and Albert Bond subsequently filed petitions in bankruptcy. When Mech-Con failed to comply with certain provisions of the contract, the United States, as plaintiff (for the use of The Trane Company), sued Lorna Bond as the sole defendant to recover on the payment bond which she had signed as surety.

Lorna asserted the defense of duress, contending that she was not liable because Albert “physically threatened her and abused her to coerce her to sign a number of documents, including the payment bond, and would not answer her regarding their content.” Lorna made no claim that Albert “actually picked up her hand and forced her to sign the contract”; nor did she claim that the plaintiff “knew of any coercive actions taken by defendant’s husband.” Lorna nevertheless maintains, in reliance upon our 1862 decision in Central Bank v. Copeland, 18 Md. 305 , that the plaintiff could not enforce the surety agreement against her because, under Maryland law, a person whose consent to a contract is obtained by duress may assert that defense against the other contracting party, even though that party “neither took part in the infliction of duress nor had any knowledge of it.” The plaintiff’s motion for summary judgment was opposed by Lorna, and remains pending. The federal district court, believing that “resolution of this motion raises an unsettled issue of Maryland law,” has certified the question for our consideration.

II

The United States contends that the defense of duress cannot be asserted by Lorna to avoid liability on the contract between them because the government was not involved in the infliction of the alleged duress and had no knowledge of it. It argues that the defense of duress is only applicable against the party exerting the duress. It acknowledges, however, that duress may in some instances render a contract absolutely void, and that Jn such circum ¹⁷³ stances even an innocent party may not recover on the contract. The government claims that the alleged duress in this case, as described in the certification order, was insufficient as a matter of law to render the contract void because Lorna was not physically forced to sign the contract.

Absent such actual physical compulsion, the government maintains that the contract is not void, but is voidable by the victim only if the other contracting party did not rely to its detriment upon the party’s assent to the contract. In other words, the plaintiff argues that where value is given by a contracting party in reliance on the making of the contract, and that party had no knowledge of, or took no part in the exertion of the claimed duress, then the contract is neither void, nor voidable by the alleged victim of the claimed duress. According to the government, nothing in Central Bank v. Copeland, supra, requires a different result. Relying upon Copeland , Lorna contends that under Maryland law, duress renders a purported contract void from the beginning, and not merely voidable.

She urges that cases in other jurisdictions which hold that the defense of duress cannot be asserted against an innocent contracting party are contrary to Copeland and thus are inapposite. Lorna argues that the determination of whether a contract is void turns on whether the duress completely prevented the mutual assent necessary for the formation of a contract, as where the duress forces a person to do an act that the person had no intention of doing, in which event there is no assent and therefore no contract. In making the determination whether she assented to the contract, Lorna suggests that the test is whether the duress exerted upon her amounts to the type of coercion which would make the agreement void, or whether, notwithstanding the coercion, there was an actual expression of assent to the contract. As to this, Lorna asserts that under Copeland “the person coerced into executing a contract can raise the defense of duress against a third party who neither participated in nor had knowledge of the coercion.” ¹⁷⁴ III.

In Copeland , a wife, together with her husband, executed a mortgage on property owned by the wife to secure a debt owed to the mortgagees by the husband. The mortgagees assigned the mortgage to the Central Bank which subsequently sought to sell the property to satisfy the husband’s unpaid debt. The wife challenged the validity of the mortgage, claiming that as to her it was void because she lacked capacity to assent to it. In reviewing the evidence, the Court said that the wife “had been, and was, at the time of executing the mortgage, much enfeebled in health, and suffering nervous and mental depression, caused in part by the harsh conduct of her husband in reference to the proposed transfer of her property, and that her mind was so distracted, confused and reckless, as to induce the belief on the part of her attending physician, that she was incapable of making a valid deed or contract.” Id. at 318 .

The evidence further disclosed, the Court said, that the wife’s execution of the mortgage was “preceded by personal menaces and threats of her husband to destroy the property by fire, if she did not execute it, and the fact that it was executed and acknowledged involuntarily, as a consequence, cannot be doubted.” Id. at 318-19 . The Court determined that the husband’s resort “to measures thus violent and harsh, leads irresistibly to the conclusion, that her consent could not have been obtained otherwise.” Id. at 319 . Further in its opinion, the Court said that, as to the wife, the validity of the mortgage depended upon the fact of its execution and acknowledgment by her “as her own free and voluntary act,” but that her acknowledgment that it was her free and voluntary act was not conclusive. Id. at 318 .

Referring to the legislative enactment which prescribed the form of the acknowledgment, the Court said that it was intended “to guard the wife’s title to property against the improper efforts of a husband to wrest it from her, and not to bar from judicial remedy, outrages, by which such an ¹⁷⁵ acknowledgment might be extorted.” In light of this legislative purpose, the Court explained that a husband “who, by extreme harshness, compels a wife to execute a deed of her property against her will, and then, in the form prescribed by law for her protection, to sanction the wrong inflicted by acknowledging its involuntary execution to be voluntary and without fear, cannot, by reason of the mere formal acknowledgment, entitle himself, nor any one in whose interest such a wrong may be attempted, to set up, and claim upon the deed, as a valid conveyance.” Id. at 319 . In declining to enforce the mortgage against the wife, the court found that the duress exerted upon her by the husband was “so excessive as to subjugate and control the freedom of her will.” Id. In the course of its opinion, the Court engaged in the following general discourse of then existing Maryland law: “The element of obligation upon which a contract may be enforced, springs primarily from the unrestrained mutual assent of the contracting parties, and where the assent of one to a contract is constrained and involuntary, he will not be held obligated or bound by it. A contract, the execution of which is induced by fraud, is void, and a stronger character cannot reasonably be assigned to one, the execution of which is obtained by duress.

Artifice and force differ only as modes of obtaining the assent of a contracting party, and a contract to which one assents through imposition or overpowering intimidation, will be declared void, on an appeal to either a court of law or equity to enforce it. The question, whether one executes a contract or deed with a mind and will sufficiently free to make the act binding, is often difficult to determine, but for that purpose a court of equity, unrestrained by the more technical rules which govern courts of law in that respect, will consider all the circumstances from which rational inferences may be drawn, and will refuse its aid against one who, although apparently acting voluntarily, yet, in fact, appears to have executed a contract, with a mind so subdued by harshness, cruelty, extreme ¹⁷⁶ distress, or apprehensions short of legal duress, as to overpower and control the will.” Id. at 317-18 . In Whitridge v. Barry, 42 Md. 140 (1875), a wife alleged that she assigned her interest in an insurance policy under duress by her husband to satisfy certain of his debts. She claimed that she was “laboring under controlling duress, and had not that necessary freedom, in the exercise of her mental faculties, to make the act binding upon her.” Id. at 152 .

The wife testified that she was “fearful of the consequences as to [the husband’s] future course, if she failed to sign the paper, as he requested.” Id. at 153 . The Court found that because the wife was advised of the poor state of her husband’s financial affairs, “was made familiar with his plans and schemes, and fully impressed, by his persistent importunities, with serious apprehension as to his condition,” that there existed “such a pressure upon her ... [as] deprived [her] of that moral agency requisite to a binding act, in the conveyance of her policy, and that she ought not to be held responsible therefor.” Id. at 152-53 . The Court concluded that the wife executed the assignment “under duress and compulsion.” Id. at 153 . It held that while “not every degree of importunity ... is sufficient to invalidate an instrument transferring property; yet if it be such as to deprive the party executing it of her free agency; or such as she is too weak to resist, she ought not to be held responsible therefor.” Id. at 153-54 .

In First National Bank v. Eccleston, 48 Md. 145 (1878), a husband and wife executed a deed of trust of certain real estate owned by the wife to secure a debt due by the husband to the bank. Subsequently, the court ordered that the land be sold. The wife, following the husband’s death, claimed that the deed was void “because she was forced to sign and acknowledge it by the threats, menaces and ill-treatment of her husband, which in her then weak and enfeebled condition of health, she was unable to resist.” 48 Md. at 154 . Accepting the wife’s testimony as worthy of credit, the Court held that the deed was void.

It recounted the evidence as follows: ¹⁷⁷ “[A]fter this deed had been prepared, the husband took it to his wife and demanded she should sign it without knowing its contents, telling her it was but a matter of form; that she was then near her confinement, in that condition of health and anxiety which required kindness and sympathy; that upon her expressing an unwillingness to sign without some knowledge of what the paper was, he enforced his demand from time to time with curses and oaths, and threats of personal violence, and even of her life, until by these means and the general violence and harshness of his conduct and temper towards her and in her presence, he overpowered her will and resistance; and that he then took her to the City of Washington, where she signed and acknowledged the deed before a notary public without knowing what it contained.” Id. at 160 . Two judges dissented, stating that the majority carried the “supposed precedent [of Copeland ] to a most dangerous extent.” Id. at 163. The dissenting judges declared that the evidence was insufficient to vacate the deed “as having been obtained by threats and coercion.” Id. at 167. In Brown v. Pierce, 7 Wall. 205 , 19 L.Ed. 134 , an 1869 decision of the Supreme Court of the United States, a conveyance was held void as against an innocent third party who in good faith gave value where the person conveying title to the property was forced to do so under threats