Title: A.J. Props., LLC v. Stanley Black & Decker, Inc.

State: massachusetts

Issuer: Massachusetts Supreme Court

Document:

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SJC-11424 
 
A.J. PROPERTIES, LLC  vs.  STANLEY BLACK AND DECKER, INC. 
 
 
 
Suffolk.     May 5, 2014. - September 5, 2014. 
 
Present:  Ireland, C.J., Spina, Cordy, Botsford, Gants, Duffly, & 
Lenk, JJ.1 
 
 
Assignment.  Debt.  Mortgage, Assignment.  Contract, Assignment, 
Surety.  Surety.  Bond, 
Private 
building 
project, 
Construction 
and contract bond.  Environment, Environmental cleanup costs. 
 
 
 
 
Certification 
of 
a 
question 
of 
law 
to 
the 
Supreme 
Judicial 
Court 
by 
the 
United 
States 
District 
Court 
for 
the 
District 
of 
Massachusetts 
on April 8, 2013. 
 
 
 
Gerard A. Butler, Jr. (Andrew D. Black with him) for the 
defendant. 
 
John A. Mavricos for the plaintiff. 
 
 
 
DUFFLY, J.  At issue in this case is the right to payment under 
a 
performance 
bond 
issued 
to 
secure 
the 
obligation 
of 
an 
environmental 
consulting company to perform environmental remediation of a 
contaminated site that included land that had been owned by Stanley 
Black 
and 
Decker, 
Inc. 
(Stanley).  In 
2011, 
A.J. 
Properties, 
LLC 
(A.J. 
                                                 
1 Chief 
Justice 
Ireland 
participated 
in 
the 
deliberation 
on 
this 
case prior to his retirement. 
2 
 
Properties), commenced the underlying action in the Superior Court, 
contending 
that 
it 
had 
acquired 
the 
rights 
to 
payment 
under 
the 
bond, 
and that Stanley had wrongfully collected payment.  A.J. Properties 
argued 
that 
Stanley 
had 
assigned 
the 
rights 
to 
payment 
when 
it 
assigned 
a 
mortgage 
on 
the 
property 
to 
the 
Wyman–Gordon 
Company 
(Wyman-Gordon), 
which later assigned the mortgage to A.J. Properties. 
 
After Stanley removed the case to the United States District 
Court for the District of Massachusetts, a judge of that court 
certified the following question to this court pursuant to S.J.C. 
rule 1:03, as appearing in 382 Mass. 700 (1981): 
"Does 
the 
rule 
of 
Quaranto 
v. 
Silverman, 
345 
Mass. 
423, 
426–[427] 
(1963) 
[(Quaranto)], 
that 
'the 
assignment 
of 
a 
debt 
carries 
with 
it every remedy or security that is incidental to the subject 
matter of the assignment and could have been used or made 
available to the assignor,' extend to a situation where a 
mortgage 
and 
a 
surety 
agreement 
secured 
an 
obligation, 
and 
both 
the mortgagor and the surety breached that obligation prior to 
a written assignment of the mortgage, does the assignee, by 
operation 
of 
law, 
acquire 
the 
right 
against 
the 
surety's 
receiver 
for the surety's breach of its obligation?" 
 
 
We answer that whether the right against the surety's receiver 
is 
deemed 
assigned 
by 
operation 
of 
the 
rule 
of 
Quaranto, 
supra, 
depends 
on whether the right is an incident to the subject matter of the 
assignment.  If it is, and the parties do not manifest an intent not 
to assign the right, the right may be assigned by operation of the 
rule 
stated 
in 
Quaranto, 
supra.  The 
nature 
of 
the 
obligation 
and 
the 
breach, however, could be such that the right against the surety's 
3 
 
receiver would not be an incident to the subject matter of the 
assignment, but, rather, a collateral cause of action.  If so, the 
right against the receiver would be assigned only if the parties 
manifested an intent to make such an assignment.  In the particular 
circumstances of this case, the answer to the question depends on 
interpretation of the agreement to assign the mortgage and the 
obligations it secured, as well as the nature of the breach which 
occurred. 
 
Background.  We summarize the undisputed facts in the summary 
judgment record.  In 1995, Stanley became aware of soil and 
groundwater contamination on its property located at 149 Washington 
Street in Worcester (149 Washington Street property); the 
contamination extended to an adjacent parcel at 105 Madison Street, 
owned by Wyman-Gordon, on which Wyman-Gordon operated an industrial 
facility.  Stanley 
faced 
liability 
for 
the 
contamination 
pursuant 
to 
G. L. c. 21E,2 and entered into an agreement with Vargo & Associates 
Environmental Consulting Corporation (Vargo) to remediate both the 
149 Washington Street and Wyman–Gordon properties.  Stanley agreed 
to 
pay 
Vargo 
$400,000 
to 
perform 
the 
remediation, 
and 
to 
sell 
the 
149 
Washington Street property to Vargo for one dollar.  In December, 
1997, Stanley and Vargo entered into a purchase and sale agreement 
                                                 
2 As a former owner of the property, Stanley Black and Decker, 
Inc. (Stanley), faced continuing liability under G. L. c. 21E, 
§ 5 (a). 
4 
 
for the 149 Washington Street property that included the following 
conditions for the closing of the sale.  Vargo was to obtain and 
deliver a performance bond in the amount of $800,000; to deliver an 
indemnity 
agreement 
executed 
by 
it 
and 
its 
principal, 
Patrick 
Vargo,3 
promising to complete the remediation and to hold Stanley harmless 
from all liabilities arising from any breach by Vargo; and to grant 
Stanley a mortgage on the 149 Washington Street property (1997 
mortgage).  The 
mortgage 
was 
to 
"secure 
all 
obligations" 
of 
Vargo 
and 
its 
principal 
to 
Stanley 
under 
the 
indemnity 
agreement, 
mortgage, 
and 
"all other agreements between" Stanley and Vargo, including any 
"indebtedness, 
obligations 
and 
liabilities" 
under 
"instruments . . . 
executed or delivered in conjunction [with the purchase and sale 
agreement or the indemnity agreement]."4  All documents were 
                                                 
3 For simplicity, we refer to Vargo & Associates Environmental 
Consulting 
Corporation 
as 
Vargo, 
and 
to 
its 
principal, 
Patrick 
Vargo, 
by his full name. 
 
4 Specifically, the mortgage Vargo granted Stanley on the 149 
Washington Street property (1997 mortgage), titled "mortgage and 
security 
agreement," 
states 
that 
Vargo 
grants 
the 
mortgage 
as 
security 
for 
 
"(1) Performance of each agreement of [Vargo] incorporated by 
reference or contained herein; (2) payment of the Obligations 
(as defined in the Mortgage Rider); (3) payment of such 
additional sums as may hereafter be advanced for the account of 
[Vargo] 
or 
assigns 
by 
[Stanley], 
with 
interest 
thereon; 
and 
(4) 
payment 
and 
performance 
by 
[Vargo] 
of 
each 
obligation 
contained 
in any document, contract and agreement delivered to [Stanley] 
in conjunction with the sale of the Property to [Vargo], 
including without limitation (i) the Agreement of Purchase and 
5 
 
executed, 
Vargo 
obtained 
a 
$800,000 
performance 
bond, 
and 
the 
closing 
took place. 
 
In 2001, before remediation was complete, Vargo suspended 
remediation 
operations 
and 
abandoned 
the 
site.  Stanley 
attempted 
to 
obtain 
performance 
from 
Vargo 
pursuant 
to 
their 
agreements; 
in 
January 
2002, 
Stanley 
was 
advised 
by 
counsel 
for 
Vargo 
that 
Patrick 
Vargo 
had 
filed 
for 
personal 
bankruptcy.  In 
February, 
2002, 
Stanley 
contacted 
United 
Capitol 
Insurance 
Company 
(United 
Capitol), 
the 
surety 
on 
the 
performance bond, to request performance as surety under the bond, 
and learned that United Capitol had become insolvent and ceased 
operation earlier that month and liquidation proceedings had 
commenced.  In October, 2002, Stanley filed a proof of claim under 
the bond with the receiver for United Capitol in the amount of 
$800,000, the full amount of the bond.5 
 
In December, 2002, Stanley entered into a settlement agreement 
with Wyman–Gordon, which provided that Wyman–Gordon would retain a 
different contractor to remediate the contaminated portions of the 
                                                                                                                                                               
Sale of Real Property and Joint Escrow Instructions, and (ii) 
the Environmental Compliance and Indemnity Agreement . . . ." 
 
The rider to the mortgage defined "Obligations" as including 
Vargo's "indebtedness, obligations and liabilities" under 
"instruments . . . executed or delivered in conjunction [with the 
purchase and sale agreement or the indemnity agreement]." 
 
5 In 2010, Stanley received payment from United Capitol's 
receiver in the amount of $659,000 as settlement of the claim. 
6 
 
149 Washington Street and Wyman–Gordon properties, and that Stanley 
would 
contribute 
$599,000 
to 
the 
total 
cost 
of 
the 
remediation, 
which 
was 
fixed 
at 
$855,000.  Stanley 
also 
agreed 
to 
assign 
to 
Wyman–Gordon 
at a future date the 1997 mortgage on the 149 Washington Street 
property and the obligations secured by the mortgage. 
 
In February, 2003, creditors of Vargo foreclosed on a second 
mortgage on the 149 Washington Street property; A.J. Properties 
purchased 
the 
right 
to 
acquire 
the 
property 
at 
the 
foreclosure 
sale.6  
In 
March, 
2003, 
after 
Wyman–Gordon 
had 
signed 
the 
settlement 
agreement 
with 
Stanley, 
but 
before 
it 
had 
been 
assigned 
the 
1997 
mortgage, 
Wyman–
Gordon entered into an agreement with A.J. Properties.  That 
agreement 
provided 
that 
A.J. 
Properties 
would 
assign 
to 
Wyman-Gordon 
the right to purchase its interest in the 149 Washington Street 
property, and that, at the option of A.J. Properties, Wyman-Gordon 
would 
assign 
to 
A.J. 
Properties 
the 
1997 
mortgage 
on 
a 
portion 
of 
the 
149 Washington Street property,7 as well as "all rights that 
Wyman-Gordon has to the obligations and debts which the [1997 
                                                 
6 Stanley notes in its brief (and it does not appear to be 
disputed) 
that 
in 
1998, 
Vargo 
obtained 
a 
loan 
from 
a 
bank 
in 
exchange 
for a promissory note, secured by a mortgage on certain parcels 
comprising a part of the 149 Washington Street property. 
 
7 The assignment agreement specified that the 1997 mortgage 
would 
encumber 
only 
parcels 
13-18 
and 
parcels 
20-21, 
a 
portion 
of 
the 
149 Washington Street property that is now leased by a fast food 
restaurant chain.  Wyman-Gordon had the option to discharge the 
mortgage with respect to the remainder of the 149 Washington Street 
property. 
7 
 
Mortgage] secures." 
 
Stanley 
assigned 
the 
1997 
mortgage 
to 
Wyman–Gordon 
in 
May, 
2003, 
pursuant to the settlement agreement between Stanley and 
Wyman-Gordon.  In 2007, A.J. Properties exercised its option to 
acquire the 1997 mortgage from Wyman-Gordon; Wyman-Gordon executed 
an assignment granting to A.J. Properties the 1997 
mortgage "and the 
claims secured thereby."8 
 
Prior proceedings.  In 2011, A.J. Properties commenced the 
underlying action against Stanley in the Superior Court.  A.J. 
Properties 
alleged 
that 
it 
had 
been 
assigned 
the 
right 
to 
recover 
all 
funds 
paid 
to 
Stanley 
by 
the 
receiver 
for 
United 
Capitol 
in 
settlement 
of the claim under the performance bond.  Stanley removed the case 
to 
the 
United 
States 
District 
Court 
for 
the 
District 
of 
Massachusetts.  
A.J. Properties then moved for partial summary judgment and Stanley 
filed 
a 
motion 
for 
summary 
judgment.  A 
Federal 
District 
Court 
judge 
determined that A.J. Properties was entitled to the amounts paid by 
United Capitol's receiver to Stanley, and allowed, in part, A.J. 
Properties's motion for summary judgment. 
 
In allowing A.J. Properties's partial motion for summary 
judgment, the District Court judge determined, based on a number of 
                                                 
8 Soon after it obtained assignment of the 1997 mortgage, A.J. 
Properties brought a claim in the Superior Court against Vargo under 
the 
1997 
Environmental 
Compliance 
and 
Indemnity 
Agreement 
and 
the 
1997 
mortgage.  After Vargo defaulted, a Superior Court judge entered a 
judgment of approximately $1.2 million in favor of A.J. Properties. 
8 
 
written instruments executed by the parties,9 "that the performance 
bond was indeed among the obligations that were secured by the 
mortgage."  The judge determined further that the "subsequent 
assignments of the [1997] mortgage, which included the obligations 
secured 
by 
[the 
mortgage], 
also 
included 
the 
right 
to 
recover 
against 
the surety [United Capitol] for the performance bond."  The judge 
noted 
that 
he 
reached 
this 
determination 
by 
applying 
the 
rule 
set 
forth 
in Quaranto, supra, that "the assignment of a debt carries with it 
every remedy or security that is incidental to the subject matter of 
the assignment and could have been used or made available to the 
assignor," and that, pursuant to that rule, United Capitol's 
"liability 
under 
the 
bond 
is 
a 
remedy 
incidental 
to 
the 
duty 
of 
[Vargo] 
to pay what was available to Stanley before it assigned that 
obligation; thus, the assignment of the duty of [Vargo] carried with 
it that of its surety."  Stanley sought interlocutory review in the 
United States Court of Appeals for the First Circuit, pursuant to 28 
U.S.C. 1292(b), contending that the District Court judge misapplied 
the 
rule 
of 
Quaranto.  The 
Court 
of 
Appeals 
recommended 
certification 
of the question to this court. 
 
Discussion.  a.  Common-law background.  In order to 
                                                 
9 These included the 1997 mortgage, the 2002 settlement 
agreement, 
the 
2003 
assignment 
from 
Stanley 
to 
Wyman-Gordon, 
the 
2003 
option agreement, and the 2007 assignment from Wyman-Gordon to A.J. 
Properties. 
9 
 
effectuate an assignment of an interest, an assignor must make 
manifest 
an 
intention 
to 
transfer 
that 
interest 
to 
an 
assignee.  See 
Restatement (Second) of Contracts § 317 (1) (1981) ("An assignment 
of 
a 
right 
is 
a 
manifestation 
of 
the 
assignor's 
intention 
to 
transfer 
it by virtue of which the assignor's right to performance by the 
obligor 
is 
extinguished 
in 
whole 
or 
in 
part 
and 
the 
assignee 
acquires 
a right to such performance").  In Quaranto, supra at 426–427, we 
noted 
in 
dicta 
the 
default 
rule 
that, 
where 
an 
assignor 
assigns 
a 
debt, 
the assignor thereby also assigns any security he or she holds for 
the debt.  Id. ("Generally, the assignment of a debt carries with it 
every remedy or security that is incidental to the subject matter of 
the assignment").  We noted two cases in which we had applied this 
general rule, Brazill v. Green, 236 Mass. 93, 98 (1920), and Rogers 
v. 
Abbot, 
206 
Mass. 
270, 
272 
(1910) 
(upon 
assignment 
of 
debt, 
security 
for debt "passed to [assignee] as an incident to the [debt]"), and 
also 
cited 
additional 
authority.  See 
Morris 
v. 
Bacon, 
123 
Mass. 
58, 
59 
(1877) 
("the 
debt 
is 
the 
principal 
and 
the 
mortgage 
an 
incident"); 
Restatement 
of 
Contracts, 
§ 171(2) 
(1932); 
4 
Corbin, 
Contracts 
§ 
907 
(1950); W.H.E. Jaeger, Williston on Contracts § 432A (3d ed. 1960) 
(Williston on Contracts [3d ed.]).10  Parties who intend to assign 
                                                 
10 The treatises cited in Quaranto v. Silverman, 345 Mass. 423, 
427 (1963) (Quaranto), have since been updated; the principle as 
stated remains unchanged.  See 1 R.A. Lord, Williston on Contracts 
§ 74:51 (4th ed. 2003); 9 J.E. Murray, Corbin on Contracts §§ 47.7, 
10 
 
only the debt and not the security for the debt may do so by making 
this intent clear in their assignment agreement.  See 4 Corbin, 
Contracts, 
§ 
907; 
Williston 
on 
Contracts 
(3d 
ed.) 
§ 432A; 
Restatement 
(Second) of Contracts § 340 comment c, at 88-89 (1981). 
 
The theory underlying the default rule in Quaranto, supra, is 
that 
when 
parties 
assign 
a 
debt, 
it 
generally 
may 
be 
assumed 
that 
they 
also 
intend 
to 
assign 
the 
security 
for 
that 
debt, 
because 
an 
interest 
in retaining the security to enforce the debt generally dissipates 
once the debt has been assigned.  See 4 Corbin, Contracts, § 907 
("[t]his is the general rule . . . because such is usually the 
intention of the assignor and assignee and there is ordinarily no 
reason for letting the assignor keep the security or for giving it 
back 
to 
the 
obligor").  Applying 
this 
principle 
to 
the 
assignment 
of 
a 
note 
secured 
by 
a 
mortgage, 
we 
have 
said 
that, 
upon 
such 
assignment, 
the assignee receives an equitable right to the mortgage even if the 
mortgage is not mentioned in the assignment, because the mortgage is 
an incident to the note.  See Barnes v. Boardman, 149 Mass. 106, 114 
(1889). 
 
The rule that the assignment of a debt generally carries with 
it 
the 
assignment 
of 
security 
for 
the 
debt 
is 
an 
example 
of 
the 
broader 
principle that, in general, an assignment carries with it all the 
                                                                                                                                                               
51.1 (Rev. ed. 2007); Restatement (Second) of Contracts § 340(2) 
(1981). 
11 
 
rights 
that 
are 
"incidental 
to" 
the 
subject 
matter 
of 
the 
assignment.  
See Brazill v. Green, supra (when assignor assigns judgment, that 
which is incident to judgment passes to assignee without formal 
transfer); 
1 
R.A. 
Lord, 
Williston 
on 
Contracts 
§ 74:51 
(4th 
ed. 
2003) 
(Williston on Contracts [4th ed.])  (collecting cases).  This 
general rule, however, has an important limiting principle:  an 
interest that is merely related to the subject matter of the 
assignment, 
but 
not 
incidental 
to 
it, 
is 
not 
assigned 
by 
implication.  
"In order for a right to pass as an incident under an assignment of 
[an interest] it must, in a legal sense, constitute a security for 
the debt.  It must be more than a mere collateral right of action."  
Williston on Contracts (4th ed.) § 74:51 at 564.  See Robinson v. 
Towns, 30 Ga. 818, 822 (1860) (assignment of judgment carried with 
it interest in further enforcement of judgment, but not interest in 
money that sheriff had collected on judgment prior to assignment); 
Commonwealth v. Wampler, 51 S.E. 737, 738 (Va. 1905) ("assignment of 
a chose in action [generally does not] invest in the assignee, as an 
incident, a litigious right against a third party to recover damages 
for an injury which accrued prior to the assignment"). 
 
Additionally, just as an assignment of a claim does not carry 
with 
it 
a 
collateral 
cause 
of 
action, 
"the 
assignment 
of 
rights 
under 
a 
continuing 
contract 
does 
not 
imply 
an 
assignment 
of 
rights 
of 
action 
for previous breaches of the contract."  Williston on Contracts (3d 
12 
 
ed.) § 431.  See National Reserve Co. of Am. v. Metropolitan Trust 
Co. of Cal., 17 Cal. 2d 827, 833 (1941) ("Unless an assignment 
specifically or impliedly designates them, accrued causes of action 
arising out of an assigned contract . . . do not pass under the 
assignment as incidental to the contract if they can be asserted by 
the 
assignor 
independently 
of 
his 
continued 
ownership 
of 
the 
contract 
and are not essential to a continued enforcement of the contract").  
See, e.g., Anheuser-Busch, Inc. v. Miller, 99 B.R. 137, 139-140 (D. 
Mass. 
1989); 
Steele 
v. 
Brazier, 
123 
S.W. 
477, 
482 
(1909); 
Love 
v. 
Van 
Every, 
18 
Mo. 
App. 
196, 
203-205 
(1885) 
(collecting 
cases); 
Restatement 
(Second) of Contracts § 328 (1981); 4 Corbin, Contracts § 876.  See 
also Ginsberg v. Austin, 968 F.2d 1198, 1201 (Fed. Cir. 1992) 
(assignment of reversion does not carry with it right to recover all 
rents accrued prior to assignment). 
 
In 
some 
circumstances, 
it 
may 
be 
difficult 
to 
distinguish 
between 
a 
collateral 
cause 
of 
action 
that 
is 
not 
assigned 
by 
implication, 
and 
a security for a debt that is assigned by implication.  See 
Commonwealth 
v. 
Wampler, 
51 
S.E. 
737, 
738 
(Va. 
1905) 
("The 
distinction 
as to what does and what does not pass by incidental assignment is 
in some instances nice and difficult to draw"); Heyer v. Kaufenberg, 
40 Wyo. 367, 371-373 (1929) (collecting cases).11 
                                                 
11 The analysis of the Supreme Court of Wyoming in Heyer v. 
Kaufenberg, 40 Wyo. 367 (1929) is instructive.  In that case, the 
13 
 
 
Making such a determination turns on whether the interest in 
question is "incident to" that which is assigned, that is, whether 
the 
interest 
in 
question 
"usually 
or 
naturally 
and 
inseparably 
depends 
upon, appertains to, or follows" that which is assigned.  
Commonwealth 
v. 
Wampler, 
supra, 
quoting 
1 
Bouvier 
Law 
Dictionary 
1006 
(Rawle's Rev. 1897). 
 
b.  Application to reported question.  Where a mortgage and a 
surety agreement secured an obligation,12 and both the mortgagor and 
the surety committed a breach of that obligation prior to a written 
                                                                                                                                                               
assignor obtained money judgments in his favor and subsequently 
assigned them. Id. at 369.  Before the assignment, the assignor 
executed the judgments, and levies were made under those executions 
upon property that was in the possession of a receiver.  Id.  Prior 
to the foreclosure sale, the property owner filed an injunction bond 
in the sum of $500 that was backed by a surety, and the court issued 
an order restraining the foreclosure sale.  Id.  The assignor 
successfully moved to dissolve the restraining order, and after the 
order 
had 
been 
dissolved, 
he 
assigned 
all 
his 
rights 
in 
the 
judgments.  
Id. at 370.  The assignor then filed suit against the surety for 
attorney's fees and costs incurred in dissolving the restraining 
order, and the surety objected that the assignor could not maintain 
any action upon the bond because he had assigned his interest in the 
bond 
when 
he 
assigned 
the 
underlying 
judgments.  Id.  In 
holding 
that 
the assignment of the underlying judgments did not carry with it the 
right 
to 
damages 
under 
the 
bond, 
the 
court 
reasoned 
that 
the 
assignor's 
rights under the bond were in no sense "'naturally and inseparably' 
dependent upon the judgments and hence were not incident to them.  
Neither were such rights in any way a security held by the assignor, 
for the payment of the judgments, nor did they furnish any remedy to 
accomplish their collection."  Id. at 377, quoting Commonwealth v. 
Wampler, 51 S.E. 737, 738 (Va. 1905). 
 
12 We assume the facts as stated by the Federal District Court 
judge, relying on his determinations as to what was secured by the 
mortgage. 
14 
 
assignment of the mortgage, the certified question requires a 
determination 
whether 
the 
right 
against 
the 
surety's 
receiver 
for 
the 
surety's 
breach 
of 
its 
obligation 
is 
a 
collateral 
cause 
of 
action 
that 
remains with the assignor unless expressly assigned, or whether it 
is an "incident to" the subject matter of the assignment such that 
it is deemed to be acquired by the assignee by implication of law. 
 
The answer to this question depends on the nature of the 
obligation and the breach.  The obligation at issue in this case is 
the performance bond Vargo was required to obtain under the terms of 
the 
purchase 
and 
sale 
agreement 
prior 
to 
issuance 
of 
the 
1997 
mortgage.  
The bond provided that Vargo as principal, and United Capitol as 
surety, were bound to Stanley in the amount of $800,000; that the 
obligation 
would 
be 
void 
upon 
Vargo's 
performance 
of 
remediation 
under 
the compliance and indemnity agreement; and that if Vargo defaulted 
on its promise to remediate, United Capitol was obligated promptly 
to remedy the default, complete the remediation, or arrange for the 
lowest 
responsible 
bidder 
to 
complete 
the 
remediation 
and 
pay 
for 
the 
costs of completion up to $800,000.13 
 
Under 
the 
terms 
of 
the 
assignment 
agreement, 
A.J. 
Properties 
was 
                                                 
13 The bond was a performance bond, not a payment bond.  See 
National Fire Ins. Co. of Hartford v. Fortune Constr. Co., 320 F.3d 
1260, 1271, 1278 (11th Cir.), cert. denied, 540 U.S. 873 (2003) 
(distinguishing between performance bond and payment bond:  purpose 
of performance bond is to assure obligee that underlying obligation 
will be completed and that obligee will not be liable for costs in 
excess of contract price if primary obligor defaults). 
15 
 
assigned the 1997 mortgage and the claims and obligations secured 
thereby.  It is unclear whether, in interpreting the "performance 
bond 
[as] 
indeed 
among 
the 
obligations 
that 
were 
secured 
by 
the 
[1997] 
mortgage," the Federal District Court judge determined that only 
Vargo's obligation to obtain the performance bond was secured by the 
mortgage, 
or 
that 
Vargo's 
obligation 
to 
render 
performance 
on 
the 
bond 
(that is, to complete remediation, or, upon failure to do so, to pay 
Stanley $800,000) was secured by the mortgage.14  We consider each 
possibility in turn. 
 
If the obligation secured by the mortgage was to obtain a 
performance 
bond, 
but 
not 
the 
obligation 
to 
perform 
on 
the 
bond, 
then 
the 
rule 
of 
Quaranto 
would 
not 
apply, 
and 
the 
right 
to 
recover 
against 
the 
surety 
would 
not 
be 
deemed 
to 
have 
been 
assigned 
by 
implication.15  
                                                 
14 The parties dispute what was included in the subject matter 
of the assignment by the express terms of the assignment agreement.  
A.J. 
Properties 
maintains 
that 
the 
assignment, 
by 
its 
terms, 
included 
the 1997 mortgage and all "claims secured thereby," which it alleges 
encompassed the right to recover against Vargo for 
defaulting on its 
obligations in the performance bond and the right to recover against 
United Capitol for defaulting on its obligations in the performance 
bond.  If A.J. Properties is correct that the express terms of the 
assignment 
included 
the 
right 
to 
recover 
against 
United 
Capitol, 
then 
there would be no need to apply the rule stated in Quaranto, and the 
answer 
to 
the 
reported 
question 
would 
be 
irrelevant 
to 
the 
resolution 
of the dispute. 
 
15 The certification order states that the 1997 mortgage was 
executed on December 31, 2007, and that Vargo subsequently obtained 
the 
performance 
bond 
on 
January 
22, 
1998.  According 
to 
the 
purchase 
and sale agreement, obtaining the performance bond was a condition 
precedent to the closing, but not a condition precedent to the 
16 
 
The reason for this is that if the obligation to obtain the bond was 
part of the debt that was secured by the mortgage, and the mortgagor 
would 
have 
been 
permitted 
to 
foreclose 
on 
the 
mortgage 
if 
the 
mortgagee 
failed to obtain the bond, then obtaining the bond was analogous to 
making 
payments 
under 
an 
instalment 
note 
secured 
by 
the 
mortgage.  The 
procurement of the bond was part of the debt or obligation itself, 
and delivery of the bond fulfilled that part of the 
obligation.  The 
assignment of a security does not carry with it a debt that already 
has been satisfied. 
 
If, on the other hand, the obligation secured by the mortgage 
was an obligation to perform, and that obligation was separately 
secured by a bond, the obtaining of which also was secured by the 
mortgage, the Quaranto rule may apply.  The rule might have applied 
if, 
for 
example, 
at 
the 
time 
of 
the 
assignment 
to 
Wyman-Gordon, 
Vargo 
had defaulted on its obligation to perform remediation but United 
Capitol had not committed a breach of its obligation as surety to 
perform 
remediation 
or 
otherwise 
remedy 
the 
default 
by 
Vargo.  Under 
such circumstances, an assignment of the right to recover against 
Vargo for its obligation to perform on the bond might have carried 
with it an assignment of the right to recover against United Capitol 
for its obligation to perform on the bond, including the right to 
recover the full amount of the bond in the event of a subsequent 
                                                                                                                                                               
execution of the 1997 mortgage. 
17 
 
material 
breach 
by 
United 
Capitol 
of 
its 
obligation 
to 
perform.  See 
Brainerd, 
Shaler 
& 
Hall 
Quarry 
Co. 
v. 
Brice, 
250 
U.S. 
229, 
233 
(1919) 
(assignment 
of 
obligation 
against 
primary 
obligor 
that 
is 
secured 
by 
surety generally carries with it assignment of obligation against 
surety); Restatement (Third) of Suretyship & Guaranty § 13 (1996). 
 
The Quaranto rule might not apply, however, when both the 
obligation 
to 
perform 
and 
separate 
security 
for 
that 
performance 
are 
secured by a mortgage, and where, prior to the assignment of that 
mortgage, there has been a breach of the obligation to perform and 
of the surety's obligation to secure performance.  Whether the rule 
of Quaranto, supra, applies in such circumstances depends on the 
nature 
of 
the 
breach 
at 
issue.  The 
rule 
does 
not 
apply, 
for 
instance, 
where the surety was liquidated prior to the time of assignment. 
 
If the mortgagor has committed a breach of its agreement to 
perform, 
and 
the 
entity 
acting 
as 
a 
paid 
surety 
on 
a 
performance 
bond 
has been liquidated prior to the time of assignment, then the surety 
is 
no 
longer 
able 
to 
perform 
the 
underlying 
obligation.  In 
that 
case, 
what remains prior to the assignment is not a claim against the 
surety's receiver for performance 
or payment on the 
bond, but rather 
a claim against the surety's receiver in the nature of damages for 
a 
breach 
of 
contract.  See 
Commissioner 
of 
Ins. 
v. 
Massachusetts 
Acc. 
Co., 314 Mass. 558, 565 (1943), quoting Carr v. Hamilton, 129 U.S. 
252, 
256 
(1889) 
(upon 
liquidation, 
company's 
business 
"is 
brought 
to 
18 
 
an 
absolute 
end, 
and 
the 
policy 
holders 
become 
creditors 
to 
an 
amount 
equal 
to 
the 
equitable 
value 
of 
their 
respective 
polices, 
and 
entitled 
to 
participate 
pro 
rata 
in 
its 
assets"); 
In 
re 
Liquidation 
of 
Integrity 
Ins. Co., 147 N.J. 128, 135 (1996), quoting 19A J. A. Appleman & J. 
Appleman, Insurance Law & Practice § 10721, at 196 (1982) ("The 
common-law rule is that '[w]here an insurance company is adjudged 
insolvent, the claims existing on behalf of its policyholders have 
been 
held 
to 
be 
in 
the 
nature 
of 
damages 
for 
a 
breach 
of 
contract'"); 
1 
Couch 
on 
Insurance, 
§ 6:1 
(3d 
rev. 
ed. 
2009); 
11 
Couch 
on 
Insurance, 
§ 163:17 (3d ed. 2005) (bonds issued by paid surety companies to 
protect property owners from loss due to failure of contractors to 
perform conditions of building or other similar contracts are 
considered 
as 
essentially 
contracts 
of 
insurance 
for 
some 
purposes). 
 
A claim against the surety's receiver in the nature of damages 
for a breach of contract is neither security for an obligation nor 
in 
any 
other 
way 
an 
incident 
to 
the 
obligation 
secured 
by 
the 
mortgage; 
rather, it is a collateral cause of action.  The value of this cause 
of action does not "depend[] upon, appertain[] to, or follow[]" an 
underlying obligation.  See Heyer v. Kaufenberg, 40 Wyo. 367, 373 
(1929), 
quoting 
Commonwealth 
v. 
Wampler, 
51 
S.E. 
737, 
738 
(Va. 
1905).  
To the contrary, such a cause of action has free-standing value that 
is determinable upon the date of the surety's liquidation; on that 
date, it is not dependent on the mortgagor's obligation to perform, 
19 
 
which already has been defaulted on.  If parties wish to assign such 
a cause of action, they may do so by manifesting their intent to do 
so, but, absent an express indication, assignment of such a cause of 
action will not be implied by an assignment of the mortgage and the 
obligations it secures. 
 
Conclusion.  For the reasons stated, we answer the reported 
question 
as 
follows:  "Where 
a 
mortgage 
and 
a 
surety 
agreement 
secured 
an 
obligation, 
and 
both 
the 
mortgagor 
and 
the 
surety 
committed 
a 
breach 
of 
that 
obligation 
prior 
to 
a 
written 
assignment 
of 
the 
mortgage, 
the 
assignee 
does 
not 
necessarily 
acquire 
the 
right 
against 
the 
surety's 
receiver for the surety's breach of its obligation." 
 
The 
Reporter 
of 
Decisions 
is 
directed 
to 
furnish 
attested 
copies 
of this opinion to the clerk of this court.  The clerk in turn will 
transmit one copy, under the seal of the court, to the clerk of the 
United States District Court for the District of Massachusetts, as 
the answer to the question certified, and will also transmit a copy 
to each party.