Hargrove borrowed $40,000 as additional working capital for her business from the Old Town Bank. Old Town required that the loan be collateralized to the extent of 60%, and an acceptable surety for the entire amount be obtained. Prudent Surety Company agreed to act as surety on the loan and Hargrove pledged $24,000 of bearer negotiable bonds, which belonged to her husband, with Old Town.  Hargrove has defaulted. Which of the following is correct?

A. Old Town must first proceed against Hargrove and obtain a judgment for payment before it can proceed against the collateral.

B. dent is liable in full immediately upon default by Hargrove, but will upon satisfaction of the debt be entitled to the collateral

C. Old Town must first liquidate the collateral before it can proceed against Prudent

D. As a result of the default, Prudent and Hargrove’s husband are cosureties.

Wiley says "D" is the correct answer but I thought that the surety must first exhaust efforts against the debtor before proceeding???

i'll take a crack at this

are you thinking about "exoneration"? which means the surety gets a court order for the debtor to pay if they are able to

if so, this is a right of the surety BEFORE the debtor defaults. since debtor already defaulted it is no longer the surety's right

correct me if im wrong

B is the right answer because the essence of a surety arrangement is that the surety promises to perform upon default of the principal debtor. Further action by the creditor versus the principal debtor is not necessary (unlike a guarantor of collection). The surety, upon satisfaction of the principal debtor's obligation to the creditor, is subrogated to the creditor's rights in the collateral.