So, my inlaws were once in a much better financial position than they are now. When one of their nephews was in dire financial straits, they loaned him $10k. He gave them as a surety against the loan a diamond ring which had been certified as being worth $15k. (A certification that was worth approximately the paper it was written on, of course.) He also hand-wrote an IOU. If it’s relevant, the ring-as-surety was the cousin’s idea.
Nowadays, the cousin is nowhere to be found and my inlaws are the ones in dire financial straits. We went to sell the ring and couldn’t find a place that would give us more than $750 for it.
My question is this: If we do sell the ring, and miraculously the cousin reappears and wants to pay them back, what position will they be in? Can the cousin say “Well, you don’t have my ring, so I don’t have to pay you”? Or can we just credit the $750 against the $10k?