Va. Code § 6.2-875 Limitations On Obligations of Borrowers

• Library: Virginia Statutes
• Edition: 2023
• Currency: Current with changes from the 2023 Special Legislative Session
• Year: 2023
• Citation: Va. Code § 6.2-875

A. As used in this section:

"Derivative transaction" shall include any transaction that is a contract, agreement, swap, warrant, note, or option that is based, in whole or in part, on the value of, any interest in, or any quantitative measure or the occurrence of any event relating to, one or more commodities, securities, currencies, interest or other rates, indices, or other assets.

"Installment consumer paper" shall include installment notes of up to 10 years' duration for the purchase of unimproved real property.

"Obligation" means the direct liability of the maker or acceptor of the paper discounted with or sold to a bank and the liability of the endorser, drawer, or guarantor who obtains a loan from or discounts paper with or sells paper under his guaranty to such bank. "Obligation" shall include:

1. In the case of obligations of a corporation or a limited liability company, all obligations of all subsidiaries thereof in which the corporation or limited liability company owns or controls a majority interest;

2. Any liability of the bank under a letter of credit, other than a letter of credit arising out of transactions involving the importation or exportation of goods or the domestic shipment of goods, except to the extent (i) the bank has a binding participation of another bank, organized under the laws of the Commonwealth or another state or the United States, or a written commitment by another such bank to assume primary liability therefor or (ii) such bank issuing the letter of credit has in its possession money on deposit to the credit of such customer or securities or assets readily convertible into cash with which to honor such letter of credit; and

3. Any credit exposure to a person arising from a derivative transaction between the bank and the person.

B. Subject to the exceptions set forth in subsections D, E, F, and I, the total obligations of any person, including, with respect to a partnership, as provided in subsection C, the partners having a five percent or greater interest in either the income or capital of a partnership other than limited partners, to any bank shall at no time exceed 15 percent of the sum of the capital, surplus, and loan loss reserve of such bank.

C. For the purposes of this section:

1. The obligation of partners in the partnership and the partnership shall not be combined with each other except if (i) the purpose for which the obligation of any partner was incurred or utilized relates to the partnership or the purposes of the partnership, including acquisition of an interest in the partnership, such obligation shall be combined with the obligation of the partnership or (ii) the primary source of repayment of a partner's individual obligation is the partnership or funds therefrom, the obligation of the partnership shall be combined with the obligation of such partner, other than a limited partner or partner with less than five percent interest, and the limitation specified herein shall apply to the combined obligations of each such partner and the partnership. Except in the two instances specified in clauses (i) and (ii), the individual liability of the partner shall not be treated as an obligation of the individual, and the obligations of partner as individual guarantor on partnership obligations shall not be treated as an obligation of the individual for purposes of computation hereunder when, in either case, the bank has a certificate of a responsible officer, designated by the board of directors for this purpose, stating that the responsibility of the partnership for each obligation has been evaluated and the bank is relying primarily upon such partnership for the payment of such indebtedness; and