Category: 

What does "Without Recourse" Mean?

Article Details
  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 07 December 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
  • Print this Article
Free Widgets for your Site/Blog
President Richard Nixon had an entire speech prepared in case the Apollo 11 astronauts became stranded on the Moon.  more...

December 8 ,  1965 :  Pope Paul VI promulgated Vatican II into ecumenical law.  more...

In a financial setting, “without recourse” means a buyer is assuming liability for a purchase, with the creditor washing her hands of any credit risk. In a simple example, Jane writes a check to Jim. Jim endorses the check and signs it over to Sally, with a note indicating that he makes the transfer “without recourse.” If the bank refuses to cash the check for Sally, she must go to Jane to recover the funds, as Jim has signed away liability. This situation can come up in many kinds of transactions where an endorser signs a financial instrument over to a third party.

Accepting something without recourse can be risky, unless the buyer is confident that the financial instrument will be honored. If there is a problem, the person who sold it is not liable and takes no responsibility for helping the buyer recover damages. Instead, the buyer must go to the person who originally issued the instrument, and may have to trace it through several owners and handlers to find the right person.

Ad

Buyers who accept something without recourse may expect a discount on the price in compensation for their risk. People purchasing things like mortgages, bonds, and similar instruments can negotiate a better asking price or other terms on the grounds that if they are going to assume more financial risk, it is only fair to provide them with an incentive to do so. This can be especially important in large financial markets, where people may be dealing in substantial sums of money, with instruments involving variable risk, and the discount is an important part of the negotiation.

For individuals evaluating a situation where they can acquire a financial instrument without recourse, it is important to consider the risks. These may be low, as in the case where Sally accepts a check and knows Jane is good for the money, so there should be no problems with cashing the third party check. If they are higher, the buyer may want to think about how to recover damages in the event of the problem, and whether the deal being offered is fair and reasonable.

The term “without recourse” can also show up in law, referring to contracts where a person has no legal recourse to claim damages in the event of a problem. These types of contracts put people at a disadvantage, and it is important to review terms carefully and to ask an attorney for advice before signing such agreements. Once people have committed to accepting full liability by signing the contract, they cannot back out unless they were deceived in some way and can prove it.

Ad

You might also Like

Recommended

Discuss this Article

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email