Also known as: w/o recourse · qualified indorsement
Written by attorneys — see sources below.
2 senses
A pledge or encumbrance of corporate assets that limits the creditor's recovery to the designated collateral. The creditor may not pursue the corporation's other assets for repayment of the debt.
A pledge or encumbrance of corporate assets that limits the creditor's recovery to the designated collateral. The creditor may not pursue the corporation's other assets for repayment of the debt.
A qualified indorsement or drawer disclaimer on a negotiable instrument that eliminates the indorser's or drawer's secondary liability if the instrument is dishonored.
A qualified indorsement or drawer disclaimer on a negotiable instrument that eliminates the indorser's or drawer's secondary liability if the instrument is dishonored.
Each sense below has its own examples, sources, and questions.
Warwick Electronics grants a lender a security interest in its manufacturing equipment to secure a loan. The loan agreement states that the pledge is made without recourse. When Warwick defaults, the lender may seize and sell only the equipment. It cannot obtain a judgment against Warwick's remaining cash reserves or other property.
2 common questions
No shareholder approval is required for a corporation to mortgage or pledge its assets with or without recourse, even outside the ordinary course of business, unless the articles of incorporation provide otherwise.
Supporting sources
Without recourse confines the creditor to the pledged collateral alone. With recourse permits the creditor to pursue the borrower's other assets if the collateral proves insufficient.
Supporting sources
Willow West receives a promissory note from a customer and indorses it to Winterhaven Logistics with the words without recourse. The customer later dishonors the note. Winterhaven may not recover the amount of the note from Willow because her indorsement disclaimed secondary liability.
Open the case page for the full write-up.
View case2 common questions
An indorsement stating without recourse eliminates the indorser's obligation to pay the instrument upon dishonor. The disclaimer must appear on the instrument itself and is effective for both notes and drafts that are not checks.
Supporting sources
No. Under UCC Article 4, a transferor of a check cannot disclaim its obligation to pay a dishonored item by using a without recourse indorsement or similar language.
Supporting sources