Assignment Of Mortgage Without Recourse Pay

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JSTOR is part of ITHAKA, a not-for-profit organization that also includes Ithaka S+R and Portico. For more information about JSTOR, please contact Virginia Law Register Vol. 4, N. S.] OCTOBER, 1918. [No. 6 ASSIGNMENT "WITHOUT RECOURSE." When, if at all, may recourse be had upon one who has as- signed a chose in action, but expressly "Without recourse?" "Not at all," is apt to be the hasty and perhaps natural reply, "the assignee takes at his risk — let him beware." As is fre- quently the case with "obvious" propositions, however, the law is to the contrary, and in this instance it is believed that reflec- tion will lead to the conclusion that the contrary is "obviously" just. It is not intended in this article to make an exhaustive ex- amination of the authorities in point, but only to review the general principles. In the article concerning Assignments, 2 R. C.'L. 627, it is said: "Even where the words 'without recourse' are added to an assignment of a chose in action, there still remains an implied warranty that the right transferred is what it purports to be, namely, that it is a valid and genuine obligation, based on ade- quate and sufficient consideration and that the amount of money it calls for was owing and unpaid at the time of the assignment." (Italics the present writer's.) This of itself is sufficient to show that the words in question must not be taken literally, but technically, that is, scientifically, and their meaning, as words of art, is to be ascertained accord- ingly. Nor, as above indicated, will it be justly said, after an examination of the law in point, that the courts have by con- struction done violence to the intent of the parties to the con- tract of assignment. On the contrary, the rulings seem to the writer to embody the common sense of the subject and to make unavailing to an assignor without recourse the process known by the somewhat mysterious expression of "handing the other side a lemon." A good illustration of the accepted doctrine is to be found in 402 4 VIRGINIA LAW REGISTER, N. S. [ Oct., the leading case of Mays v. Sallison, 6 Leigh, 230, in which, where a party agreed to have a bond assigned to another with- out recourse, the words were held not to exempt the contractor from liability where it later appeared that the bond' had been paid. Said Carr, J. : "The very possession of the bond, the claiming it as property, as something binding the obligors, precluded the idea that it was at that moment discharged or satisfied; for then it was no bond; it bound nobody; it was not the representa- tive of money. The bond, too, was payable at a iuture date ; who could have dreamed that it was already mere wax and paper — not a cent due on it?" The Virginia court thus in effect finds a foundation- for its ruling in the healthy principle of estoppel, and this principle, although not invoked eo nomine, pervades the decisions of other courts upon the same subject. In Ober v. Goodridge, 27 Gratt. 878, which seems to be the latest case in which the Court of Appeals of Virginia has con- sidered the question, an effort was made by an assignee without recourse to apply the doctrine of the preceding case to one of a transfer of a negotiable note after maturity pending suit, where it appeared that the indorser was already discharged by failure in respect to notice — it being contended that, the maker proving insolvent, the transferrer "without recourse" was nevertheless bound for the amount of the note. But the court held other- wise. Said Moncure, P.: "The question is whether these words are to be construed in this case according to their .literal sense, at least so far as to embrace the risk in regard to the sufficiency of proof of the dishonor of the note to charge the endorser; or in the restricted or limited sense in which they were construed by the circuit court? This court is of opinion that they ought to be construed in their literal sense, at least so far as to embrace the said risk, and not in the restricted and limited sense aforesaid ; and that such was the manifest in- tention of the parties." 1 1. In the early case of Crawford v. McDonald, 2 Hen. & M. 199, an agreement under seal for the conveyance of land was assigned without recourse, accompanied by a paper purporting to be a grant, together with certificates as to title, which papers proved to be 1918. ] ASSIGNMENT "WITHOUT RECOURSE" 403 An interesting and recent case in point is Trustees of Broad dus Institute v. Siers, 68 W. Va. 125, 69 S. E. 148. It is also reported, with an informing note, in Ann. Cas. 1912A, p. 920. It was there held that in the transfer of a chose in action by an assignment without recourse, there is an implied .warranty by the assignor against loss to the assignee by entire or partial fail- ure of consideration. Per Poffenbarger, J. : "The assignor warrants that the bill, note or bond is genuine and that the amount of money it calls for was owing and unpaid at the time of the assignment, in the absence of an express agreement to the contrary." In support of this, numerous decisions are cited, among them Whitworth v. Adams, 5 Rand. (Va.) 333. This case con- cerns principally the subject of usury, the opinion of Judge Carr, it may be noted in passing, containing an interesting pre- sentation of many of the shifts and devices resorted to-by those who are not content with the legal rate of interest. The report of the decision covers nearly one hundred pages but does not seem to contain a statement of the fact that the assignment was without recourse. In the West Virginia case the following from 7 Cyc. 831-2 is vouched; "The transferrer of commercial paper, even where endorsed 'without recourse,' warrants the validity of the instrument Thus he is held impliedly to warrant that the paper is sup- ported by a valid consideration, that it is properly stamped, that prior parties had capacity to contract, that the instru- forgeries. It was held that the assignor was not liable, there being no proof of fraud or knowledge of fraud on his part. Concerning this ruling, it must suffice to say that it is not the law to-day. The genuineness of the written evidence of the chose assigned. is one of the things impliedly warranted by an assignor without recourse. Mr. Call, counsel for the unsuccessful assignee, was only a century ahead of his age, anticipating, as he did with substantial correctness the modern doctrine, when he argued that "when a bond is assigned 'without recourse,' all that is understood by it is that the assignor means to be exempt from all recourse, if the obligor proves insuffi- cient; but if the bond be forged, he would be liable, because money had been paid the assignee for a thing upon which no recovery could be had." 404 4 VIRGINIA LAW REGISTER, N. S. [ Oct., ment is still subsisting as a valid obligation, and in genera! that there is no legal defense growing out of his own con- nection with the paper." Thus broadly is the law stated, an assignor without recourse be- ing declared, subject to recourse upon at least six varying grounds. But this is not all. Fraud. In Prettyman v. Short, 5 Harr. 260, the Supreme Court of Delaware held that upon the assignment of a chose in action, even without recourse, there is an -implied warranty that the chose in action was not invalid in its inception by reason of its having been procured by fraud and deceit. Usury. So also as to usury. Drennan v. Bunn, 124 111. 175, 16 N. E., 100, 7 Am. St. Rep. 354; Challis v. McCrum, 22 Kan. 157, 31 Am. The case last mentioned is frequently cited. Said Brewer, J. : "The note was not the legal obligation of the maker to the full amount. As to the usurious portion, it was as if it were no note. This was a defect in the very inception of the note. It was known to the, vendor and it arose out of his own dealings in the matter. By all these authorities, there is an implied warranty for such a defect, and the vendor is liable for a breach thereof." Compare Fant v. Fant, 17 Gratt. 11. The assignee of a bond transferred it for value, without assignment, but undertook ver- bally to guaranty it, should the transferee call upon him to do so to' enable him to dispose of it. Held, that if the transferrer knew that there was usury, he was guilty of a deceit and liable, though he did not endorse the bond. Amount Due. There is an implied warranty that the amount purporting to be due on the obligation assigned without recourse is the true amount. In Ticonic Bank v. Smiley. 27 Me. 225, 46 Am. Dec. 593, another leading case, where the holder of a note indorsed it. "indorsef not holder," it was held that he was liable for loss to. the indorsee due to the fact that payments had been made upon the note or that the maker had a right of set- off against the note. This is the same principle as that of Mays v. Callison, supra, when the Virginia judges thought it only 1918. ] ASSIGNMENT "WITHOUT RECOURSE*' 405 just that the "security" be regarded as something more than "mere wax and paper." Title. One who assigns or indorses without recourse a chose in action impliedly warrants his title thereto. State v. Corning Sav. Bank, 139 la. 338, 115 N. W. 937. Solvency. The general doctrine seems to be that where the assignment is without recourse, there is no implied warranty of the solvency, present or future, of the parties liable thereon. Challis v. McCrum, supra; Hecht v. Batcheller, 147 Mass. 335, 17 N. E. 651 : 9 Am. St. Rep. 708; Houston v. McNeer, 40 W. Va. 365, 22 S. E. 80. In the Massachusetts case, the payees of a promissory note sold it through a broker, "without recourse," two hours after the makers had made a voluntary assignment, neither buyer, seller, or broker knowing of that fact. Held, that the buyer could not recover of the seller on the ground of failure of con- sideration or mistake, as he got the identical note he bargained for, nor on an implied warranty, and that he must bear the loss himself. The court criticized Harris v. Bank, 15 Fed. 786, as in conflict with the weight of authority and added: "We think the principles we have stated are decisive of the case before us. The defendants sold the note in good faith. So far as the evidence shows, neither party at the time of the sale spoke of or inquired about or knew anything about the failure of the makers. They stood upon an equal foot- ing and had equal means of knowing the standing of the maker. They did not expressly warrant the value of the note and we are of opinion that no warranty could fairly be inferred from the circumstances of the solvency of the makers, or that they continued in business." See also Ware v. McCormick, 96 Ky. 139, 28 S. W. 157, 959; Carroll v. Nodine, 41 Ore. 412, 69 Pac. 51, 93 Am. St. R. 743. A point of much practical importance is ruled in the Illinois case of Drennan v. Bunn, supra, where it was held that the as- signor of a chose in action without recourse, liable as above in- dicated because the obligation was tainted with usury, is con- cluded by a judgment between the purchaser and the payor, pro- 406 4 VIRGINIA LAW REGISTER, N. S. [ Oct., vided he had notice of the pendency of the suit, although he was not expressly notified to become a party to the suit, or notified by the purchaser that he would be held bound by the judgment. The importance of this decision is manifest, not only in cases presenting facts of the same general nature, but of an analog- ous kind, e. g., cases predicated upon facts of forged or fraudu- lently raised checks, covenants of warranty of real estate and the like. Said the court: "Where one party is liable to indemnify another against a particular loss, it is because, by law or by contract, the primary liability for such loss is upon the party indemnify- ing; and in such instances the party bound to indemnify is in privity with the party to be indemnified, and he there- fore has a direct interest in defeating any suit whereby there may be a recovery as to the subject-matter of the in- demnity against the party to be indemnified. Rawle, in his work on 'Covenants of Title' (2d Ed. 242) after alluding to the ancient practice of 'vouching to warranty,' says: 'Partly, perhaps, from analogy to that practice, it is well set- tled in this country, in most, if not in all of the states, that, in general, upon suit being brought upon a paramount claim against one who is entitled to the benefit of a covenant of warranty, the latter can, by giving proper notice of this action to the party bound by that covenant, and requiring him to defend it, relieve himself from the burden of being obliged afterwards to prove, in the action on the covenant, the validity of the title of the adverse claimant.' " The opinion is a learned and able one, citing abundant author- ity, English and American, and should be "common-placed" by all interested in the subject of warranties, whether as incidents of negotiable paper or otherwise. Negotiable Instruments. Thus far we have been considering the subject from the stand- point of choses in action generally, though with occasional ref- erences to commercial paper. Limitations of space do not per- mit an extended inquiry into what may be called the subdivi- sion of negotiable instruments. It must suffice to reproduce the following statement of the law from Daniel's Lazv of Negotia- ble Instruments, Sixth Edition, section 820: "When the instrument is 'without recourse' the indorser spe- 1918. ] ASSIGNMENT "WITHOUT RECOURSE'' 407 daily declines to assume any responsibility as a party to the bill or note; but by the very act of transferring it, he engages that it is what it purports to be — the Valid obliga- tion of those whose names are upon it. He is like a drawer who draws without recourse ; but who is nevertheless liable if he draws upon a fictitious party or one without funds. And, therefore, the holder may recover against the in- dorser 'without recourse,' (1) if any of the prior signatures were not genuine; or (2) if the note was invalid between the original parties, because of the want of, or illegality of, the consid- eration; or if (3) any prior party was incompetent, or if (4) the indorser was without title." Ibid. "Under Negotiable Instrument Statute. 2 Under a war- ranty on negotiating an instrument by a qualified indorse- ment, it has been held that upon an indorsement, 'by agree- ment with recourse after all security has been exhausted, waiving protest,' until such security is exhausted, no cause of action accrues against the indorser, and he can not therefore be joined with the mortgagor as a defendant in an action to foreclose such mortgage, and that an indorse- ment 'without recourse' does not obviate the liability in- volved in the warranty of genuineness and title." To sum up, it is not too much to say that the expression "without recourse" seems almost to mean its converse — that is, that when an assignor makes this express reservation, he must be understood to mean that recourse may nevertheless be had upon him except upon the point of the solvency of the party obligated in the chose assigned, and perhaps one or two others. Thus the subject may fairly be classed among the curiosities of the law. This presentation of it may be appropriately concluded with the excellent analysis of the reason of the law contained in the 2. The statute in point is as follows: "Sec. 39. Qualified Indorser. A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indors- er s signature the words 'without recourse' or any words of similar import. Such an indorsement does hot impair the negotiable char- acter of the instrument." 408 4 VIRGINIA LAW REGISTER, N. S. [ Oct., opinion of the Supreme Court of Vermont in Hatinum v. Rich- ardson, 48 Vt. 508, 21 Am. Rep. 152: "By indorsing the note 'without recourse,' the defendant re- fused to assume the responsibility and liability which the law attaches to an unqualified indorsement, so that in re- spect to such liability, it may perhaps be regarded as stand- ing without an indorsement. If it be so regarded, then in what position do these parties stand in respect to the trans- action? The principle is well settled that where personal property of any kind is sold, there is on the part of the seller an implied warranty that he has title to the property, and that it is what it purports to be, and is that for which it was sold, as understood by the parties at the time ; and in such case, knowledge on the part of the seller is not nec- essary to his liability. ... In this case the note in question was given for intoxicating liquor sold in this state in violation of law, and therefore was void at its inception ; in short, it was not a note, it was not what it imported to be, or what it was sold and purchased for; it is of no more effect than if it had been a piece of blank paper for which the plaintiff had paid his fifty dollars. In this view of the case we think the defendant is liable upon a warranty that the thing sold was a valid note of hand." George Bryan. Richmond, Va.

What does 'Without Recourse' mean

Without recourse is a phrase that has several meanings. In a general sense, without recourse pertains to when the buyer of a promissory note or other negotiable instrument assumes the risk of default. Without recourse can also refer to a financing arrangement where the dealer's maximum possible liability is limited to warranties pertaining to the quality of an installment contract.

BREAKING DOWN 'Without Recourse'

Without Recourse Financing

Financing can be extended with or without recourse. Under financing with recourse, in the event that the lender cannot collect on its payment from the party ultimately responsible for payment of the financial obligation, the lender can go back to the borrower to seek payment on the amount due. For example, if a bank finances an exporter by providing immediate payment, but is unable to collect the money owed on the due date from the importer, the bank can go back to the exporter to claim its due.

On the other hand, without recourse financing means that the lender takes the risk of non-payment by the obligor. The borrower or exporter assumes no liability in the event that the importer defaults or is forced into bankruptcy. The lender takes these risks directly, and cannot seek payment or seize assets for any party not specified in the debt contract.

Sales Without Recourse

Without recourse means without subsequent liability.  A sales agreement entered into by a buyer and seller spells out the rights and responsibilities of both parties by indicating whether the sale is with or without recourse. A sale that is with recourse means that the seller bears responsibility for the sold asset if it turns out to be defective or does not perform as expected. The buyer has the right to seek recourse form the seller in the event that the item s/he purchased is subpar. The seller, in turn, is obligated to offer a replacement of equal value or provide a refund.

Sales without recourse means that the buyer accepts the risk associated with purchasing an item. The buyer has no recourse against the seller if the asset purchased does not work as expected. The liability of the asset is accepted by the buyer, and the seller is not obligated to compensate the buyer for any damages, defects, or performance issues of the sold asset.

Without Recourse in Banking

The term ‘without recourse’ disclaims any liability to the subsequent holder of a negotiable financial instrument. The holder assumes the risk of non-payment of the financial instrument, such as a check, promissory note, or any financial instrument that could result in a liability. A signed check that is endorsed with the words ‘without recourse’ releases the endorser from any liability should the check bounce due to insufficient funds.

For example, say Alice makes out a check to Bob. The payee, Bob, decides to pay off his debt to Maggie by endorsing the check which involves writing his name on the back exactly as it appears on the front of the check. Once the back of the check is signed, it becomes negotiable and allows for the transfer of money ordered by the check. In addition, Bob adds “without recourse” on the back of the check. The endorser, Bob, will not assume any responsibility for paying the check if it is returned for insufficient funds. If Alice’s bank refuses to pay Maggie’s bank the check amount due to insufficient funds in Alice’s account, Maggie cannot demand payment from Bob.

Without Recourse in Secondary Market for Loans

Another meaning of this term applies in the secondary market. In this case, the seller of loans, certificates of deposit (CDs), or securities is no longer required to indemnify the investor for any losses suffered. In other words, the seller is under no obligation to reimburse the investor for any losses suffered. Without recourse also applies to asset-based lending agreements where the lender is prohibited from charging back unpaid invoices caused by the debtor's inability to pay.


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