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What Is Without Recourse?

Understanding recourse, sales without recourse, without recourse in banking, what does it mean to assign without recourse, what does without recourse mean in real estate, how do i endorse a check without recourse.

Personal Finance

Without Recourse: Meaning, Example, Vs. With Recourse

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

"Without recourse" means that one party cannot obtain a judgment against, or reimbursement from, a defaulting or opposing party in a financial transaction. When the buyer of a promissory note or other negotiable instrument enters into a "no recourse" agreement, they assume the risk of default.

Key Takeaways

Without recourse means that the buyer of a promissory note, or lender, assumes the risk of default.
When a financial instrument contains the words "without recourse," the endorser is released from future claims.
Sales agreements that are made without recourse create a caveat emptor situation.

Financing can be extended with or without recourse . Under financing "with recourse," if the lender cannot collect on their 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. Recourse may allow the lender to seize not only pledged collateral, but also deposit accounts, and sources of income.

Conversely, "without recourse" financing means that the lender takes the risk of non-payment by the obligor . The lender takes these risks directly and cannot seek payment or seize personal assets not specified in the debt contract .

"Without recourse" means without liability . All sales agreements entered into by a buyer and seller contain rights and responsibilities for both parties. A sale without recourse means the buyer accepts all risks associated with the purchase.

This often occurs when items are sold "as is" without any guarantees. The buyer has "no recourse" against the seller if the item does not work as expected and the seller is not obligated to compensate the buyer for any damages, defects, or performance issues.

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 from the seller, who is often obligated to offer a replacement of equal value or provide a refund.

When a financial instrument contains the words "without recourse," the endorser is released from future claims. If a signed check includes "without recourse" the endorser is not subject to liability should the check bounce due to insufficient funds .

For example, assume 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.

A promissory note is a debt instrument , like a mortgage loan, that contains a written promise by the buyer to pay the seller a definite sum of money. If the loan is secured "without recourse," the lender often uses the mortgaged property as collateral. The lender cannot hold the buyer liable, however, will instead recover the collateral.

Without recourse is evident in certificates of deposit (CDs) and securities where the seller is not required to indemnify the investor for any losses suffered, such as those caused by market fluctuations.

Loans are often sold or transferred among lenders. When a loan is assigned to a new lender, neither the borrower nor the new loan holder can hold the first loan originator liable for any loan-related issues.

Without recourse, or non-recourse debt is a type of loan secured by collateral, such as real estate cited on a mortgage loan. If the borrower defaults, the issuer can seize the collateral but cannot seek further compensation from the borrower.

Endorsing a check and adding "without recourse" to the signature means that the endorser assumes no responsibility if the check bounces for insufficient funds.

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News & Insights

What Does "Without Recourse" Mean in the Assignment Area of an Auto Contract?

February 20, 2016 — 12:01 pm EST

Written by The Motley Fool ->

It is common practice for lenders to sell their loans after closing on them -- and this is especially true when it comes to mortgages and auto loans. If your loan contract has an "assignment without recourse" clause, it means that this could happen to you.

What an "assignment without recourse" clause means to you, the borrower

Essentially, an assignment clause in your auto loan contract means that you are giving the lender permission to either sell or transfer your loan to another finance company.

Lenders sell loans for a variety of reasons -- for example, many lenders simply act as originators and don't like to hold many outstanding loans on their books. Or if a lender finds itself with too much outstanding auto loan debt, it could decide to sell a portion of its loan portfolio.

Whatever the reason for selling, the "without recourse" part of the clause means that you can no longer hold the initial lender responsible for any errors or other loan-related issues. Upon sale of the loan to a new lender, the borrower's relationship with their original lender is automatically terminated.

The borrower must deal with a new lender for all issues regarding the loan and must make payments to the new lender. The new lender cannot change the loan's terms, such as the interest rate or loan length, but may have different policies in regards to issues like late payments. If your loan does get sold, it's important to thoroughly read any information you receive from the new lender so you're familiar with any changes that may take place.

The bottom line on "without recourse" clauses

If you want an auto loan that will be maintained by a specific lender for the duration of the loan, be sure to thoroughly read your contract (you should be doing this anyway), and make sure there is no "assignment without recourse" clause. If you're not sure if there is or not, this is a question to specifically ask your lender, so you'll know whether or not your loan can be sold without any responsibility remaining on your lender's shoulders.

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The article What Does "Without Recourse" Mean in the Assignment Area of an Auto Contract? originally appeared on Fool.com.

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Factor Accounts Receivable

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on January 30, 2024

Fact Checked

Why Trust Finance Strategists?

Definition and explanation.

The original holder obtains cash at once in return for the proceeds collected in the future, except that the collection process is handled by a third party (often known as a fa ctor ).

If the assigned receivables are insufficient to repay the factor because of bad debts , the original holder must transfer additional receivables.

If the factor collects more than the amount advanced, the excess is turned back to the original holder, as well as any uncollected accounts .

Suppose that Sample Company obtains $80,000 cash on 31 December 2023 by assigning $100,000 of its receivables with recourse.

The factor will collect the receivables and keep the first $85,000 to repay the cash advance and a $5,000 service charge.

Settlement is to be made on 1 April 2024, which will involve making a payment to Sample Company of any excess cash and the return of the uncollected accounts. The journal entries shown below would be made.

The journal entry used to record the cash received from the factor is as follows:

The journal entry used to record the transfer of the receivables to the factor:

The journal entries to accrue the finance charge are shown below.

This last entry reflects the fact that the factor collected $92,000 cash and kept $85,000. The uncollected accounts are transferred back.

This example illustrates how the events described in the previous section would be reflected in Sample Company's balance sheet —assuming, for simplicity, that nothing else happens.

Notice that the payable to the factor is contra to the assigned receivables. Until informed about the amount collected and kept, the company will continue to carry the assigned receivables and the payable on the books at their original amounts.

The net result of the arrangement is that Sample Company exchanged $85,000 of its receivables for $80,000 cash.

Assignment Without Recourse

Assigning without recourse differs from as signing with recourse in that the factor does not get to substitute other accounts for the uncollectible ones.

The factor does not have to return any cash in excess of the amount advanced or any uncollected accounts.

In effect, assignment without recourse is the same as an outright sale of the receivables.

Accounting for this transaction is si mple because it is the same as the sale of any other asset . The holder records a loss for the difference between the proceeds and the book value .

The factor (or buyer) usually obtains a high discount from the book value of the receivables because of the risk of uncollectibility.

Suppose that Sample Company receives $90,000 cash on 31 December 2023 for assigning $100,000 of its receivables without recourse. The following journal entry would be recorded:

This arrangement is essentially the one used by retailers when they enroll in a bank credit card plan.

Upon submitting charge slips from customers, they receive a credit in their bank account for a percentage of the sale.

The cost is incurred by the retailer for the following purposes:

Obtain the cash quickly
Avoid bad debt losses
Save clerical costs
Increase sales

Since the arrangement dealing with credit cards is related to ongoing operations, the debit entry is made to an expense account instead of a loss account.

Factor Accounts Receivable FAQs

What is factoring.

Factoring is a form of financing in which your company sells its Accounts Receivable (collectible debt owed to you by customers) to another business known as the "factor" at a discount.

Does my company need any special expertise or training to do factoring?

No, regular businesses can successfully factor their Accounts Receivable. A factor will help your company complete all of the paperwork and advise you on how to optimize its factoring program.

How much money should I factor in?

A business should factor all of the Accounts Receivable that are within 90 days old. This will give you more control over your Cash Flow since you can factor on a regular basis instead of waiting until you have collected enough money to pay off an entire account payable.

Will factoring affect our company's credit rating?

No, it will not affect your company's credit rating. There is no impact on a company's current line of credit and it does not affect the company's ability to obtain additional borrowing in the future.

What are "factoring fees" and do I have to pay them?

The factor will charge a separate fee for its services when it purchases your Accounts Receivable. This fee is usually not more than 1% of the total sales price and it may be negotiable.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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Assignment Of Loan

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What is an assignment of loan.

Under an assignment of loan, a lender (the assignor) assigns its rights relating to a loan agreement to a new lender (the assignee). Only the assignor's rights under the loan agreement are assigned. The assignor will still have to perform any obligations it has under the facility agreement.

The debtor, the recipient of the loan, must be notified when a debt is assigned. When there is an assignment of a loan, a Notice of Assignment (NOA) is sent out to the debtor informing them that a new party is now responsible for collecting any outstanding amount.

Assignment Of Loan Sample

Reference : Security Exchange Commission - Edgar Database, EX-10.14 5 dex1014.htm ASSIGNMENT OF LOAN DOCUMENTS , Viewed October 21, 2021, View Source on SEC .

Who Helps With Assignment Of Loans?

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Trusted legal counsel and business advisor to businesses and executive teams in the software, financial, and technology industries. Practice areas include commercial transactions, licensing, SaaS/PaaS/IaaS delivery models, software product development, regulatory compliance, new business formation, employment matters, and general corporate matters.

After receiving my undergraduate degree in economics from Stanford, and my law degree from UCLA, I practiced in California for eight years before moving to Oregon in 1991. I am primarily a trial lawyer with over 50 jury trials, emphasizing personal injury, professional malpractice, construction, and employment law, but in the course of that practice have reviewed and drafted hundreds of releases, indemnification agreements, employment agreements, and construction agreements.

My name is Elexius. I’ve been practicing since 2016. I began my career doing defense work for insurance companies. I handled worker’s compensation cases, insurance subrogation claims and a number of related employment issues including wage and hour disputes, resignation, termination and release of claims. I also handled employee contract matters and revised contracts as needed for my clients. In my current role I draft contracts and related agreements, including cease and desist, letters of understanding, and various notices. I also handle contractual interference issues.

I am an attorney admitted in New York and New Jersey with 21 years of law firm and in-house, complex litigation, appellate, and counseling experience. I am admitted in the New York U.S. District Courts and several U.S. Courts of Appeals. I have handled white collar litigation and other complex litigation matters. I have extensive insurance coverage, antitrust, contract, and internal investigations experience, and securities law and financial-services litigation experience. I was a candidate for the U.S. Senate in New Jersey 2011.

Wilberforce A.

Wilberforce Agyekum is an attorney with 16 years of experience practicing in areas of contracts, immigration, and criminal law. Wilberforce received a Bachelor of Science degree from Washington Adventist University, and Juris Doctorate from Seattle University School of Law.

I have been practicing law since 2010 focusing on estate planning, probate, corporate & business, and family law matters. Prior to the practice of law, I had extensive experience as a financial advisor, business consulting, and information technology.

I’m the Managing Attorney at The Coaxum Firm LLC, a small firm located in Alabama that handles Family Law, Criminal Defense, and Personal Injury cases. My law partner is my older brother, Louis Coaxum, and we’ve been practicing together as a firm for over 8 years.

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The Franchise & Dealer Law Report

The importance of understanding your indirect financing agreements, paul r. norman | 07.10.19.

Most automobile dealers use indirect financing arrangements when selling or leasing vehicles on credit. Under these arrangements, the Retail Installment Sales Contract or Lease ( RISC ) is initially between the dealer, as creditor or lessor, and the buyer or lessee. The RISC is then assigned to a lender pursuant to the terms of a written agreement between the dealer and the lender. The assignment normally is “ without recourse” (meaning that the lender assumes the risk of nonpayment), unless the dealer breaches one of the warranties of its agreement with the lender . In the event of a warranty breach, the lender has the right to require the dealer to buy back the RISC — whether or not the buyer defaults and whether or not the breach is connected with a default.

The warranties that are contained in RISC agreements vary significantly among lenders. Some agreements expressly prohibit acceptance of credit cards for down payments; others permit it and some are unclear. Some contain an absolute guarantee that all the credit information provided by the buyer is correct, while others require the dealer to warrant only that “ to the best of its knowledge,” the credit information is correct. Some contain a warranty that the buyer signed the agreement at the dealership premises; others do not. Unless the dealer has read and understands its agreements with the lenders to which it assigns RISCs and makes sure that its sales and F&I practices are consistent with them, there is some exposure the dealer will have to buy back RISCs and incur the costs and burdens of attempting to enforce the agreements itself.

Because lenders profit from buying RISCs from dealers, dealers have leverage in negotiating agreements with them. For example, if a dealer’s practice is to accept credit cards for some or all of the down payment under a RISC , but a lender’s standard indirect financing agreement prohibits this practice, the lender may agree to an addendum allowing it, if the dealer asks. However, I fear many dealers simply sign the agreement provided by the lender without knowing that its practices may require it to buy back RISCs in the future.

It is important that dealers fully understand the terms and conditions of master agreements and assignment provisions relating to each of their indirect financing arrangements. Consultation with attorneys familiar with these arrangements can provide dealers valuable insight into potential pitfalls of certain lender-preferred provisions as well as identify opportunities to negotiate terms that better reflect dealerships’ actual business practices.

The information provided is for general informational purposes only. This post is not updated to account for changes in the law and should not be considered tax or legal advice. This article is not intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.

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Buying and Selling Real Estate Notes

Not as Simple as One Might Think by David J. Willis J.D., LL.M.

Introduction

Investors often buy and sell real estate lien notes, either singly or in a package, a transaction that is customarily effected by a Sale & Assignment of Notes and Liens . This transfer instrument is referred to in this article simply as an assignment.

The idea of buying or selling a note seems simple until one delves into it. Is the assignment to be made “as is” with all faults that may exist in the note and the lien instrument? Will there be representations and warranties made by the parties and, if so, how extensive? How long will they last? Will recourse provisions apply if the note goes into default, and if so what is the recourse mechanism? Will indemnities be included? The closer one looks the more questions arise.

Our focus in this article is on the final assignment instrument signed by the parties at closing of the transfer rather than preliminary agreements that may come before closing.

The Assignment Process

In the case of real estate lien notes, a completed assignment involves not just a transfer of a note but the liens securing payment as well, which is why the assignment instrument is referred to as an assignment of note and liens. Two liens may be involved: the vendor’s lien retained in the deed from the seller to the borrower and the lien granted by a deed of trust.

One must distinguish between an absolute assignment of a note (a permanent transfers to a new owner and holder) versus a collateral assignment (made to a lender as collateral for a loan). Notes may be assigned in either way.

This discussion addresses absolute assignments. Steps in the process are usually: (1) an initial letter of intent or preliminary contract phase when basic terms are agreed to—similar to an earnest money contract for real estate—with “outs” for the prospective buyer; (2) a due-diligence or inspection period when a prospective buyer studies and evaluates the note (or package of notes) along with the lien instrument(s) and supporting documentation; (3) a cure period for objections, if any, raised by the buyer; (4) a closing document negotiation phase in which the terms of the final assignment instrument are hammered out and agreed to; and (5) a closing where a final sale and assignment of note and liens is executed, the purchase price paid, and the original note and loan file are delivered to the buyer-assignee.

BUSINESS & COMMERCE CODE

Negotiable instruments.

A properly written and endorsed real estate lien note is a negotiable instrument for purposes of Business & Commerce Code Section 3.201 et seq. Specific requirements of negotiability are listed in Section 3.104:

Bus. & Com. Code Sec. 3.104(a). NEGOTIABLE INSTRUMENT. Except as provided in Subsections (c) and (d), “negotiable instrument” means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it:

(1) is payable to bearer or to order at the time it is issued or first comes into possession of a holder;

(2) is payable on demand or at a definite time; and

(3) does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain: (A) an undertaking or power to give, maintain, or protect collateral to secure payment; (B) an authorization or power to the holder to confess judgment or realize on or dispose of collateral; or (C) a waiver of the benefit of any law intended for the advantage or protection of an obligor.

A real estate note that does not qualify as a negotiable instrument may still be valid and enforceable, and it may still be sold and assigned, but common law rules relating to the assignment of contracts will apply—the negotiable instrument rules of the Business & Commerce Code will not.

The resale value of a note that is non-negotiable is likely to be discounted.

Statutory Warranties

Business & Commerce Code Section 3.416 provides minimal warranties for notes that are negotiable instruments. These are automatically in place unless the assignment instrument disclaims them:

Bus. & Com. Code Sec. 3.416(a). TRANSFER WARRANTIES. A person who transfers an instrument for consideration warrants to the transferee and, if the transfer is by indorsement, to any subsequent transferee that:

(1) the warrantor is a person entitled to enforce the instrument;

(2) all signatures on the instrument are authentic and authorized;

(3) the instrument has not been altered;

(4) the instrument is not subject to a defense or claim in recoupment of any party that can be asserted against the warrantor;

(5) the warrantor has no knowledge of any insolvency proceeding commenced with respect to the maker. . . .

Unless contradicted or disclaimed in the assignment, these statutory warranties co-exist with contractual representations and warranties of the parties (discussed below).

DUE DILIGENCE BY BUYER-ASSIGNEE

Are the note and lien valid.

Determining the validity and enforceability of a real estate note and the lien(s) securing it is the core due-diligence task of any prospective buyer—who should obtain the whole loan file not just a copy of the note itself. A complete file will include (at least) the note; a copy of a recorded deed of trust; a copy of a recorded deed into the name of the property owner (the borrower); and a payment history. Even if only copies are being reviewed, the original note should exist and be available for inspection.

For a note to be valid, there must be consideration extended—money that is actually loaned. Hughes v. Belman , 239 S.W.2d 717, 720 (Tex.App.—Austin 1951, writ ref’d n.r.e.); and Bus. & Com. Code Sec. 3.303.

Generally, a note offered for sale should:

(1) be correct as to all material information including clearly identifying borrower and lender as well as the security property; (2) recite an unconditional promise to pay a sum-certain debt (and the numerical portion must match the written portion); (3) contain authentic signatures of all debtors and be dated; (4) provide clear terms of repayment; (5) be secured by a valid, recorded, and unreleased deed of trust; (6) contain the signature of both spouses if the property is homestead; (7) not contain any provisions that are illegal such as requiring usurious interest; (8) not be in default (monetary of technical) or the subject of any dispute with the borrower; (9) not be in litigation or bankruptcy whether existing, threatened, or anticipated; (10) not be the subject of any interest or claim by third parties; and (11) not have been previously sold or transferred in whole or in part.

This is a partial list. Sensible note purchasers will also want to perform minimal due diligence as to the value and condition of the security property since such factors may influence future note payment and performance. Does the property exist? Is it owner-occupied or occupied by renters? Is it in a state of good repair or is it underwater as a result of a recent flood?

If the parties to the note are registered entities (LLCs, corporations, or limited partnerships) it is important to verify that they are in good standing with the Secretary of State and the Texas Comptroller. If not, they do not have the legal capacity to do business, whether it is selling or buying notes or anything else.

All of the foregoing factors affect the quality of the note or notes being considered—and quality affects price.

The importance of thorough due diligence cannot be over-emphasized. A prospective buyer should engage an experienced attorney to assist in determining the validity and enforceability of the loan documents before substantial funds are committed.

Even when a note is being transferred entirely “as is” a prospective buyer-assignee should insist on an adequate due diligence/inspection period before closing.

REPRESENTATIONS AND WARRANTIES

Beyond statutory minimum warranties.

A well-drafted assignment may (and should) go beyond minimum statutory warranties to include contractual representations and warranties by the parties. It is possible for the assignment to include extensive reps and warranties, limited reps and warranties, or no reps and warranties at all—in which case the assignment is made “as is” and almost always without recourse. These terms should be expressly stated in the assignment instrument.

The goal of the seller-assignor is to minimize ongoing liability by limiting the number of reps and warranties. The buyer-assignee will instead prefer a longer list of assurances concerning note quality and completeness of the loan file.

Core representations and warranties of the seller-assignor include assurances that the note and lien(s) contain correct information and are legally valid and enforceable; that they are secured by a lawful vendor’s lien retained in a recorded general or special warranty deed plus a valid first-lien recorded deed of trust against the security property; that payments are current and there is no threat of monetary or technical default; that no adverse litigation is pending or threatened; and that the assignor is the sole owner and holder of the debt with power to transfer the note and liens.

There may be many more seller reps and warranties that a careful buyer will want to include. An example: if the seller-assignor was the original payee on a real estate note, and the note arose from seller financing, the buyer-assignee should want a specific warranty that the SAFE Act and Dodd Frank were fully complied with in the course of the original transaction.

There is the question of how long reps and warranties will survive closing (if at all)—30 days? 90 days? Forever?

Obtaining adequate reps and warranties from the seller-assignor does not substitute for thorough due diligence by a prospective buyer-assignee.

OTHER CLAUSES IN THE ASSIGNMENT

Assignments made “as is”.

What if the transaction is entirely “as is,” with no reps and warranties? There is certainly a market for this although the sales price of the note(s) will be discounted as a result. The key element in the assignment (for the seller-assignor) will be an effective “as is” clause similar to ones found in earnest money contracts and warranty deeds. Drafting these clauses can be tricky. Simplistic, one-liner “as is” clauses will not suffice since the seller-assignor needs not only to disclaim assurances regarding the note being transferred but also any reps or warranties concerning the condition and value of the security property.

Disclosure by the Seller-Assignor

Notwithstanding that an assignment is being made and accepted “as is,” a buyer should seek to obtain an agreement by the seller to make full disclosure of material facts. A sample clause might be: Assignor covenants and agrees to fully disclose to Assignee, prior to expiration of the inspection period, any and all material facts, conditions, and circumstances pertaining to the note(s), the lien(s), and the security property that could reasonably be expected to affect the Assignee’s decision to buy or not buy, even if this assignment is agreed to be “as is,”in present condition with all faults and without recourse.

Recourse by the Buyer-Assignee

Notes are sold with or without recourse by the buyer-assignee against the seller-assignor. Recourse comes in three varieties: none, full, or limited.

No recourse means what it says: if the borrower defaults then the buyer-assignee is stuck with a non-performing note (a near-worthless asset) and is solely responsible for pursuing the debtor and foreclosing on the security property.

Full recourse means that the buyer-assignee gets to give the note back to the seller-assignor if the debtor defaults. One of two things generally happen: (1) the buyer-assignee gets a credit or refund or (2) the buyer-assignee can substitute another note that is current and performing. There are other variations.

Limited recourse is, contractually speaking, all over the place. There are as many different provisions for limited recourse as there are creative attorneys to write them. Limited recourse provisions may state that there will be some sharing of effort and expense in collection or foreclosure, possibly with a reckoning after foreclosure sale of the security property. Remedies may be different when a batch of notes is involved: for example, if 100 notes are sold, the assignment might provide that the first 10 problematic notes will be full recourse, but the remaining 90 will not. In either case, there may be a hard limit on the total monetary amount of recourse available against the seller-assignor.

The availability of recourse—whether none, full, or limited—may also be contained within a specific time period. The availability of recourse is seldom indefinite.

Indemnity Provisions

If possible, the seller-assignor will want an indemnity clause holding him harmless against issues that may later arise in connection with the legality, enforceability, or collectability of the note. As with sellers of anything, the goal is no comebacks after closing.

Note buyers, on the other hand, resist not only taking the heat for defects in what they are purchasing but also paying the cost of defending against lawsuits arising from those defects. As with so many issues in real estate it comes down to quality and price. A seller-assignor may be able to get an indemnity provision included but it may be costly when it comes to the assignment sales price.

Indemnity provisions, although important, may be overrated since they are not self-executing. After all, the terms of an assignment can do nothing to prevent a borrower from suing both the seller-assignor and the buyer-assignee at some later time, resulting in inescapable up-front defense costs. One party to the assignment is left with a claim against the other based on the indemnity provision, often resulting in a second lawsuit.

As is the case with many other types of contracts, it is often beneficial to include a mandatory mediation clause in the assignment.

Drafting Considerations Generally

An assignment of note and lien(s) should be a comprehensive document. (If it is one page or less, something is amiss.) All obligations should be express. Nothing should be implied. No one should be allowed to assume anything or rely on anything unless expressly stated in writing. Oral statements should be disclaimed. A poorly-written assignment that involves unwritten assumptions and reliance on oral statements can easily form the basis for future litigation.

The foregoing discussion is by no means intended to be an exhaustive list of possible provisions that can be included in an assignment of note and liens. (Such documents can easily run 10 to 20 pages.) It merely hits the highlights.

CLOSING OF THE ASSIGNMENT

Endorsement and delivery of the note.

The note itself should be marked or stamped appropriately and the endorsement (or indorsement as it is referred to in the Business & Commerce Code) signed by the seller-assignor. The endorsement should include wording appropriate to the circumstances such as “payable to assignee without representations, warranties, or recourse” and would include the effective date.

Where does one place the endorsement? “For an instrument to be negotiable, indorsements must be written on the instrument or on a paper so firmly affixed thereto as to become a part thereof [sometimes called an allonge ]. An allonge is a piece of paper annexed to a negotiable instrument or promissory note, on which to write endorsements for which there is no room on the instrument itself.” Failure to properly endorse a note when it is transferred may impair its negotiability, resulting in the recipient being a mere transferee rather than having the superior status of a holder in due course [see Bus. & Com. Code Sec. 3.302].” Federal Fin. Co. v. Delgado, 1 S.W.3d 181, 185-86 (Tex.App.—Corpus Christi 1999, no pet.).

The original note(s) should be delivered to the buyer-assignee at closing.

Execution and Recording of the Assignment

Both the seller-assignor and the buyer-assignee should sign the assignment in order to indicate mutual assent to its terms and conditions. A properly-drafted assignment is not merely a unilateral transfer but represents a complex contract between the parties. The assigning party’s signature is not enough.

It is usually advisable for the buyer-assignee to record the assignment in the real property records of the county where the security property is located, so the assignment should be prepared in recordable form.

INVESTOR STRATEGIES

Notes are financial assets and their acquisition can be a part of an investor’s long-term buy-and-hold strategy. Like rents, a portfolio of mixed-age performing notes can produce a stream of income; however, unlike real property, there is no underlying equity that appreciates over time. In fact, the value of note assets depreciates so a stable portfolio requires continual replenishment. As notes age and mature new notes must be acquired in their stead if the income stream is to be maintained.

It is, of course, possible to acquire notes for other reasons. One aggressive strategy is to buy a secured note in default with the specific intention of foreclosing on the security property. A long-term hold is not the objective; acquiring the property is the objective. This scenario contemplates more of an “as is” approach to the note since its price is likely to be heavily discounted. In such cases, thorough due diligence is necessary in order to ensure that both the note and deed of trust are valid and enforceable with no obvious defenses available to the debtor.

Information in this article is provided for general informational and educational purposes only and is not offered as legal advice upon which anyone may rely. The law changes. No attorney-client relationship is created by the offering of this article. This firm does not represent you unless and until it is expressly retained in writing to do so. Legal counsel relating to your individual needs and circumstances is advisable before taking any action that has legal consequences. Consult your tax advisor as well.

Copyright © 2023 by David J. Willis. All rights reserved. Mr. Willis is board certified in both residential and commercial real estate law by the Texas Board of Legal Specialization. More information is available at his website, www.LoneStarLandLaw.com .

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Knowledge Point

What is a recourse, limited recourse and nonrecourse assignment?

The right of an assignee or buyer in a financial transaction to demand performance from the transaction assignor or seller in the event of default on the underlying debt is recourse . Where a financial transaction is nonrecourse , its assignor or seller is not held liable for payment and performance in the event of default on the underlying debt.

Assignments may be with recourse, without recourse or with limited recourse of the assignees (funders) to the loan originator the event of borrower default on the assigned loans :

Recourse assignment – The assignor is held liable to provide the assignee payment and performance of the underlying debt or to repurchase the assigned rights from the assignee upon occurrence of an event of default under the transaction;
Limited recourse assignment – The assignor is liable to the assignee only for a portion of the remaining obligations of the underlying debt upon occurrence of an event of default under the loan , where the recourse amount normally decreases and eventually ceases after a certain period of time;
Nonrecourse assignment – The assignor bears no liability toward the assignee for payment and performance of the underlying debt in the event of default on the transaction, where most assignments provide the assignees no recourse to the assignor.

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What Does "Without Recourse" Mean in the Assignment Area of an Auto Contract?

What an "assignment without recourse" clause means to you, the borrower Essentially, an assignment clause in your auto loan contract means that you are giving the lender permission to either sell or transfer your loan to another finance company.

The bottom line on "without recourse" clauses If you want an auto loan that will be maintained by a specific lender for the duration of the loan, be sure to thoroughly read your contract (you should be doing this anyway), and make sure there is no "assignment without recourse" clause. If you're not sure if there is or not, this is a question to specifically ask your lender, so you'll know whether or not your loan can be sold without any responsibility remaining on your lender's shoulders.

The article What Does "Without Recourse" Mean in the Assignment Area of an Auto Contract? originally appeared on Fool.com.

without recourse

Primary tabs.

A phrase meaning that one party has no legal claim against another party. It is often used in two contexts:

1. In litigation, someone without recourse against another party cannot sue that party, or at least cannot obtain adequate relief even if a lawsuit moves forward. Someone completely without recourse cannot sue anyone for an alleged injury, or else cannot obtain any relief even if lawsuits are filed.

2. In financial transactions, the words "without recourse" disclaim any liability to the subsequent holder of a financial instrument. Thus, endorsing a check and adding "without recourse" to the signature means that the endorser takes no responsibility if the check bounces for insufficient funds. If the bank accepts such a check and deposits the stated amount in the endorser's account, the bank will have no right to withdraw that amount from the endorser's account.

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THE LEGAL PROCESS
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assignments basic law

Assignments: The Basic Law

The assignment of a right or obligation is a common contractual event under the law and the right to assign (or prohibition against assignments) is found in the majority of agreements, leases and business structural documents created in the United States.

As with many terms commonly used, people are familiar with the term but often are not aware or fully aware of what the terms entail. The concept of assignment of rights and obligations is one of those simple concepts with wide ranging ramifications in the contractual and business context and the law imposes severe restrictions on the validity and effect of assignment in many instances. Clear contractual provisions concerning assignments and rights should be in every document and structure created and this article will outline why such drafting is essential for the creation of appropriate and effective contracts and structures.

The reader should first read the article on Limited Liability Entities in the United States and Contracts since the information in those articles will be assumed in this article.

Basic Definitions and Concepts:

An assignment is the transfer of rights held by one party called the “assignor” to another party called the “assignee.” The legal nature of the assignment and the contractual terms of the agreement between the parties determines some additional rights and liabilities that accompany the assignment. The assignment of rights under a contract usually completely transfers the rights to the assignee to receive the benefits accruing under the contract. Ordinarily, the term assignment is limited to the transfer of rights that are intangible, like contractual rights and rights connected with property. Merchants Service Co. v. Small Claims Court , 35 Cal. 2d 109, 113-114 (Cal. 1950).

An assignment will generally be permitted under the law unless there is an express prohibition against assignment in the underlying contract or lease. Where assignments are permitted, the assignor need not consult the other party to the contract but may merely assign the rights at that time. However, an assignment cannot have any adverse effect on the duties of the other party to the contract, nor can it diminish the chance of the other party receiving complete performance. The assignor normally remains liable unless there is an agreement to the contrary by the other party to the contract.

The effect of a valid assignment is to remove privity between the assignor and the obligor and create privity between the obligor and the assignee. Privity is usually defined as a direct and immediate contractual relationship. See Merchants case above.

Further, for the assignment to be effective in most jurisdictions, it must occur in the present. One does not normally assign a future right; the assignment vests immediate rights and obligations.

No specific language is required to create an assignment so long as the assignor makes clear his/her intent to assign identified contractual rights to the assignee. Since expensive litigation can erupt from ambiguous or vague language, obtaining the correct verbiage is vital. An agreement must manifest the intent to transfer rights and can either be oral or in writing and the rights assigned must be certain.

Note that an assignment of an interest is the transfer of some identifiable property, claim, or right from the assignor to the assignee. The assignment operates to transfer to the assignee all of the rights, title, or interest of the assignor in the thing assigned. A transfer of all rights, title, and interests conveys everything that the assignor owned in the thing assigned and the assignee stands in the shoes of the assignor. Knott v. McDonald’s Corp ., 985 F. Supp. 1222 (N.D. Cal. 1997)

The parties must intend to effectuate an assignment at the time of the transfer, although no particular language or procedure is necessary. As long ago as the case of National Reserve Co. v. Metropolitan Trust Co ., 17 Cal. 2d 827 (Cal. 1941), the court held that in determining what rights or interests pass under an assignment, the intention of the parties as manifested in the instrument is controlling.

The intent of the parties to an assignment is a question of fact to be derived not only from the instrument executed by the parties but also from the surrounding circumstances. When there is no writing to evidence the intention to transfer some identifiable property, claim, or right, it is necessary to scrutinize the surrounding circumstances and parties’ acts to ascertain their intentions. Strosberg v. Brauvin Realty Servs., 295 Ill. App. 3d 17 (Ill. App. Ct. 1st Dist. 1998)

The general rule applicable to assignments of choses in action is that an assignment, unless there is a contract to the contrary, carries with it all securities held by the assignor as collateral to the claim and all rights incidental thereto and vests in the assignee the equitable title to such collateral securities and incidental rights. An unqualified assignment of a contract or chose in action, however, with no indication of the intent of the parties, vests in the assignee the assigned contract or chose and all rights and remedies incidental thereto.

More examples: In Strosberg v. Brauvin Realty Servs ., 295 Ill. App. 3d 17 (Ill. App. Ct. 1st Dist. 1998), the court held that the assignee of a party to a subordination agreement is entitled to the benefits and is subject to the burdens of the agreement. In Florida E. C. R. Co. v. Eno , 99 Fla. 887 (Fla. 1930), the court held that the mere assignment of all sums due in and of itself creates no different or other liability of the owner to the assignee than that which existed from the owner to the assignor.

And note that even though an assignment vests in the assignee all rights, remedies, and contingent benefits which are incidental to the thing assigned, those which are personal to the assignor and for his sole benefit are not assigned. Rasp v. Hidden Valley Lake, Inc ., 519 N.E.2d 153, 158 (Ind. Ct. App. 1988). Thus, if the underlying agreement provides that a service can only be provided to X, X cannot assign that right to Y.

Novation Compared to Assignment:

Although the difference between a novation and an assignment may appear narrow, it is an essential one. “Novation is a act whereby one party transfers all its obligations and benefits under a contract to a third party.” In a novation, a third party successfully substitutes the original party as a party to the contract. “When a contract is novated, the other contracting party must be left in the same position he was in prior to the novation being made.”

A sublease is the transfer when a tenant retains some right of reentry onto the leased premises. However, if the tenant transfers the entire leasehold estate, retaining no right of reentry or other reversionary interest, then the transfer is an assignment. The assignor is normally also removed from liability to the landlord only if the landlord consents or allowed that right in the lease. In a sublease, the original tenant is not released from the obligations of the original lease.

Equitable Assignments:

An equitable assignment is one in which one has a future interest and is not valid at law but valid in a court of equity. In National Bank of Republic v. United Sec. Life Ins. & Trust Co. , 17 App. D.C. 112 (D.C. Cir. 1900), the court held that to constitute an equitable assignment of a chose in action, the following has to occur generally: anything said written or done, in pursuance of an agreement and for valuable consideration, or in consideration of an antecedent debt, to place a chose in action or fund out of the control of the owner, and appropriate it to or in favor of another person, amounts to an equitable assignment. Thus, an agreement, between a debtor and a creditor, that the debt shall be paid out of a specific fund going to the debtor may operate as an equitable assignment.

In Egyptian Navigation Co. v. Baker Invs. Corp. , 2008 U.S. Dist. LEXIS 30804 (S.D.N.Y. Apr. 14, 2008), the court stated that an equitable assignment occurs under English law when an assignor, with an intent to transfer his/her right to a chose in action, informs the assignee about the right so transferred.

An executory agreement or a declaration of trust are also equitable assignments if unenforceable as assignments by a court of law but enforceable by a court of equity exercising sound discretion according to the circumstances of the case. Since California combines courts of equity and courts of law, the same court would hear arguments as to whether an equitable assignment had occurred. Quite often, such relief is granted to avoid fraud or unjust enrichment.

Note that obtaining an assignment through fraudulent means invalidates the assignment. Fraud destroys the validity of everything into which it enters. It vitiates the most solemn contracts, documents, and even judgments. Walker v. Rich , 79 Cal. App. 139 (Cal. App. 1926). If an assignment is made with the fraudulent intent to delay, hinder, and defraud creditors, then it is void as fraudulent in fact. See our article on Transfers to Defraud Creditors .

But note that the motives that prompted an assignor to make the transfer will be considered as immaterial and will constitute no defense to an action by the assignee, if an assignment is considered as valid in all other respects.

Enforceability of Assignments:

Whether a right under a contract is capable of being transferred is determined by the law of the place where the contract was entered into. The validity and effect of an assignment is determined by the law of the place of assignment. The validity of an assignment of a contractual right is governed by the law of the state with the most significant relationship to the assignment and the parties.

In some jurisdictions, the traditional conflict of laws rules governing assignments has been rejected and the law of the place having the most significant contacts with the assignment applies. In Downs v. American Mut. Liability Ins. Co ., 14 N.Y.2d 266 (N.Y. 1964), a wife and her husband separated and the wife obtained a judgment of separation from the husband in New York. The judgment required the husband to pay a certain yearly sum to the wife. The husband assigned 50 percent of his future salary, wages, and earnings to the wife. The agreement authorized the employer to make such payments to the wife.

After the husband moved from New York, the wife learned that he was employed by an employer in Massachusetts. She sent the proper notice and demanded payment under the agreement. The employer refused and the wife brought an action for enforcement. The court observed that Massachusetts did not prohibit assignment of the husband’s wages. Moreover, Massachusetts law was not controlling because New York had the most significant relationship with the assignment. Therefore, the court ruled in favor of the wife.

Therefore, the validity of an assignment is determined by looking to the law of the forum with the most significant relationship to the assignment itself. To determine the applicable law of assignments, the court must look to the law of the state which is most significantly related to the principal issue before it.

Assignment of Contractual Rights:

Generally, the law allows the assignment of a contractual right unless the substitution of rights would materially change the duty of the obligor, materially increase the burden or risk imposed on the obligor by the contract, materially impair the chance of obtaining return performance, or materially reduce the value of the performance to the obligor. Restat 2d of Contracts, § 317(2)(a). This presumes that the underlying agreement is silent on the right to assign.

If the contract specifically precludes assignment, the contractual right is not assignable. Whether a contract is assignable is a matter of contractual intent and one must look to the language used by the parties to discern that intent.

In the absence of an express provision to the contrary, the rights and duties under a bilateral executory contract that does not involve personal skill, trust, or confidence may be assigned without the consent of the other party. But note that an assignment is invalid if it would materially alter the other party’s duties and responsibilities. Once an assignment is effective, the assignee stands in the shoes of the assignor and assumes all of assignor’s rights. Hence, after a valid assignment, the assignor’s right to performance is extinguished, transferred to assignee, and the assignee possesses the same rights, benefits, and remedies assignor once possessed. Robert Lamb Hart Planners & Architects v. Evergreen, Ltd. , 787 F. Supp. 753 (S.D. Ohio 1992).

On the other hand, an assignee’s right against the obligor is subject to “all of the limitations of the assignor’s right, all defenses thereto, and all set-offs and counterclaims which would have been available against the assignor had there been no assignment, provided that these defenses and set-offs are based on facts existing at the time of the assignment.” See Robert Lamb , case, above.

The power of the contract to restrict assignment is broad. Usually, contractual provisions that restrict assignment of the contract without the consent of the obligor are valid and enforceable, even when there is statutory authorization for the assignment. The restriction of the power to assign is often ineffective unless the restriction is expressly and precisely stated. Anti-assignment clauses are effective only if they contain clear, unambiguous language of prohibition. Anti-assignment clauses protect only the obligor and do not affect the transaction between the assignee and assignor.

Usually, a prohibition against the assignment of a contract does not prevent an assignment of the right to receive payments due, unless circumstances indicate the contrary. Moreover, the contracting parties cannot, by a mere non-assignment provision, prevent the effectual alienation of the right to money which becomes due under the contract.

A contract provision prohibiting or restricting an assignment may be waived, or a party may so act as to be estopped from objecting to the assignment, such as by effectively ratifying the assignment. The power to void an assignment made in violation of an anti-assignment clause may be waived either before or after the assignment. See our article on Contracts.

Noncompete Clauses and Assignments:

Of critical import to most buyers of businesses is the ability to ensure that key employees of the business being purchased cannot start a competing company. Some states strictly limit such clauses, some do allow them. California does restrict noncompete clauses, only allowing them under certain circumstances. A common question in those states that do allow them is whether such rights can be assigned to a new party, such as the buyer of the buyer.

A covenant not to compete, also called a non-competitive clause, is a formal agreement prohibiting one party from performing similar work or business within a designated area for a specified amount of time. This type of clause is generally included in contracts between employer and employee and contracts between buyer and seller of a business.

Many workers sign a covenant not to compete as part of the paperwork required for employment. It may be a separate document similar to a non-disclosure agreement, or buried within a number of other clauses in a contract. A covenant not to compete is generally legal and enforceable, although there are some exceptions and restrictions.

Whenever a company recruits skilled employees, it invests a significant amount of time and training. For example, it often takes years before a research chemist or a design engineer develops a workable knowledge of a company’s product line, including trade secrets and highly sensitive information. Once an employee gains this knowledge and experience, however, all sorts of things can happen. The employee could work for the company until retirement, accept a better offer from a competing company or start up his or her own business.

A covenant not to compete may cover a number of potential issues between employers and former employees. Many companies spend years developing a local base of customers or clients. It is important that this customer base not fall into the hands of local competitors. When an employee signs a covenant not to compete, he or she usually agrees not to use insider knowledge of the company’s customer base to disadvantage the company. The covenant not to compete often defines a broad geographical area considered off-limits to former employees, possibly tens or hundreds of miles.

Another area of concern covered by a covenant not to compete is a potential ‘brain drain’. Some high-level former employees may seek to recruit others from the same company to create new competition. Retention of employees, especially those with unique skills or proprietary knowledge, is vital for most companies, so a covenant not to compete may spell out definite restrictions on the hiring or recruiting of employees.

A covenant not to compete may also define a specific amount of time before a former employee can seek employment in a similar field. Many companies offer a substantial severance package to make sure former employees are financially solvent until the terms of the covenant not to compete have been met.

Because the use of a covenant not to compete can be controversial, a handful of states, including California, have largely banned this type of contractual language. The legal enforcement of these agreements falls on individual states, and many have sided with the employee during arbitration or litigation. A covenant not to compete must be reasonable and specific, with defined time periods and coverage areas. If the agreement gives the company too much power over former employees or is ambiguous, state courts may declare it to be overbroad and therefore unenforceable. In such case, the employee would be free to pursue any employment opportunity, including working for a direct competitor or starting up a new company of his or her own.

It has been held that an employee’s covenant not to compete is assignable where one business is transferred to another, that a merger does not constitute an assignment of a covenant not to compete, and that a covenant not to compete is enforceable by a successor to the employer where the assignment does not create an added burden of employment or other disadvantage to the employee. However, in some states such as Hawaii, it has also been held that a covenant not to compete is not assignable and under various statutes for various reasons that such covenants are not enforceable against an employee by a successor to the employer. Hawaii v. Gannett Pac. Corp. , 99 F. Supp. 2d 1241 (D. Haw. 1999)

It is vital to obtain the relevant law of the applicable state before drafting or attempting to enforce assignment rights in this particular area.

Conclusion:

In the current business world of fast changing structures, agreements, employees and projects, the ability to assign rights and obligations is essential to allow flexibility and adjustment to new situations. Conversely, the ability to hold a contracting party into the deal may be essential for the future of a party. Thus, the law of assignments and the restriction on same is a critical aspect of every agreement and every structure. This basic provision is often glanced at by the contracting parties, or scribbled into the deal at the last minute but can easily become the most vital part of the transaction.

As an example, one client of ours came into the office outraged that his co venturer on a sizable exporting agreement, who had excellent connections in Brazil, had elected to pursue another venture instead and assigned the agreement to a party unknown to our client and without the business contacts our client considered vital. When we examined the handwritten agreement our client had drafted in a restaurant in Sao Paolo, we discovered there was no restriction on assignment whatsoever…our client had not even considered that right when drafting the agreement after a full day of work.

One choses who one does business with carefully…to ensure that one’s choice remains the party on the other side of the contract, one must master the ability to negotiate proper assignment provisions.

Founded in 1939, our law firm combines the ability to represent clients in domestic or international matters with the personal interaction with clients that is traditional to a long established law firm.

Assignment without recourse and anti-assignment clauses

What happens if you purport to assign a debt for ready cash without recourse, but agree to reimburse the assignee in the event that the assignment turns out to have been invalid? One would have thought that the answer was clear. And indeed it is; but only after oil major BP, with a cool $68 million at stake, chose unsuccessfully to take the matter to the Commercial Court on a pettifogger’s technicality in National Bank of Abu Dhabi PJSC v BP Oil International Ltd [2016] EWHC 2892 (Comm) .

BP sold a parcel of oil on credit to Samir, a Moroccan refiner, and then assigned 95% of the debt to the NBAD for cash. The assignment was explicitly without recourse, but BP warranted that there was no legal impediment to the debt being assigned and agreed that if there was it would reimburse NBAD $68 million-odd. Samir went into insolvency leaving NBAD unpaid. It then transpired that the supposedly assigned debt was indeed unassignable without consent (ironically as a result of a provision in BP’s own boilerplate). NBAD sued BP on its warranty claiming its $68 million. BP argued that nothing was owing because even if the clause made the debt unassignable, the purported assignment had given NBAD rights that were just as good as an assignment, namely an equitable right to any proceeds in BP’s hands.

Carr J had no difficulty in rejecting BP’s argument. The debt was clearly unassignable; BP was in breach of warranty; the clause meant what it said; the amount recoverable under it was not in issue; and the result was therefore clear. The fact that the breach of warranty might be regarded as technical was beside the point.

This seems logical. Essentially what BP were trying to do was to argue that even if they had been in breach of warranty NBAD had suffered no loss as a result of their breach. But while this might have been relevant if NBAD’s claim had been a garden variety claim in damages, it was clearly irrelevant if, as here, the contract itself laid down the measure of recovery. Quite rightly, her Ladyship declined to subvert this result by holding that an express warranty to provide a valid assignment can be satisfied by providing the next best thing, however good a substitute others might think it was.

Note: this particular issue will become moot as regards debts governed by English law as and when the Government overcomes its lethargy and gets around to implementing subordinate legislation under s.1 of the Small Business, Enterprise and Employment Act 2015 (useful details here ) to outlaw blanket anti-assignment clauses of this kind.

Professor Andrew Tettenborn

Professor Andrew Tettenborn joined Swansea Law School and the Institute of International Shipping and Trade Law in 2010 having previously taught at the universities of Exeter (Bracton Professor of Law 1996-2010), Nottingham and Cambridge. Professor Tettenborn is a well-known scholar both in common law and continental jurisdictions. He has held visiting positions at Melbourne University, the University of Connecticut and at Case Law School, Cheveland, Ohio. He is author and co-author of books on torts, damages and maritime law, and of numerous articles and chapters on aspects of common law, commercial law and restitution. View all posts by Professor Andrew Tettenborn

Assignments: why you need to serve a notice of assignment

It's the day of completion; security is taken, assignments are completed and funds move. Everyone breathes a sigh of relief. At this point, no-one wants to create unnecessary paperwork - not even the lawyers! Notices of assignment are, in some circumstances, optional. However, in other transactions they could be crucial to a lender's enforcement strategy. In the article below, we have given you the facts you need to consider when deciding whether or not you need to serve notice of assignment.

What issues are there with serving notice of assignment?

Assignments are useful tools for adding flexibility to banking transactions. They enable the transfer of one party's rights under a contract to a new party (for example, the right to receive an income stream or a debt) and allow security to be taken over intangible assets which might be unsuitable targets for a fixed charge. A lender's security net will often include assignments over contracts (such as insurance or material contracts), intellectual property rights, investments or receivables.

An assignment can be a legal assignment or an equitable assignment. If a legal assignment is required, the assignment must comply with a set of formalities set out in s136 of the Law of Property Act 1925, which include the requirement to give notice to the contract counterparty.

The main difference between legal and equitable assignments (other than the formalities required to create them) is that with a legal assignment, the assignee can usually bring an action against the contract counterparty in its own name following assignment. However, with an equitable assignment, the assignee will usually be required to join in proceedings with the assignor (unless the assignee has been granted specific powers to circumvent that). That may be problematic if the assignor is no longer available or interested in participating.

Why should we serve a notice of assignment?

The legal status of the assignment may affect the credit scoring that can be given to a particular class of assets. It may also affect a lender's ability to effect part of its exit strategy if that strategy requires the lender to be able to deal directly with the contract counterparty.

The case of General Nutrition Investment Company (GNIC) v Holland and Barrett International Ltd and another (H&B) provides an example of an equitable assignee being unable to deal directly with a contract counterparty as a result of a failure to provide a notice of assignment.

The case concerned the assignment of a trade mark licence to GNIC . The other party to the licence agreement was H&B. H&B had not received notice of the assignment. GNIC tried to terminate the licence agreement for breach by serving a notice of termination. H&B disputed the termination. By this point in time the original licensor had been dissolved and so was unable to assist.

At a hearing of preliminary issues, the High Court held that the notices of termination served by GNIC , as an equitable assignee, were invalid, because no notice of the assignment had been given to the licensee. Although only a High Court decision, this follows a Court of Appeal decision in the Warner Bros Records Inc v Rollgreen Ltd case, which was decided in the context of the attempt to exercise an option.

In both cases, an equitable assignee attempted to exercise a contractual right that would change the contractual relationship between the parties (i.e. by terminating the contractual relationship or exercising an option to extend the term of a licence). The judge in GNIC felt that "in each case, the counterparty (the recipient of the relevant notice) is entitled to see that the potential change in his contractual position is brought about by a person who is entitled, and whom he can see to be entitled, to bring about that change".

In a security context, this could hamper the ability of a lender to maximise the value of the secured assets but yet is a constraint that, in most transactions, could be easily avoided.

Why not serve notice?

Sometimes it's just not necessary or desirable. For example:

If security is being taken over a large number of low value receivables or contracts, the time and cost involved in giving notice may be disproportionate to the additional value gained by obtaining a legal rather than an equitable assignment.
If enforcement action were required, the equitable assignee typically has the option to join in the assignor to any proceedings (if it could not be waived by the court) and provision could be made in the assignment deed for the assignor to assist in such situations. Powers of attorney are also typically granted so that a lender can bring an action in the assignor's name.
Enforcement is often not considered to be a significant issue given that the vast majority of assignees will never need to bring claims against the contract counterparty.

Care should however, be taken in all circumstances where the underlying contract contains a ban on assignment, as the contract counterparty would not have to recognise an assignment that is made in contravention of that ban. Furthermore, that contravention in itself may trigger termination and/or other rights in the assigned contract, that could affect the value of any underlying security.

What about acknowledgements of notices?

A simple acknowledgement of service of notice is simply evidence of the notice having been received. However, these documents often contain commitments or assurances by the contract counterparty which increase their value to the assignee.

Best practice for serving notice of assignment

Each transaction is different and the weighting given to each element of the security package will depend upon the nature of the debt and the borrower's business. The service of a notice of assignment may be a necessity or an optional extra. In each case, the question of whether to serve notice is best considered with your advisers at the start of a transaction to allow time for the lender's priorities to be highlighted to the borrowers and captured within the documents.

For further advice on serving notice of assignment please contact Kirsty Barnes or Catherine Phillips from our Banking & Finance team.

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ASSIGNMENT WITHOUT RECOURSE

Exhibit 10.2

FOR GOOD AND VALUABLE CONSIDERATION this 30 th day of July 2021, the receipt and sufficiency of which are acknowledged, MidCap Business Credit LLC, a Texas limited liability company with offices located at 433 South Main Street, West Hartford, Connecticut (hereinafter " Lender ") hereby assigns and transfers to Unilumin USA LLC, a Florida limited liability company with its principal place of business at 254 West 31 st Street, New York, New York (the “ Assignee ”), all right, title and interest of Lender in, to and under all of the documents, instruments and agreements enumerated on Schedule 1 attached hereto and made a part hereof relating to certain loan arrangements by and between Trans-Lux Corporation, a Delaware corporation ( "Trans-Lux" ), Fairplay Corporation, an Iowa corporation ( "Fairplay" , and together with Trans-Lux the " Borrower ") and the Lender (the “ Loans ”). The original of the Note (as defined in Schedule 1) is attached hereto. Lender also agrees to execute an Allonge to Note in the form of Exhibit “A” attached hereto, and hereby authorizes the Assignee to file UCC-3 Assignments and PPSA filings in connection with any UCC filings and PPSA filings enumerated on Schedule 1, and further agrees that it will at Assignee’s request, execute any additional documents reasonably required by Assignee to consummate this Assignment consistent with the terms herein.

THE LENDER REPRESENTS AND WARRANTS THAT THE LOANS HAVE NOT BEEN PREVIOUSLY TRANSFERRED, PLEDGED OR ASSIGNED, AND THIS ASSIGNMENT IS MADE WITHOUT ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AND WITHOUT RECOURSE TO LENDER IN ANY EVENT. THE ASSIGNEE UNDERSTANDS THAT THE AFORESAID AGREEMENTS ARE PRESENTLY IN DEFAULT. THIS ASSIGNMENT IS MADE EXPRESSLY SUBJECT TO AN INTERCREDITOR AGREEMENT DATED JUNE 1, 2020 BY AND BETWEEN LENDER AND CRAFTSMAN INDUSTRIES, INC., A COPY OF WHICH IS PROVIDED HEREWITH.

FURTHER, THE ASSIGNEE IS FULLY AWARE OF THE FINANCIAL CONDITION OF THE BORROWER, AS WELL AS THE CONDITION, LOCATION AND EXTENT OF THE COLLATERAL DESCRIBED IN THE AFORESAID SECURITY AGREEMENTS. ASSIGNEE ACKNOWLEDGES THAT LENDER MAKES NO WARRANTY OR REPRESENTATION CONCERNING THE ACCURATENESS, COMPLETENESS OR CORRECTNESS OF ANY WRITTEN MATERIALS FURNISHED. SAID MATERIALS HAVE BEEN PROVIDED AS AN ACCOMODATION ONLY, ASSIGNEE HAVING CONDUCTED ITS OWN INDEPENDENT INVESTIGATION AND DUE DILIGENCE. ANY RELIANCE BY ASSIGNEE ON ANY INFORMATION SUPPLIED BY LENDER IS AT ASSIGNEE’S SOLE RISK AND WITHOUT ANY LIABILITY TO LENDER UNDER ANY CIRCUMSTANCES.

MIDCAP BUSINESS CREDIT LLC

By: __ /s/ Steven A. Samson ____________

Steven A. Samson, President

To induce Lender to make the within Assignment Without Recourse and in consideration of Lender's making said Assignment Without Recourse and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Assignee hereby agrees and covenants with Lender (i) to assume, perform and faithfully discharge all of Lender's obligations under the documents, instruments and agreements enumerated on Schedule 1 attached hereto and made a part hereof; and (ii) to indemnify and hold the Lender harmless from any and all liabilities in connection with the Loans.

UNILUMIN USA LLC

By:_ /s/ Nicholas Fazio ____________

ACKNOWLEDGED AND AGREED TO THIS 30 th DAY OF July, 2021 by the undersigned Borrower who each hereby represent and warrant that it has no defenses, setoffs or counterclaims in connection with their obligations under the Loan and Security Agreement to Lender, including without limitation the Obligations owing under the Loan and Security Agreement and the Note, said Obligations and security interests under the Loan and Security Agreement being hereby ratified and confirmed. To the extent any such defenses, setoffs, or counterclaims ever existed, they are hereby waived and the Lender is released, remised and forever discharged from any and all claims under or relating to the Loan and Security Agreement, the Note and the Loans now existing through the date hereof by each Borrower in consideration of the Lender’s agreements contained herein. Each Borrower also hereby releases the Lender together with its officers, agents, counsel, successors or assigns, from any and all claims or causes of action that any Borrower may have against such parties under or relating to the Loan and Security Agreement, the Note and the Loans, whether known or unknown, contingent or otherwise, as of the date hereof.

BORROWERS :

TRANS-LUX CORPORATION

FAIRPLAY CORPORATION

By: /s/ Todd Dupee

Name: Todd Dupee

Title: Senior Vice President and

Chief Accounting Officer of each

of the above Companies

ACKNOWLEDGED AND AGREED TO THIS __ DAY OF July, 2021 by the undersigned (the "Guarantors" ) each of whom hereby represents and warrants that it has no defenses, setoffs or counterclaims in connection with their obligations under the Loan and Security Agreement and their respective Guarantees each being dated September 16, 2019 guarantying the Borrower’s liabilities and obligations to Lender, including without limitation the Obligations owing under the Loan and Security Agreement and the Note, said Guarantees and said Obligations and security interests under the Loan and Security Agreement being hereby ratified and confirmed. To the extent any such defenses, setoffs, or counterclaims in connection with its Guaranty ever existed, they are hereby waived and the Lender is released, remised and forever discharged from any and all claims under or relating to Guarantees, the Loan and Security Agreement, the Note and the Loans now existing through the date hereof by each of the Guarantors in consideration of the Lender’s agreements contained herein. The Guarantors also hereby release the Lender together with its officers, agents, counsel, successors or assigns, from any and all claims or causes of action that any of the Guarantors may have against such parties under or relating to the Guarantees, the Loan and Security Agreement, the Note and the Loans, whether known or unknown, contingent or otherwise, as of the date hereof.

GUARANTORS:

TRANS-LUX CANADA LTD.

TRANS-LUX ENERGY CORPORATION

TRANS-LUX DISPLAY CORPORATION

TRANS-LUX INVESTMENT CORPORATION

1. Secured Revolving Time Note dated September 16, 2019 in the Maximum Principal Amount of $4,000,000.00 from Trans-Lux Corporation and Fairplay Corporation (the “Note”)

2. Loan and Security Agreement (All Assets) dated September 16, 2019 by and between the Borrower, the Lender and Trans-Lux Canada Ltd., Trans-Lux Energy Corporation, Trans-Lux Display Corporation, and Trans-Lux Investment Corporation as Guarantors (the “Loan and Security Agreement”)

(a) Modification Agreement 6/3/20

(b) Second Modification Agreement and Waiver 12/16/20

(d) Forbearance Agreement 5/31/21

3. UCC-1 Financing Statements:

(a) Trans-Lux Corporation - Secretary of State, DE– Filing No. 2019 ###-###-####

(b) Fairplay Corporation – Iowa Secretary of State Filing No. P19005819-5

(d) Trans-Lux Energy Corporation – Secretary of State, CT – Filing No. 0003328455

(e) Trans-Lux Display Corporation - Secretary of State, DE– File No. 2019 ###-###-####

(f) Trans-Lux Investment Corporation - Secretary of State, DE– File No. 2019 ###-###-####

4. Trademark Security Agreements dated September 16, 2019 filed with United States Patent and Trademark Office

(a) Trans-Lux Corporation – Filed September 18, 2019 Reel/Frame 6752/0471

(b) Fairplay Corporation - Filed September 18, 2019 Reel/Frame 6752/0463

5. Intercreditor Agreement with Craftsmen Industries, Inc. 6/1/2020

6. Liquidating Contract and Covenant Not to Compete

(a) Todd Dupee dated September 16, 2019

(b) Nicholas Fazio dated June 4, 2020

7. Landlord's Consent and Subordination of Lien

(a) Penta Partners, LLC, 1700 Delaware Avenue, Des Moines, Iowa

(b) Aviator 3 & 7, LLC, 6110 Aviator Drive, Hazelwood, Missouri

(d) Erickson Family, L.C., 2570 106 th Street, Suite D, Urbandale, Iowa

8. Unlimited Guarantees dated September 16, 2019

(a) Trans-Lux Canada Ltd.

(b) Trans-Lux Energy Corporation

(d) Trans-Lux Investment Corporation

“EXHIBIT A”

Allonge to Note

This Allonge to Note is made this 30th day of July, 2021, to that Revolving Time Note in the Maximum Principal Amount of $4,000,000.00 dated September 16, 2019 by Trans-Lux Corporation and Fairplay Corporation payable to order of Midcap Business Credit LLC, a Texas limited liability company

For value received, pay to the order of Unilumin USA LLC (the “Purchaser”), WITHOUT RECORSE AND WITHOUT ANY REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED IN FACT OR BY LAW, subject to, and in accordance with the terms of the certain Assignment without Recourse by and between the undersigned and the Purchaser dated of even date, WITHOUT RECOURSE.

Witness: MIDCAP BUSIENSS CREDIT LLC

____________________________ By: __ /s/ Steven A. Samson _________________

Steven A. Samson, President

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Meaning of without recourse in English

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Examples of without recourse

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ASSIGNMENT OF ACCOUNTS RECEIVABLE (Non-Recourse)
Assignment of Accounts Receivable
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Assignment Of Mortgage Without Recourse
Assignment of Accounts Receivable with Non-Recourse
assignment without recourse

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COMMENTS

What Does "Without Recourse" Mean in the Assignment Area of an Auto
An "assignment without recourse" clause is not uncommon in auto loans and gives your lender the power to sell your loan. It is common practice for lenders to sell their loans after closing on them ...
Without Recourse: Meaning, Example, Vs. With Recourse
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 ...
What Does "Without Recourse" Mean in the Assignment Area of an ...
What an "assignment without recourse" clause means to you, the borrower. Essentially, an assignment clause in your auto loan contract means that you are giving the lender permission to either sell ...
Factor Accounts Receivable
The factor does not have to return any cash in excess of the amount advanced or any uncollected accounts. In effect, assignment without recourse is the same as an outright sale of the receivables. Accounting for this transaction is si mple because it is the same as the sale of any other asset. The holder records a loss for the difference ...
Assignment Of Loan: Definition & Sample
this assignment of loan documents (this "assignment") is made effective as of this 17th day of june, 2011, by jpmorgan chase bank, ... this assignment is made without recourse or warranty of any kind, and assignor makes no representations or warranty, express or implied, of any kind or nature whatsoever with respect to the loan documents ...
Boardman Clark
The assignment normally is " without recourse" (meaning that the lender assumes the risk of nonpayment), unless the dealer breaches one of the warranties of its agreement with the lender. In the event of a warranty breach, the lender has the right to require the dealer to buy back the RISC — whether or not the buyer defaults and whether ...
WITHOUT RECOURSE Sample Clauses
Sample 1. WITHOUT RECOURSE. This Sale Assignment is made without recourse but on the terms and subject to the conditions set forth in the Agreement. The Seller acknowledges and agrees that the Buyer is accepting this Sale Assignment in reliance on the representations, warranties and covenants of the Seller contained in the Agreement. Sample 1.
Buying and Selling Real Estate Notes
It is possible for the assignment to include extensive reps and warranties, limited reps and warranties, or no reps and warranties at all—in which case the assignment is made "as is" and almost always without recourse. These terms should be expressly stated in the assignment instrument.
What is a recourse, limited recourse and nonrecourse assignment
Recourse assignment - The assignor is held liable to provide the assignee payment and performance of the underlying debt or to repurchase the assigned rights from the assignee upon occurrence of an event of default under the transaction; Limited recourse assignment - The assignor is liable to the assignee only for a portion of the remaining ...
What Does Without Recourse Mean in the Assignment Area of an Auto
Lenders also have "assignment without recourse" provisions in their sales promises. When an early creditor sells to auto loan to another finance company, it may include a "without recourse" clause to ensure computers will none again have the deal with issues relation to the rental. That are a finance our purchasing an auto loan must check ...
What Does "Without Recourse" Mean in the Assignment Area of an Auto
It is common practice for lenders to sell their loans after closing on them -- and this is especially true when it comes to mortgages and auto loans.
Without Recourse: Definition, Applications, and Real-Life Scenarios
Sales without recourse. In sales agreements, "without recourse" translates to "without liability.". Buyers accepting this arrangement take on all associated risks. This commonly occurs in "as-is" sales where the buyer has no recourse if the purchased item has defects or fails to meet expectations. In contrast, "with recourse ...
without recourse
without recourse. A phrase meaning that one party has no legal claim against another party. It is often used in two contexts: 1. In litigation, someone without recourse against another party cannot sue that party, or at least cannot obtain adequate relief even if a lawsuit moves forward. Someone completely without recourse cannot sue anyone for ...
ASSIGNMENT WITHOUT RECOURSE Sample Clauses
Sample 1. ASSIGNMENT WITHOUT RECOURSE. The Parties agree that the transfer of Assigned Receivables to the Assignee shall be without recourse and without any type of warranty from the Assignor as to the solvency of each Assigned Debtor. The Assignee therefore fully and expressly waives the warranty as to solvency in relation to Assigned Receivables.
Assignments: The Basic Law
Ordinarily, the term assignment is limited to the transfer of rights that are intangible, like contractual rights and rights connected with property. Merchants Service Co. v. Small Claims Court, 35 Cal. 2d 109, 113-114 (Cal. 1950). An assignment will generally be permitted under the law unless there is an express prohibition against assignment ...
Assignment without recourse and anti-assignment clauses
The assignment was explicitly without recourse, but BP warranted that there was no legal impediment to the debt being assigned and agreed that if there was it would reimburse NBAD $68 million-odd. Samir went into insolvency leaving NBAD unpaid. It then transpired that the supposedly assigned debt was indeed unassignable without consent ...
Assignments: why you need to serve a notice of assignment
An assignment can be a legal assignment or an equitable assignment. If a legal assignment is required, the assignment must comply with a set of formalities set out in s136 of the Law of Property Act 1925, which include the requirement to give notice to the contract counterparty.
Credit assignment without and with recourse
The assignment of credit, in turn, can be with or without recourse. Non-recourse: in this case the assignor guarantees only the existence of the credit and not the solvency of the debtor. With recourse: in this case the assignor is responsible for payment, so much so that he must take responsibility for it in the event of default by the debtor.
ASSIGNMENT WITHOUT RECOURSE
To induce Lender to make the within Assignment Without Recourse and in consideration of Lender's making said Assignment Without Recourse and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Assignee hereby agrees and covenants with Lender (i) to assume, perform and faithfully discharge all of Lender's obligations under the documents ...
WITHOUT RECOURSE definition
WITHOUT RECOURSE meaning: a phrase written on a bill of exchange (= signed document promising to pay someone money) in order…. Learn more.
WITHOUT RECOURSE
WITHOUT RECOURSE definition: a phrase written on a bill of exchange (= signed document promising to pay someone money) in order…. Learn more.
PDF ASSIGNMENT OF MORTGAGE AND NOTE
ASSIGNMENT OF MORTGAGE AND NOTE . In consideration of the sum of Ten ($10.00) Dollars and other good and valuable consideration, the receipt ... This Assignment of Mortgage and Note (this "Assignment") is made without representation, recourse or warranty by Assignor, except that Assignor hereby represents and warrants to Assignee as
Agreement Regarding Assignment Without Recourse of Certain Loan Documents
Exhibit 10.4 . AGREEMENT REGARDING . ASSIGNMENT WITHOUT RECOURSE OF . CERTAIN LOAN DOCUMENTS . This AGREEMENT REGARDING ASSIGNMENT WITHOUT RECOURSE OF CERTAIN LOAN DOCUMENTS (the "Agreement") is made as of September 10, 2010 ("Effective Date") by and between HERITAGE BANK OF COMMERCE ("Assignor") and KBS SOR DEBT HOLDINGS II LLC, a Delaware limited liability company ("Assignee"):
with recourse Definition
Define with recourse. means that the assignment to Company is conditioned on the Purchaser's complete performance of every duty imposed under the Contract and that the risk of loss remains with Dealer until the Purchaser completes performance of the Contract. If the Purchaser does not completely perform a Contract assigned on a "with recourse" basis at any time, Company may require Dealer to ...

What Is Without Recourse?

Without Recourse: Meaning, Example, Vs. With Recourse

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Factor Accounts Receivable

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Assignment Of Loan

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Buying and Selling Real Estate Notes

Introduction

The Assignment Process

BUSINESS & COMMERCE CODE

Statutory Warranties

DUE DILIGENCE BY BUYER-ASSIGNEE

REPRESENTATIONS AND WARRANTIES

OTHER CLAUSES IN THE ASSIGNMENT

Disclosure by the Seller-Assignor

Recourse by the Buyer-Assignee

Indemnity Provisions

Drafting Considerations Generally

CLOSING OF THE ASSIGNMENT

Execution and Recording of the Assignment

INVESTOR STRATEGIES

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