Simple English definitions for legal terms
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Recourse refers to the process of enforcing one's rights. For example, if someone is fired for discriminatory reasons, they may have legal recourse to seek justice. It can also refer to a type of debt where the creditor can collect what is owed on the debtor's personal assets even after taking collateral. However, the creditor must first look to the collateral before pursuing the debtor's personal assets. Whether a debt is recourse or nonrecourse can be determined by looking at the language of the debt instrument. In some cases, whether a debt is recourse or nonrecourse does not affect its treatment.
Recourse is a legal term that can have two meanings:
Recourse refers to the process of enforcing one's rights. For example, if an employee is wrongfully terminated, they may seek recourse by taking legal action against their employer. However, in some cases, such as in the U.S. Supreme Court case Our Lady of Guadalupe School v. Morrissey-Berru, employees may not have legal recourse if they are classified as "ministers."
Recourse can also refer to a type of debt where the creditor can collect what is owed on the debtor's personal assets, even after taking collateral. This is different from nonrecourse debt, where the creditor may only look to the collateral. However, the creditor must first look to the collateral before pursuing the debtor's personal assets.
For example, in Racine v. Commissioner, a loan was classified as recourse debt because the borrower was personally liable for the full amount. The creditor could pursue the debtor's personal assets if the collateral did not satisfy the debt.
Courts determine whether a loan is recourse or nonrecourse by looking at the language of the debt instrument. For example, in Veleron Holding v. Stanley, a debt was classified as recourse because the credit agreement stated that the creditor could sue the borrower for the full amount due under the loan, including any deficiency after the sale of the pledged collateral.
However, in some cases, whether a debt is recourse or nonrecourse does not affect the treatment of the debt. For example, in Crane v. Commissioner, the U.S. Supreme Court found that a taxpayer realized gain on the sale of a property when the buyer assumed the seller's mortgage on the sold property, regardless of whether the mortgage was recourse or nonrecourse.