Legal Definitions - recourse

The term recourse has two primary meanings in a legal context:

1. The ability to seek a remedy or enforce a right

In its first sense, recourse refers to the availability of a method or process for an individual or entity to protect their rights, seek a remedy for a wrong, or obtain assistance. It signifies having an option or a path to address a grievance or enforce a claim, often through legal channels.

• Example: Unfair Dismissal

  An employee believes they were fired from their job because of their age, which is illegal discrimination. If their state laws and employment contract provide avenues for challenging such dismissals, they have recourse to file a complaint with a government agency or pursue a lawsuit against their former employer.

  Explanation: This example illustrates recourse as the available legal mechanisms (filing a complaint, lawsuit) that the employee can use to enforce their right not to be discriminated against and to seek a remedy for the alleged wrong.

• Example: Faulty Product

  A customer purchases a new appliance that stops working within a week, despite being under warranty. When the store refuses to honor the warranty or provide a refund, the customer might have recourse through consumer protection laws, allowing them to report the business to a consumer affairs department or take the matter to small claims court.

  Explanation: Here, recourse refers to the options available to the customer (consumer protection agencies, small claims court) to enforce their consumer rights and obtain a resolution for the faulty product.

• Example: Breach of Contract

  A freelance graphic designer completes a project for a client, but the client refuses to pay the agreed-upon fee. The designer's contract specifies that disputes will be handled through mediation or, failing that, through litigation. The designer has recourse to initiate these processes to recover the payment owed.

  Explanation: This demonstrates recourse as the contractual and legal avenues (mediation, litigation) the designer can pursue to enforce their right to payment for services rendered.

2. A type of debt where the lender can claim personal assets

In a financial context, recourse describes a type of debt where the lender has the right to collect what is owed not only from the collateral securing the loan but also from the borrower's other personal assets if the collateral's value is insufficient to cover the debt. This is in contrast to "non-recourse" debt, where the lender's recovery is limited solely to the collateral.

• Example: Small Business Loan with Personal Guarantee

  A small business owner takes out a loan to purchase new equipment, and the loan agreement includes a personal guarantee. If the business fails and the equipment is sold but doesn't cover the full loan amount, the lender has recourse to pursue the business owner's personal assets, such as their savings account or other property, to recover the remaining debt.

  Explanation: This illustrates recourse debt because the lender can go beyond the business equipment (collateral) and claim the owner's personal assets to satisfy the outstanding loan balance.

• Example: Mortgage in a Recourse State

  A homeowner in a state where mortgages are typically recourse defaults on their home loan. After the bank forecloses and sells the house, the sale price is less than the amount still owed on the mortgage. The bank can then seek a "deficiency judgment" against the homeowner, allowing them to pursue other personal assets of the homeowner to cover the remaining debt.

  Explanation: This is an example of recourse because the lender is not limited to the value of the foreclosed home (collateral) but can pursue the borrower's other assets to make up the difference.

• Example: Vehicle Loan

  An individual takes out a loan to buy a car. If they stop making payments and the car is repossessed and sold, but the sale proceeds are less than the outstanding loan balance, the lender typically has recourse to sue the individual for the remaining "deficiency balance."

  Explanation: This demonstrates recourse as the lender's ability to recover the shortfall from the borrower's other assets, beyond just the value obtained from selling the repossessed vehicle.