No recourse against others: Overview, definition, and example
What is no recourse against others?
"No recourse against others" is a provision commonly included in contracts to limit the liability of certain parties. It states that, in the event of a breach or other issue arising under the contract, one party will not have the right to seek compensation or legal redress from other parties involved, other than the party specifically responsible for the breach. This provision is often used to protect directors, officers, affiliates, or other non-signatory parties from being personally liable for the obligations or defaults of the primary parties to the contract.
For example, in a loan agreement, a lender may agree to provide funding but include a "no recourse" clause, ensuring that in case of default, they can only pursue the borrower (and not any individual associated with the borrower) for repayment.
Why is no recourse against others important?
"No recourse against others" is important because it helps limit the exposure of individuals or entities who are not directly responsible for a breach or contractual obligation. It ensures that only the party that agreed to be held liable for specific obligations is accountable for fulfilling them, which can protect other parties from legal actions.
For businesses, this clause can be used to safeguard certain stakeholders from personal or financial liability, reducing their risk while still ensuring that the agreement is enforced against the responsible party.
Understanding no recourse against others through an example
Imagine a business enters into a contract with a supplier for the delivery of materials. The supplier fails to deliver, and the business wants to hold the supplier accountable. However, the contract includes a "no recourse against others" clause, which states that the business cannot hold the supplier's employees or affiliates responsible for the breach. The business can only seek redress from the supplier itself.
In another example, an investor signs a contract for funding with a startup. The contract includes a "no recourse against others" clause to ensure that if the startup defaults, the investor can only pursue the startup for repayment and not its founders or executives personally.
An example of a no recourse against others clause
Here’s how a no recourse against others clause might look in a contract:
“The Borrower acknowledges and agrees that in the event of a default, the Lender’s recourse shall be limited solely to the Borrower and shall not extend to any of the Borrower’s officers, employees, affiliates, or other stakeholders. No legal action may be taken against any other party involved in this Agreement except for the Borrower itself.”
Conclusion
The "no recourse against others" clause is a valuable provision for protecting certain parties from being held liable for contractual breaches or obligations that are not directly their responsibility. It helps to clearly define accountability and limits the risk exposure for individuals or entities that are not signatories to the contract or otherwise responsible for the breach.
By including a "no recourse against others" clause, businesses can better manage liability and ensure that responsibility for obligations is appropriately assigned, reducing the risk of unexpected claims against unrelated parties.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.