When Kelly, as the holder and payee of a negotiable promissory note, endorses the note with the words "Pay Eric's" and "Without Recourse," several effects arise from these additional instructions:
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"Pay Eric's": This directive indicates that Kelly is endorsing the note to Eric, making him the new payee of the note. The endorsement effectively transfers her right to receive payment under the note to Eric. If this endorsement is clear and effective, Eric will have the same rights to receive payment as Kelly did before the endorsement.
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"Without Recourse": This phrase signifies that Kelly is not holding herself liable for the payment of the note if Eric fails to pay it. In other words, if Eric does not pay the note when it becomes due, Kelly cannot be pursued for the payment. This protects Kelly from any future liability related to the note.
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Negotiability and Transferability: The negotiation remains effective because the note can still be transferred further by Eric (if it's otherwise negotiable). Endorsements do not eliminate the ability to negotiate the instrument unless specifically restricted.
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Liability Considerations: By using the phrase "Without Recourse," Kelly limits her liability to only ensuring that the note was properly executed and endorsed to Eric. She does not warrant its collectability or bear responsibility for Eric's ability to pay.
Overall, the effects of Kelly's endorsement allow for the transfer of rights to Eric while simultaneously absolving her of any future obligations related to the collection of the note.
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