Payment In Due Course Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Payment In Due Course, written in plain English, along with examples of how it is used.

What is Payment In Due Course?

It refers to the payment, which was due, made to the person who have by fraudulent means acquired the promissory note or bill of exchange, without the knowledge of the same. The actual owner of the promissory note or bills of exchange has to look for the receipent of such funds and cannot claim funds without such notes.

History and Definition of Payment In Due Course

Payment in Due Course is a legal term that refers to the payment made on a negotiable instrument to the party in possession of such an instrument. The payment would be considered a discharge of liability, even if the individual making the payment didn't know that the instrument had been stolen, forged or otherwise acquired fraudulently. This concept is fundamental to the functioning of the commercial world and the free flow of negotiable instruments.

The term is based on the principle that when a negotiable instrument is transferred to another individual, the transferee acquires all the rights and interest transferred along with it, which includes the rights to demand payment. Therefore, if an individual pays the transferee of a negotiable instrument that is not forged and was acquired in good faith, the individual has fulfilled the obligation of the payment in the eyes of the law.

Examples of Payment In Due Course

  1. A homeowner issues a check to a contractor to pay for renovation work on their home, but the contractor loses the check. A third party finds the check and cashes it, claiming to have found it. The homeowner cannot reclaim the amount paid to the third party as they cashed the check in due course.

  2. A car dealership accepts a check for a new car from a customer. The customer had previously stolen the check and opened a new account specifically for the purchase. The dealership deposits the check in their account, and the bank credits the dealership's account. As the dealership accepted the check in good faith and without knowledge of the fraud, they are legally entitled to the funds.

Legal Terms Similar to Payment In Due Course

  1. Negotiable Instrument: A written document that promises to pay a specific amount of money to its bearer or a designated person upon fulfilment of certain conditions.
  2. Holder in Due Course: A person who legally possesses a negotiable instrument that is complete, regular, and acquired in good faith without notice of any defects.
  3. Fraudulent Inducement: The use of deception to induce another person to act in a way that damages them or is against their interest.