Payment In Due Course

The payment in due course refers to payment of the amount due under a negotiable instrument. A payment in due course, as defined in the Act, operates as a valid discharge of the instrument against the holder. Accordingly, section 10 of the Act lays down the essentials of payment in due course, as follows:

1) The payment should be in accordance with the apparent tenor of instrument. A payment of post-dated cheque before maturity is not according to the tenor of the instrument.

2) The person to whom it is made should be in possession of the instrument.

3) The payment should be made in good faith without negligence and under circumstances which do not afford a reasonable ground for believing that the person to whom it is made is not entitled to receive the amount. The payment must be made in money only unless the holder agrees to accept payment in any other way.

Where ‘A’ executes a promissory note in favour of ‘B’ and the amount is payable to B’s order, a payment by A to C, who is B’s son who is not in possession of the note, is not a payment in due course. Again, when payment is made on a forged cheque, it is not a payment in due course. A banker cannot charge the customer with any money with which he has parted without the customer’s authority.

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