Payment in due course

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Payment in due course
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Payment in due course refers to the payment of a bill of exchange at or after its maturity date. A bill of exchange is a legal instrument that is used to facilitate the payment of goods and services. It typically includes a promise by the borrower (the drawee) to pay a certain amount of money to the lender (the payee) at a specified date in the future.

When a bill of exchange reaches its maturity date, the drawee is obligated to pay the full amount of the bill to the payee. Payment in due course means that the drawee must make this payment regardless of any defects in the bill or any other issues that may have arisen. This means that if the bill is defective, the drawee must still pay it in good faith and without notice.

For example, let's say that a company sells goods to another company and issues a bill of exchange for the amount of the sale. The bill of exchange is due in 30 days. When the 30 days have passed, the company that issued the bill is entitled to receive payment for the goods, regardless of any defects in the bill or any other issues that may have arisen.

It is important to note that the holder of the bill of exchange has to be entitled to receive payment, meaning that the bill has to be properly endorsed and the holder should be the rightful owner of the bill. Payment in due course does not relieve the drawee of any liability for defects in the bill or any other issues that may have arisen, but it does require the drawee to make payment to the rightful holder of the bill.

In summary, payment in due course is the legal obligation of the drawee to pay the bill of exchange at or after its maturity date, regardless of any defects in the bill or any other.

In order to satisfy payment in due course some conditions are to be met:

  • payment must be in accordance with the apparent tenor of the instrument,
  • payment must be made to a legally entitled person in good faith and without negligence,
  • payment must be made only against presentation of the instrument for payment.

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