Payment in due course


1.    Payment must be made at or after the date of maturity
2.    Payment must be to the holder

3.    Payment  must  be  made  by  the  debtor  in  good  faith  and without notice that his title is defective
•      If payment is made before maturity, it would constitute a negotiation back to the person primarily liable and he can renegotiate it.  Payment doesn’t discharge the instrument.
•      Payment to indorsee who is not in possession of the instrument is not payment to a person other than the holder is at the risk of the party so paying  if  the  person  wasn’t  authorized  by  the  holder  to  receive payment.    So  also,  the  payment  to  the  original  payee  after  the  note had  been  transferred  by  him  to  a  holder  in  due  course  doesn’t discharge the note
•      Payment to a person by the debtor who knows that such person stole it, is not payment in due course, as such payment is not in good faith.  The  maker  of  a  note  or  the  acceptor  of  a  bill  must  satisfy  himself, when  it  is  presented  for  payment,  that  the  holder  traces  his  title through genuine indorsements, and if there is a forged indorsement, it is a nullity and no right passes by it


•      The  party  making  payment  must  insist  on  the  presentment  of  the paper by the party demanding payment in order to make sure that it is at the time in his possession and not outstanding in another
•      A receipt taken is no protection
•      If at the time he makes payment, it is outstanding and in the hands of a holder in due course, he must pay it again
•      Possession of notes by the maker is presumptive evidence