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Simple English definitions for legal terms
payment in due course
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A quick definition of payment in due course:
Payment in due course: When someone owes money and they pay it with a special kind of paper called a negotiable instrument, like a check, it's called payment in due course. If the person who gets the check did not know that it was late or that there were any problems with it, and they took it in good faith, then the debt is considered paid even if the check was cashed after the due date. This is called being a holder in due course.
A more thorough explanation:
Definition: Payment in due course refers to the payment made by a debtor on a negotiable instrument, even if it is made after the maturity date of the instrument. This payment discharges the instrument. The holder of the instrument, known as a holder in due course, must have taken the instrument in good faith, for value, and without notice of any legal claims against it.
Example: John owes $500 to his friend, Sarah. He writes a check to Sarah for the amount on the due date. Even though the check is post-dated, Sarah can still deposit it and receive payment in due course. If John had stopped payment on the check before the due date, Sarah would not have been able to receive payment in due course.
Explanation: This example illustrates payment in due course because Sarah received payment on a negotiable instrument (the check) even though it was post-dated. Since Sarah took the check in good faith, for value, and without notice of any legal claims against it, she is considered a holder in due course and the payment discharges the instrument.