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Principles Of Business Law - CHAPTER VII
























































Sec. 93. Introduction. In the preceding chapter we discussed
the liability of the secondary parties, namely, drawers and indors-
ers of negotiable paper. It was pointed out that their conditional
liability to the holder does not arise until the performance of cer-
tain conditions precedent, namely, due presentment for payment,
dishonor by the primary party, and the giving of due notice of dis-
honor to the drawer or indorser. In this connection it must be re-
membered that these conditions may be waived by the parties to
a negotiable instrument. A waiver set forth in the body of a note
is effective as to all parties whose names appear on the instrument,
while a waiver which is part of an indorsement applies only to the
indorser, unless the language used is broad enough to cover later in-
dorsers. Attention now will be given to the various conditions
precedent which normally must be fulfilled to establish secondary

Presentment for Payment

Sec. 94. Time of presentment. The time when presentment
should be made varies with the different types of negotiable paper.
If the instrument is due at a fixed date, it must be presented on
that date. If the instrument is payable on demand, time of pre-
sentment will depend upon whether the instrument is a demand
note, a demand bill of exchange, or a bill of exchange in the nature
of a check. Presentment with respect to bills of exchange may be
either for acceptance or for payment.

Sec. 95. Time of presentment for payment of demand notes.
If a note is payable on demand, it must be presented for payment
within a reasonable time after issue. "Issue means the first de-
livery of the instrument, complete in form, to a person who takes
it as a holder." Demand instruments are due at the moment of
issue. This rule does not mean, however, that they are due with
respect to presentment for payment. Otherwise such instruments
would have no period of time in which to circulate. The canadian law pro-
vides that such paper may circulate a reasonable length of time
after issue before becoming overdue. In determining what is a rea-
sonable time, the courts apply the same test that they use in de-
termining whether a purchaser is a purchaser of overdue demand



paper. That is, due consideration must be given to the use of the
paper, the nature of the trade or business, and the facts of each in-
dividual case. It has been held in particular cases that delay in
presentation was not unreasonable where there was a delay of
months or years. Other cases have held that fourteen months is
unreasonable. 1 Even twenty-five days has been held unreasonable.
The statute of the state of New Hampshire specifically provides
that if a demand note is not presented within sixty days, the in-
dorsers shall be discharged.

Sec. 96. Time of presentment for payment of demand bills of
exchange other than checks. On bills of exchange, there are two
groups of secondary parties, the indorsers and the drawers. In or-
der to fix the conditional liability and to preserve the same against
indorsers and the drawer of a demand bill of exchange other than a
check, it must be presented within a reasonable time after the last
negotiation thereof. It will be noted that this time differs very
much from the time of presentment for a demand note. The de-
mand note must be presented for payment within a reasonable time
after issue. In the case of a bill of exchange, the conditional lia-
bility of the drawer and the indorsers will be preserved if the in-
strument is presented by the last holder within a reasonable time
after he receives it. In determining for what period of time a
holder may hold a demand bill of exchange after receiving it and
before presenting it for payment, we may apply the same test of
reasonableness of time as is indicated above for demand notes,
though in this case a shorter period of time is usually considered

Sec. 97. Time of presentment for payment of checks
drawers. A check is a demand bill of exchange drawn on a bank,
and, in order to preserve liability against the indorsers of checks,
the rule is the same as for any other bill of exchange, namely, that
the check must be presented for payment within a reasonable time
after the last negotiation. 2 With respect to the liability of a drawer
of a check, however, the holder must present the check for payment
within a reasonable time after issue ; otherwise, the drawer will be
discharged to the extent of the loss which is caused by the delay.
In the case of the ordinary demand bill of exchange, the drawer is
entirely discharged if the instrument is not presented within a
reasonable time after the last negotiation. It is to be noted, there-
fore, that the liability of the drawer of a check to pay is absolute
rather than conditional insofar as presentment is concerned, unless
he is damaged as a result of the delay. For example, suppose that

Leonard v. Union Trust Company, 1922, 140 Md. 192, 117 Atl. 318; p. 622.

3 Columbia Banking Company v. Bowen, 1908, 134 Wis. 218, 114 N.W. 451; p. 622.


A draws his check on D bank, payable to B on March 1, 1948, the
D bank being in the same community as A and B. A reasonable
time after issue under these circumstances would demand that the
instrument be presented for payment at D bank at least within the
business hours of the next business day. B negotiates the check to
C. C keeps the check for four days. Five days after its issue, C
presents the check to D bank for payment. The D bank dis-
honors. C gives notice to A, the drawer, and to 5, the indorser.
Although the check has been presented for payment an unreason-
able time after issue, A is still liable, because he suffered no loss on
account of the delay. However, if, between the date of issue of the
instrument and the date of presentment by C, the bank had become
insolvent and A had lost 60 per cent of the money he had on deposit
in the bank, A would be discharged on the check held by C to the
extent of 60 cents on the dollar. B, the indorser, is discharged in
either case, if it is determined that presentation four days after C
receives it is an unreasonable time after the last negotiation.

Sec. 98. Time of presentment for instruments bearing a fixed
maturity. An instrument with a fixed maturity date must be pre-
sented for payment on the day it falls due. When the date of ma-
turity falls on Sunday or a holiday, the instrument is payable on the
next succeeding business day. If the instrument is payable at a
bank, presentment for payment must be made during banking
hours, unless the person liable has no funds at the bank to meet the
instrument at any time during the day. In such a case present-
ment at any hour before the bank closes is sufficient. Under this
rule the party liable has the right to deposit money in the bank up
to the last hour of closing. Therefore the instrument cannot be
dishonored until after the closing hour of the bank.

Sec. 99. Presentment, how made. An instrument, in order to
be properly presented for payment, must be exhibited or shown to
the person from whom payment is demanded. Otherwise the pre-
sentment will be insufficient and the indorsers or drawers dis-
charged. The party presenting the instrument for payment must
also be in such position that, when the instrument is paid, the same
can be delivered to the party paying it. If the holder cannot ex-
hibit and surrender the paper, payment being offered, there is no
legal presentment for payment. A formal request for payment is
insufficient. An instrument payable at a definite place is not prop-
erly presented if the holder calls the maker by telephone and asks
what he is going to do about it. An answer by the maker that he
could not pay would, therefore, not be a dishonor, and all the in-
dorsers on the instrument would be discharged for want of sufficient
presentment. 3

8 Gilpin v. Savage, 1911, 211 N.Y. 167, 94 N.E. 656; p. 624.


Sec. 100. Presentment, place of. When an instrument is made
payable at a bank, or when a definite place is specified for payment,
it must be presented for payment at such place. 4 If no place of
payment is specified, it is sufficient if presentment is made at the
address of the person who is to make payment. If the address is
not given, presentment may be made at the usual place of business
or the residence of the party bound. In other cases the instrument
may be presented wherever the primary party can be found, or at
his last known place of residence. If an instrument is payable to
the order of a bank and is made payable at the bank, possession by
the payee bank constitutes a sufficient presentment and demand.

Sec. 101. By whom and to whom made. Presentment for
payment must be made by the holder or some person duly author-
ized to receive payment for him. Presentment is not necessary in
order to charge the persons primarily liable on the instrument, but
it must be made to the person primarily liable on the instrument in
order to charge the indorsers and the drawer. If the primary party
is not available, the instrument may be presented to any person
found at the place where presentment is to be made. If the person
primarily liable is dead, presentment may be made to his personal
representatives if, with the exercise of reasonable diligence, they
can be found. If the persons primarily liable on the paper are
partners, presentment for payment may be made to any one of
them, even though the partnership has been dissolved. If there are
several persons primarily liable on the paper and they are not part-
ners and no place of business is given, presentment must be made
to each person primarily liable.

Sec. 102. Excuses for failure to present. If, after the holder
has exercised reasonable diligence, the primary party cannot be
found, presentment for payment may be dispensed with ; likewise,
where the primary party is a fictitious person, or where waiver of
a presentment is either expressed or implied, presentment is un-

Delay in presentment for payment is excused when the delay is
caused by circumstances beyond the control of the holder, and
where such holder is not guilty of any negligence or misconduct.
When the cause for delay is removed, presentment must be made at
the earliest possible moment.

Presentment for Acceptance

Sec. 103. In general. Presentment for acceptance is not ap-
plicable to promissory notes, but it is often required in the case of
bills of exchange. The drawee of a bill of exchange is not bound
upon the instrument as a primary party until he accepts it. The

*Neldon v. Grondahl, 1904, 13 N.D. 363, 100 N.W. 1093; p. 625.


holder may, in most cases, wait until maturity and present his bill
for payment to the drawee, or he may present it to the drawee for
acceptance before maturity in order to give credit to the instrument
during the period of its term. The holder may present the bill for
acceptance to the drawee at any time. The drawee is under no
legal duty to accept ; but if he refuses, the bill is dishonored by non-
acceptance and a right of recourse arises immediately against the
drawer and the indorsers, and no presentment for payment is neces-

For example, the holder of a bill of exchange due in six months
may present it for acceptance to the drawee immediately upon re-
ceipt of the instrument; or he may wait until the maturity date of
the paper and present it for payment on that date. If the drawee
dishonors when the instrument is presented for acceptance, the
holder, after giving due notice, may immediately sue the drawer or
any other secondary parties thereon.

Sec. 104. Time allowed drawee to accept. Under the Uniform
Negotiable Instruments Act, the drawee is allowed twenty-four
hours after presentment in which to decide whether he will accept
the bill; but the acceptance, if given, dates as of the day of the
presentation. If the instrument is not accepted after demand is
made, the holder is not permitted to wait and present the instru-
ment for payment at maturity but must give notice of dishonor to
all secondary parties or he loses his right of recourse against them.
When the holder leaves the bill with the drawee and the drawee
refuses to return the bill or destroys it, the drawee will be deemed
to have accepted and will be required to pay.

Sec. 105. When presentment for acceptance is required. In
most instances it is not necessary to present an instrument for ac-
ceptance. Presentment for payment alone is usually sufficient, but
in the following cases presentment for acceptance must be made:

1. Where the bill is payable after sight, or where presentment for
acceptance is necessary to fix the maturity of the instrument.

2. Where the bill expressly stipulates that it must be presented
for acceptance.

3. Where the bill is drawn payable elsewhere than at the resi-
dence or place of business of the drawee.

Notice of Dishonor

Sec. 106. Dishonor and notice. Dishonor, or refusal to accept
r P a Y; by the primary party, is one of the conditions precedent
necessary to charge secondary parties. An instrument is dishon-
ored when it is duly presented for acceptance or payment and ac-
ceptance or payment is refused or cannot be obtained, or when


presentment is excused and the instrument is overdue and unpaid.

The third condition precedent which must occur before a right of
recourse arises against secondary parties, after presentment and dis-
honor, is notice of dishonor. When a negotiable instrument has
been dishonored by nonpayment or nonacceptance, notice of dis-
honor must be given to the drawer and to each indorser. Each
party who does not receive notice is discharged.

Sec. 107. Requirements of notice. The notice may be written
or oral. It must be sufficiently clear to identify the instrument
which has been dishonored, and it may be delivered personally, by
agent, or through the mails. The written notice need not be signed,
and if any information is lacking which is necessary to notify the
secondary party of the dishonor, it may be supplemented by verbal
communication. Any information so given is sufficient, provided
the party who receives it is not misled thereby. 5

Sec. 108. Time when notice must be given. The notice may
be given as soon as the instrument is dishonored; and unless the
delay is excused, notice must be given within the time fixed by the
Act. The Uniform Negotiable Instruments Act provides as fol-
lows: "Where the parties reside in the same place, notice must be
given within the following times:

1. If given at the place of business of the person to receive no-
tice, it must be given before the close of the business hours of the
day following.

2. If given at his residence, it must be given before the usual
hour of rest on the day following.

3. If sent by mail, it must be deposited in the post office in time
to reach him in the usual course on the day following."

It has been held that impossibility of giving oral notice, because
of the temporary absence of the indorser from the city, does not
excuse the holder from giving the notice within the time prescribed
by this section. He should comply with the requirements of the
section by mailing notice, as provided in subsection 3. G

Where the parties reside in different places, the Uniform Nego-
tiable Instruments Act provides as follows :

"1. If sent by mail, it must be deposited in the post office in time
to go by mail the day following the day of dishonor, 7 or, if there be
no mail at a convenient hour on that day, by the next mail there-

2. If given otherwise than through the post office, then within

6 Myers v. Bibee Grocery Co, 1926, 148 Va. 282, 138 S.E. 570; p. 625.

6 Price v. Warner, 1911, 60 Or. 7, 118 Pac. 173; p. 626.

7 First National Bank of Shawano v. Miller, 1909, 139 Wis. 126, 120 N.W. 820;


the time that notice would have been received in due course of mail,
if it had been deposited in the post office within the time specified
in the last subdivision."

Where a secondary party receives notice of dishonor, he may like-
wise give notice to all secondary parties prior to himself, and, after
receipt of such notice, he has the same time to give notice to all
prior parties that the holder had, after the dishonor.

Sec. 109. What constitutes mailing. If the notice of dishonor
is properly addressed and deposited in the post office, notice is as-
sumed to have been given, although the letter is never received.
It is presumed that if the letter was properly mailed it was received.
Although the nonreceipt of a duly mailed notice of dishonor does
not discharge an indorser, evidence that the instrument was never
received is competent on the question as to whether the notice was
actually mailed. A deposit of the notice in a letter box or any
branch post office is a sufficient mailing. However, a notice prop-
erly addressed and left where the mail is usually collected by the
postman is not a mailing, in that the notice is deposited in a place
not under the control of the post office.

Sec. 110. Place where notice must be sent. The Uniform
Negotiable Instruments Act provides, in Section 108, that if a party
has added an address to his signature on the instrument, notice of
dishonor must be sent to that address ; but if he has not given such
address, then the notice must be sent as follows :

"1. Either to the post office nearest to his place of residence, or
to the post office where he is accustomed to receive his letters; 8 or,

2. If he lives in one place and has his place of business in another,
notice may be sent to either place ; or,

3. If he is sojourning in another place, notice may be sent to the
place where he is sojourning.

But where the notice is actually received by the party within the
time specified in the Act, it will be sufficient, though not sent in
accordance with the requirements of this section."

Sec. 111. By whom notice must be given. Notice must be
given by the holder of the instrument after dishonor, or by his duly
authorized agent, or by any person who might be compelled to pay
the instrument to the holder. A collecting bank, as agent for the
holder, will be liable to its customer if it fails to give notice upon
dishonor. An agent may give notice in his own name or in the
name of his principal, or he may give the notice to his principal.
The agent must give his notice within the same time as if he were
a holder, and the principal has a like time to give notice to the
secondary parties.

8 H. H. Dickinson Co. v. Hickey, 1926, 235 Mich. 638, 209 N.W. 848; p. 628.


Sec. 112. To whom notice must be given. Notice must be
given to the secondary party or parties from whom payment is
sought ; it may be given either to the party himself or to his duly
authorized agent. If a secondary party is dead and this fact is
known to the holder or party giving the notice, the notice must be
given to a personal representative of the deceased person, if such
can be found; or, if there is no personal representative, notice may
be sent to the last-known place of business or residence of the de-
ceased. Where the secondary parties are partners, notice to one
is notice to both. If the secondary parties are jointly liable, notice
must be given to each of them, unless each is an agent of the other.
If the secondary party has become bankrupt or insolvent, or has
made an assignment for the benefit of his creditors, notice may be
given either to the secondary party or to his trustee or assignee.

Sec. 113. Effect of notice given by or on behalf of a holder.
The Uniform Negotiable Instruments Act provides that where
notice is given by or on the behalf of a person entitled to give no-
tice, it benefits all subsequent holders and all secondary parties who
have a right of recourse against the party to whom it is given.
When a holder has given notice of dishonor, or when someone has
given notice for his benefit to all the secondary parties, it is not
necessary that any prior holder who is entitled to recover give no-
tice. The notice by the holder to all the secondary parties on the
instrument operates for the benefit of all.

Sec. 114. Excuses for failure to give notice. Notice of dis-
honor may be excused when, after the exercise of reasonable dili-
gence, it cannot be given, or when circumstances beyond the con-
trol of the holder make notice impossible. This rule holds true
only when such holder is not guilty of any default, misconduct, or
negligence. The Uniform Negotiable Instruments Act also pro-
vides that notice of dishonor need not be given to the drawer where
the drawee is a fictitious person; where the drawer has no right to
expect that the drawee will accept; or where the drawer has coun-
termanded payment, as in the case of a stop order on a check. The
drawer, having stopped payment on the check, is responsible for
its dishonor, and, therefore, is not entitled to notice. If the drawer
withdraws all his funds from the bank and does not deposit suffi-
cient funds for the purpose of paying the instrument, he is not en-
titled to notice.

The Uniform Negotiable Instruments Act further provides that
notice of dishonor is not required to be given to an indorser in any
of the following cases: (1) where the drawee is a fictitious person
or a person not having capacity to contract and the indorser was
aware of the fact at the time he indorsed the instrument; (2) where


the indorser is the person to whom the instrument is presented for
payment; and (3) where the instrument was made or accepted for
his accommodation. Where the drawee is fictitious or under a dis-
ability and the indorser knows of the fact, he is already informed
of the dishonor. Likewise, an indorser to whom the instrument is
presented for payment would have knowledge of his own refusal.
Where the instrument is made or accepted for the indorsees ac-
commodation, his duty is not affected by lack of notice, because he
himself is liable for the payment of the debt as evidenced by the
instrument. Even though the Uniform Negotiable Instruments
Act provides that, under certain circumstances, notice is not neces-
sary, it is recommended, nevertheless, that notice be given to each
person charged upon the instrument, although such notice may ap-
pear to be undue precaution.

Sec. 115. Protest when necessary. Protest is a written no-
tice that the instrument has been presented by a notary for accept-
ance or payment and has been dishonored ; it is under the hand and
seal of the notary making it. Protest may also be made by a re-
spectable citizen in the presence of two or more credible witnesses.
It is necessary to protest foreign bills of exchange in the case of
nonacceptance or nonpayment, provided they show on their face
that they are foreign. Bills of exchange are divided into two kinds
with respect to the place where they are drawn and payable. A
foreign bill of exchange is drawn in one state and payable in an-
other. An inland bill of exchange is drawn and payable in the
same state. An inland bill of exchange, as well as a foreign bill of
exchange, may be protested for nonacceptance or nonpayment. It
is not necessary, however, that an inland bill of exchange be pro-
tested, oral notice or notice of any other character being sufficient.
The purpose of the protest or written notice of dishonor is to pre-
serve the evidence as proof that the conditions precedent, namely,
presentment, dishonor, and notice, have been satisfied in order to
charge the indorser and the drawer. If a foreign bill of exchange
is not protested, the indorsers and the drawer are discharged.

Sec. 116. What constitutes protest. Protest must be attached
to the bill itself or must contain a copy of the bill. It must be
given under the hand and seal of a notary public, and must state
the following facts:

1. The time and place of presentment.

2. The fact that presentment was made and how made.

3. The reason for the protest; that is, not sufficient funds, no
account, and so forth.

4. That a demand was made and what answer was given, or
whether the drawee or the acceptor could be found.


Sec. 117. Time within which protest must be made. Section
155 of the Uniform Negotiable Instruments Act provides that,
when a bill is protested, such protest must be made on the day of
the dishonor unless the delay is excused. When a bill has been
duly noted, the protest may subsequently be extended as of the day
of the noting. There are usually two steps taken in protesting a
bill. The first step includes the presentment of the instrument for
payment, dishonor, demand, and failure to obtain payment. If
this be the case, the person protesting the instrument must state
that he does protest the instrument and must write upon it the fact
of the protest, the reasons, the date when it was done, the demand
made, the answer given, his name or initials, and such other infor-
mation as may be required to make out a formal protest. This pro-
cedure is called noting the instrument and is for the purpose of se-
curing information to make a formal protest. The second step is
the formal protest, which may be made at any time after the not-
ing. This step is called extending the protest. Extending the
protest is issuing the formal certificate of protest, which must con-
tain the information enumerated above. If the formal protest is
not sent in time to serve as a notice of dishonor to secondary parties,
notice should be sent, followed later by the formal certificate. If
the notice is given before the formal protest, this fact is usually
recited upon the certificate. The protest may now be relied upon
as absolute proof that presentment and demand were made and all
the necessary steps taken in order to fix the liability of secondary

Excuses for failure to protest are the same as the excuses for fail-
ure to give notice of dishonor.

Review Questions and Problems

1. Why is presentment for payment necessary? Is it necessary to
charge the maker of a note? What is the proper time to present a de-
mand note?

2. M draws a demand bill of exchange upon D in favor of P. P holds
the bill for six months and then negotiates it to A. A holds the bill for
a year and then negotiates it to H, who immediately presents it to D.
D is insolvent and unable to pay. Upon giving proper notice of dis-
honor, may H recover from either P or M ?

3. Name two instances when presentment for acceptance is required.

4. What is the proper place at which to present negotiable paper?

5. A bill of exchange comes into X Bank for collection. The bank
calls the drawee on the telephone and demands payment, and is refused.
Has there been sufficient presentment to charge secondary parties?

6. When is presentment for payment dispensed with?

7. To whom should nntir.fi nf dishonor bfl Driven? Is it necessarv to
give notice to all indorsers? Whom does notice benefit? Supposing you
were fourth in the line of indorsers, and had been given notice of dishonor
by the holder, would you feel it necessary to notify prior indorsers?

8. Where should the notice be sent? How soon should it be dispatched
after dishonor? When is notice unnecessary?

9. What is meant by protesting negotiable paper? When is it re-

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