When a note is presented for payment at maturity and is not paid it is
usually PROTESTED; that is, a notary public makes a formal statement
that the note was presented for payment and payment was refused.
Notice of such protest is sent to the maker of the note and to each
indorser.
The bank should never hand to its notary any paper for protest until
it has made sure that its non-payment has not been brought about by
some error or misunderstanding. Quite often, even though the paper has
been made payable at a bank, the notary sends a messenger with the
note to the maker to make a formal demand for payment.
In taking in collection paper, banks should obtain clear instructions
from its owners as to whether or not it should be protested in case
of non-payment. It by no means follows that a formal protest is not
desired because the paper bears no indorsements. Many banks make it a
rule to protest all unpaid paper unless otherwise ordered.
We often see attached to the end of a draft a little slip with the
words: "_No protest; tear this off before protesting._" This is simply
private advice to the banker informing him that the drawer does not
wish to have the draft protested. It may be that he does not wish to
wrong or injure the credit of or add to the expense of his debtor; or
it may be that he considers the account doubtful and does not wish to
add to his own loss the cost of protest fees.
To hold an indorser, he must be properly notified of the non-payment
of the note; and whether this has been done is a question of fact. If
he was not properly notified this defence will avail whenever it is
clearly proved. A great variety of defences may be successfully made
by an indorser. A few of these defences are here briefly noticed: One
is usury; another is the maker's discharge by the holder; nor can he
be held when he has paid the note; nor when its issue was unlawful,
nor when the note was non-negotiable, nor when his indorsement was
procured by fraud. Finally, an indorser may avail himself of any
defence existing between the holder and the maker or principal debtor.
This is evidently a just principle, for the holder should have no more
rights against an indorser than he has against the maker. If,
therefore, the maker can interpose some just claim as a partial or
complete defence the indorser should be permitted to avail himself of
this claim.
In order to recover from an indorser it must be proven that a formal
and proper demand for payment was made upon the maker. The formal
protest is usually undisputed evidence of this. The maker is liable in
any event.
[Illustration: A protest.]
To make the indorser's liability absolute it is necessary to demand
payment at the specified place on the last day of the period for which
the note was given, and to give due notice of non-payment to the
indorser. For, as the contract requires the maker to pay at maturity,
the indorser may presume, unless he has received a notice to the
contrary, that the maker has paid the obligation.
Ordinarily a notice of an indorsement by a partnership need not be
sent to each member. Even after the partnership has been dissolved a
notice to one partner is sufficient to bind the other members. If the
note is owned jointly (that is, by parties who are not business
partners) the indorsers are not liable as partners but as individuals.
In such a case the notice of non-payment should be sent to each.
Our illustration shows a facsimile of a protest notice.