Commercial Paper

Individuals who are secondarily liable on a negotiable instrument are not obliged to pay unless it has been presented for payment and dishonored. The commercial paper must first be given to the person who is primarily liable for payment. In the event that the instrument clearly notes the date of payment, the instrument must be presented on the date indicated. If payment is unjustifiably refused by the individual who has primary liability, the secondary party must be given notice of the dishonor and the presentation of the instrument for payment must be made within a reasonable period of time. What constitutes a reasonable time is contingent upon what type of instrument is involved. If the paper is a check, the drawer has primary liability for thirty days following the date on the check or the day it was given or sent to the payee, with the later date prevailing. An endorser is secondarily liable for seven days following his or her endorsement. When presentation does not occur within these time periods, either the drawer or the endorser may escape liability.

Individuals who are secondarily liable must receive notice of the dishonor of a commercial paper in order to be held liable for its payment. Such notice must be given by a bank prior to midnight on the date following the dishonor. Notice can be oral or in writing, as long as the language identifies the paper and indicates that it has been dishonored. If more than one person is eligible to obtain payment, only one of them need notify those parties who are secondarily liable.