In order to fix the liability of parties secondarily liable on a negotiable instrument, it is necessary to take certain steps provided by law for the benefit of such parties; except where owing to peculiar circumstances they are excused, or not required, and except where they are waived.
A party primarily liable on an instrument is, generally speaking, the real debtor and should pay the instrument when due, and is no more entitled to any procedure to charge him than any other debtor; but parties occupying positions which normally signify a secondary liability are liable only in case the party primarily liable does not pay. They are not the ultimate debtors, and therefore are entitled to have the holder use a degree of diligence to obtain payment from the party primarily liable. If we assume that A in borrowing money has given a note to B or order, and B has indorsed to C, and C to D and D to E, the present holder, then normally A is the only party on whose books there is an item to be debited against him, and E is the only party on whose books there is an item to his credit. The books of B, C and D, balance. They have received and given value. A must pay E to balance the books of each of them - one is a debtor and the other a creditor. Now under the law B, C and D, if indorsers, assume a liability, but it is secondary, and if enforced, means a payment which
A ought to make, and which the indorser can shift upon A if he be financially responsible. This is an onerous undertaking by the indorser, and the law rightfully throws around him the safeguards of a certain procedure whereby promptness in attempting to collect from the party primarily liable, and promptness in notifying the indorser (or drawer) is insured. It is not necessary that the holder sue the party primarily liable before he can charge the party secondarily liable. All he needs to do is to fix the liability of the parties secondarily liable, and then may sue any time before the statute of limitations bars him, any party liable to him, primarily or secondarily. By taking this procedure, he does not elect which one he will hold. He may still sue and collect from the main debtor.
The procedure to charge a drawer or indorser is as follows:
(1) Presentment to party primarily liable or to drawee for payment;
(2) Notice to party secondarily liable of nonpayment by party primarily liable or by drawee;
(3) In some cases, presentment for acceptance to drawee;
(4) Notice to party secondarily liable of nonacceptance;
(5) In some cases protest.
These various steps will now be considered.