How does a holder of commercial paper receive payment of the instrument?

A negotiable instrument may be traded for value up until the time of payment. If there is no specified payment time, there is no limit on how long or how many times it can be negotiated to another party. A holder of the instrument may seek payment from a person obligated to pay the instrument through a process known as presentment. Presentment is simply a demand made by a person entitled to enforce the instrument to an individual obligated to pay the instrument. The process for presenting a note for payment is slightly different than presenting a draft. The holder presents a note to the maker of the note, while a holder of a draft presents the draft to the third-party payor (such as a drawee bank). The person making presentment must exhibit the instrument, give reasonable identification, and surrender the instrument.

Note: Presentment duly made means that presentment complied with all agreed requirements (location, time, etc.).

Next Article: Liability to Pay a Negotiable Instrument Back to: COMMERCIAL PAPER

Discussion: Can you think of situations where presenting a note would be preferable to presenting a draft, and vice versa?

Practice Question: Mark is the holder and named payee of a promissory note and a check. What does he have to do to receive cash for the instruments?