You have endorsed Brown's note. Brown does not pay it when due. If you do not receive a prompt notice of this, you might endorse another note for Brown under the false impression that he had paid the first one.
Likewise, if you have endorsed Jones' draft on his firm, or his check, and his firm, or his bank refuses to pay such draft or check, both you and Jones should receive prompt notice that payment was refused. With such notice you would not endorse for Jones a second time unless he made good to you, and explained matters satisfactorily. If Jones was honest in drawing his draft or check he is entitled to prompt notice of non-payment so that he can take immediate steps to get his money. Possibly his firm is embarrassed financially, or his bank has failed.
Say Smith & Co. have drawn a draft on a customer and have taken it to a bank and secured the money on it. If the customer refuses to pay the draft, the bank wants prompt notice so it can collect from Smith & Co. And Smith & Co. want prompt notice so they can take legal steps at once to protect themselves, and probably stop further shipments to this customer. Various other instances might be given where endorsers or drawers of paper might suffer loss or damage from lack of notice of its non-payment.
The law holds that this giving of notice is of such grave importance, that, if the bank receiving paper for collection does not promptly notify all persons, secondarily liable, of non-payment, all such persons are released from obligation, and the collecting bank must take its chances on making the amount from the payer. This statement must be qualified to this extent. If a check is not protested, the maker of the check must prove that he has suffered loss by not receiving notice of non-payment. But the drawer of a draft, or the endorsers on any check, draft, or note are released, whether they suffer damage or not. Generally speaking, a check is a written request of a depositor to his bank to pay a certain sum to a certain party; whereas a draft is a written request of any one to a firm or individual, to pay a certain sum to a certain party.
Of course, if the bank receives orders from the parties sending them, not to protest certain notes, checks, or drafts, it must obey these orders. But if no such instructions accompany the paper, the bank must protest or make itself liable.
Every bank of any size has one of its employes appointed a Notary, or it can employ a Notary on the outside. He is an officer appointed by the State, and is under bond to the State to perform all his duties according to law.
When the bank hands protestable paper to a Notary, it is his duty to make a formal demand at the proper place on the person who should pay it. If payment is refused, the Notary makes an exact copy of the note, draft or check at the top of a printed form used for this purpose. Then, over his signature as a Notary, accompanied by his official seal, he states that he has made a demand in person for payment of the paper described by him; and, on payment being refused, he has "protested" the non-payment. Also that he has mailed or delivered notices of this non-payment to all the parties secondarily liable on this paper and states their names. The Notary's official statement is called the "Instrument of Protest." The notices he mails are called the "Notices of Protest." Certain fees are allowed the Notary by law for protesting. These are called "Protest Fees," and become a part of the debt.
Of course, the person who ought to have paid the paper gets no "Notice of Protest." He certainly knows if he has not paid. The Notary must keep a copy of all his "Instruments of Protest." This is a public record, just as any court record is, and as accessible to the public. It is rarely examined, however.
So, from the language prescribed by law, that the Notary uses in his "Instrument of Protest," comes the common use of the terms "protest" and "no protest" paper.
To bind the parties secondarily liable a Notary can protest paper only on the exact day it is due. Otherwise he might put it off several days, or demand payment before it was due, and damage might result in either case. So, if the protesting is not done on the exact date when the paper is due, it is of no avail.