I sort of agree with wheat'swheats but it's your choice. If you plan on selling it then it's probably worth the grading time and fees. If you're going to keep it then by all means on your label be sure to mention the tear. Good luck and if you send it for grading please let us know how it comes out.
Curious why you tell him to "by all means on your label be sure to mention the tear" if he keeps it? Why, so he can be reminded of the flaw every time he wants to enjoy his note? If he was selling it, then I could understand your advice. It's his bill, and if he's keeping it, he knows it has a slight tear.