It is important to your understanding of this case that you understand the difference between a negotiable promissory note and a non-negotiable promissory note.  Here is a very abbreviated and somewhat oversimplified summary of that difference.  The topic is more fully covered in an upper division course in commercial transactions (usually called Commercial Transactions, or Bills and Notes, or Payment Systems).

     Something that is negotiable generally passes in commerce free of any prior claims of ownership.  Cash, for example, is fully negotiable.  If a thief steals your $100 bill and uses it to buy books, you cannot reclaim the $100 bill from the bookstore (in the unlikely event that you find it there); the bookstore takes the cash free of your claims of ownership.  Were the law otherwise, bookstores and everyone else would be less willing to take cash in payment for goods or services and commerce would thereby be impaired.

     Promissory notes may also be negotiable.  For an example of a negotiable promissory note, see the note quoted in Tahoe National Bank v. Phillips.  A promissory note is a form of contract in which one or more parties (known as "makers") promise to pay another or others ("payees") an amount of money either on demand or at a stated time.  Like any contract, however, the party who makes the promise may have a defense to its obligation to pay the payee.  For example: if a buyer of equipment gives the seller a promissory note promising to pay a portion of the purchase price in the future, a breach of an express warranty relating to the equipment might give the buyer a defense or partial defense to payment of the note against the seller.  If the promissory note in this example is negotiable, however, and if the original payee (the seller of the equipment) has transferred the note to another in a specified manner, and if the party to whom the note has been transferred meets certain requirements, the new holder of the note takes free of the buyer's defense; the buyer must pay the new holder and the buyer must seek its recourse against the seller.

     To be negotiable, a promissory note must meet certain requirements specified in U.C.C. 3-104.  One of those requirements is that the note not contain conditions to payment.  If a promissory note contains such a condition, it is non-negotiable and any transferee of the note takes subject to defenses that the maker may have against the payee, including a defense that the maker has already previously paid the payee.  The note in the New York Bronze case contained such a condition (including that the entire sum was not payable if an audited balance sheet showed assets of the purchased company to be less than $4.5 million) and therefore was a non-negotiable note.