## Facts

- In March 1992, Lauretta and James Findlay (Sellers) sold their Lawn Doctor lawn-fertilization business to DBA Enterprises, Inc., William R. Allen, and Dorothy A. Allen (Purchasers) for $72,500.
- Purchasers financed $53,750 of the price by signing a promissory note payable to Sellers.
- The parties executed a bill of sale that included a covenant not to compete, barring Sellers (through their separate lawn-maintenance business, Acres Green Maintenance) from providing specified lawn services within a defined territory until 1998.
- The promissory note stated that the maker’s payment obligation was “subject to the conditions” set out in the bill of sale and the covenants not to compete.
- After the sale closed, Sellers continued operating Acres Green in a manner Purchasers claimed violated the noncompete.
- Purchasers stopped making installment payments on the note and sued Sellers for breach of the sale documents (including the noncompete).
- Sellers counterclaimed to enforce the promissory note.
- At trial, Sellers produced the original note and evidence that Purchasers had stopped paying; Sellers presented evidence that approximately $46,300 remained unpaid.
- The trial court found Sellers materially breached the noncompete and awarded damages to Purchasers; it also dismissed Sellers’ counterclaim on the note, concluding Sellers had not established a prima facie case.
- Sellers appealed both the breach finding/damages and the dismissal of their counterclaim.

## Issues

1. Whether a promissory note stating the maker’s obligation is “subject to the conditions” in a bill of sale and noncompete covenants contains a conditional promise and therefore is not a negotiable instrument under U.C.C. Article 3.
2. If the note is nonnegotiable, whether it is nevertheless enforceable between the original parties under ordinary contract principles.
3. Whether Sellers established a prima facie right to recover on the note, and whether the case must be remanded to determine what the parties intended the conditional language to mean for the maker’s duty to pay.

## Decision

- The court held the “subject to the conditions” clause made the promise conditional, so the note was not negotiable under U.C.C. Article 3.
- The court held that nonnegotiability did not render the note unenforceable; the note could still be enforced as a contract between the parties to the transaction.
- The court concluded Sellers’ production of the original note and proof of default and the unpaid balance was sufficient to show a right to recover, so the trial court erred in dismissing the counterclaim outright.
- The court affirmed (in relevant part) the trial court’s determination that Sellers materially breached the covenant not to compete and upheld the damages award subject to the appellate disposition.
- The court reversed the dismissal of Sellers’ counterclaim on the note and remanded for findings on the parties’ intent regarding the effect of the note’s conditional language and how it interacts with performance or breach of the related agreements.

## Legal Principles

- A negotiable instrument under U.C.C. Article 3 must contain an unconditional promise to pay; language making payment “subject to” another agreement is conditional and defeats negotiability.
- The loss of negotiability does not, by itself, defeat enforcement of the payment obligation between the original parties; a nonnegotiable note may be enforced under contract law.
- A party seeking to enforce a note may establish a prima facie case by producing the instrument and proving default and the amount due; disputes about conditions tied to related agreements may require additional fact-finding.
- When a note references “conditions” in separate sale documents without clearly stating how those conditions affect payment (for example, whether breach suspends payment, excuses payment, or supports setoff), the trier of fact may need to determine the parties’ intent.

## Conclusion

The Colorado Court of Appeals held that the promissory note’s “subject to” clause made it nonnegotiable under Article 3, but the note remained enforceable as a contract; because Sellers proved default and the amount due, dismissal of their counterclaim was improper, and the case was remanded to determine what the parties intended the conditional language to do in light of the related sale documents and the noncompete breach.


DBA Enterprises, Inc. v. Findlay, 28 U.C.C. Rep. Serv. 2d 1297 (1996)