Thomas v Neale William Hollier [1984] HCA 35; (1984) 156 CLR 152 (5 June 1984)

HIGH COURT OF AUSTRALIA

DAVID IAN THOMAS v. NEALE WILLIAM HOLLIER [1984] HCA 35; (1984) 156 CLR 152

Contract

High Court of Australia
Gibbs C.J.(1), Mason(2), Wilson(2) and Brennan(3) JJ.

CATCHWORDS

Contract - Consideration - I.O.U. - Interpersonal I.O.U. for intercompany debt - Whether I.O.U. replaced debt - Whether consideration to support I.O.U.

HEARING

1984, May 10; June 5. 5:6:1984
APPEAL from the Supreme Court of New South Wales.

DECISION

GIBBS C.J. This is an appeal from a judgment of the Court of Appeal of the Supreme Court of New South Wales which by a majority affirmed (subject to a variation which is not material for present purposes) a decision given by Cross J. in favour of the plaintiff in an action for debt.

2. The respondent (the plaintiff in the proceedings) was a director of a private company, N.J. Management Consultants Pty. Limited, which carried on business under the name of The Greystanes Sports & Toys Store. The appellant (the defendant) was a director of another private company, I.B.G.Y. Pty. Limited. On 15 December 1981, N.J. Management Consultants Pty. Limited ("the vendor") entered into a contract in writing with I.B.G.Y. Pty. Limited ("the purchaser") for the sale of the business of the store to the purchaser for the price of $32,000, plus the value of stock in trade, which the contract stated was estimated to be $43,000. The contract provided that if the value of the stock in trade exceeded $43,000, the purchaser might at its option reject such items as it might select to reduce the total value to $43,000. The sum payable for the stock in trade was to be paid on completion of the contract.

3. Settlement of the contract occurred on 18 December 1981, and on that date a cheque for $75,000 (representing the price of $32,000 plus $43,000 for stock) was paid by the purchaser to the vendor. A stocktake was taken during the weekend of 19 and 20 December 1981, and it was found that the value of the stock greatly exceeded $43,000.

4. The evidence given in the case was far from precise, but it appears that about a week after the stocktake, when the parties became aware that the value of the stock exceeded $43,000, the parties had a conversation, in the course of which the appellant said that it would be difficult for him to finance the purchase of the stock whose value exceeded $43,000 ("the excess stock") but that he was concerned that if the excess stock was taken away the store would be left a little bare. The respondent offered to provide an interest free loan for four months, until he sold his house and purchased an hotel which he intended to buy. No set terms for the repayment of the loan were mentioned - the respondent described it as "more a gentlemen's agreement" - but the respondent requested that if any moneys became available the appellant should reduce the loan as quickly as possible. In truth, what the parties described as a loan was a deferment by the vendor of the time for payment by the purchaser for the excess stock.

5. The parties met again on 14 February 1982. On that occasion, apparently for the first time, the parties agreed on the value of the stock. The respondent said in evidence that between December 1981 and 14 February 1982 he had received a "reduction of the amount loaned" - he said that the appellant "had paid a number of outstanding creditors on my behalf and had also paid ... some moneys to me." After deducting from the agreed value of the stock the amounts paid by the appellant, and after adding a small sum in respect of an air conditioner, a figure of $48,296.71 was reached. The respondent told the appellant that he was not charging for the stock at market value, but at cost or below cost, and the appellant replied, "Seeing as you have done that and you have agreed to give me an interest free loan of four months I will accept the stock at the values put on them by you." On the same occasion the respondent told the appellant that he had not been able to sell his house, that his bank was getting a little nervous, and that he needed an I.O.U. so that his bank would hold him over until he sold the house. He said that the bank manager had suggested to him that he should get an I.O.U. from the appellant personally, and that he would rather have an I.O.U. from him than from the purchaser company. After this conversation, the appellant signed a document in the following terms:

"8 Namoi Place
TOONGABBIE NSW
2146

I owe Neale Hollier the sum of forty eight
thousand two hundred and ninety six dollars and
seventy one cents ($48296.71) Payable on demand.

DAVID IAN THOMAS"

The appellant said in evidence that he had been friendly with the respondent for a long time, and that he gave the respondent the I.O.U. because he needed it for his bank manager - he did him a favour by giving it.

6. Under the contract signed on 15 December 1981, the stock, which was the property of the vendor, was sold to the purchaser, not to the appellant, and the vendor, and not the respondent, was entitled to be paid for it. Both parties in their conversations appear to have spoken as if the respondent was the vendor and the appellant the purchaser. There was no evidence as to the authority which either party had from the company of which he was a director, although the evidence shows that the respondent and his wife were directors of the vendor, and that the making and carrying out of decisions for that company was done by the respondent and his wife in conjunction. However the way in which both parties gave their evidence strongly suggests that each thought that for all practical purposes the vendor company was identical with the respondent and the purchaser company with the appellant.

7. The only payment made under the contract after 14 February 1982 was an amount of $1,000 which was paid by cheque dated 20 March 1982 drawn in favour of the vendor by the appellant under the name "Greystanes Sports & Toys". The cheque was banked by the respondent to the credit of the vendor, but a receipt for the payment signed by the respondent personally acknowledged receipt from the appellant personally. On 20 July 1982 the solicitor for the respondent wrote to the appellant demanding payment of $48,296.71 which the letter alleged was owed to the respondent by the appellant. No reply was sent to the letter - the appellant said in evidence that he rang his solicitor who advised him to do nothing about it. When the proceedings were commenced the defence filed by the appellant was a general denial of indebtedness, together with an assertion "that if any money is due to the (respondent) following the sale of the Greystanes Sports and Toys Store which is not admitted that money is properly due by a certain company and not the (appellant)."

8. The decision of the appeal must depend on what inferences should properly be drawn from the meagre evidence presented by the parties. There is no question of credibility because the appellant in evidence agreed that the account of the conversations given by the respondent was substantially correct. The document signed by the appellant on 14 February 1982 was an acknowledgement that the appellant was indebted to the respondent in the amount of $48,296.71. The matter thus acknowledged was entirely within the knowledge of the appellant, who said in evidence that it was not a mistake that he had signed in his own name and that he had done so deliberately. The document is strong, although not conclusive, evidence of the existence of the debt on which the respondent sued. The appellant's evidence that he signed the document because the respondent needed it is equivocal. On the one hand, it may mean that the appellant, out of friendship, signed a document which he knew to be false, for the purpose of assisting the respondent to mislead the bank. That is not a view which should readily be accepted when neither party has alleged fraud against the other. On the other hand, it may mean that the appellant, knowing that the respondent's position vis a vis the bank would be strengthened if the money due for the excess stock was owed by the appellant personally to the respondent personally, agreed to assume a personal liability. That interpretation of the evidence is open, and is supported by the fact that no reply was sent by the appellant to the letter dated 20 July 1982 from the respondent's solicitors. The failure to answer a letter may amount to an admission if there are circumstances which render it more reasonably probable that a man who denied the assertions made against him in the letter would answer those assertions than that he would not: see Wiedemann v. Walpole (1891) 2 QB 534, at pp 538, 539; Young v. Tibbits [1912] HCA 23; (1912) 14 CLR 114, at pp 122, 128, 139; and Lustre Hosiery Ltd. v. York [1935] HCA 71; (1935) 54 CLR 134, at p 143. The letter of 20 July 1982 was written by a solicitor; it enclosed a copy of the acknowledgement executed on 14 February 1982 and threatened the institution of proceedings unless payment was made within seven days. It would have been easy enough for the appellant to have stated that the acknowledgement of his liability did not represent the true facts, if that had been the case, and it is unlikely that he would have allowed the solicitor's assertions to pass unchallenged if they had been erroneous. The appellant's failure to reply to the solicitor's letter is therefore an admission - although perhaps not in itself strong evidence - of its correctness. The evidence of the subsequent payment of $1,000 and the receipt given for it points in both directions, as Samuels J.A. said in the Court of Appeal, and does not seem to advance the case one way or the other. Finally, the specific defence pleaded was not that the respondent was not owed the debt, but that the debt was owed by the purchaser company. However, if the respondent is personally entitled to payment that must be because of an agreement evidenced by the document of 14 February 1982, and under that agreement the appellant was the person liable to pay. Little, if any, weight should however be placed on the form of the defence.

9. On the evidence the proper inference to be drawn was that on 14 February 1982 the appellant had agreed to assume liability for the debt formerly owed by the purchaser, and had agreed to pay it to the respondent. There is no direct evidence that the respondent gave any promise in return, but it is inconceivable that either party intended that the purchaser should remain liable once the appellant had assumed liability. It can readily be inferred that the parties understood and intended that the new liability was to be in substitution for the old or, in other words, as Hutley J.A. said in the Court of Appeal, the proper inference was that the parties agreed to replace inter-company liability with inter-personal liability. This meant, not only that the appellant promised to be personally liable to the respondent for the agreed amount, but also that the respondent promised that the vendor would no longer hold the purchaser liable for that amount. It meant also that the respondent promised to do whatever was reasonably necessary to bring about that result; such a promise, if not made in terms, was necessarily implied - it was necessary to give business efficacy to the arrangement, it was so obvious that it went without saying and it was of course reasonable. This promise by the respondent amounted to consideration given by the respondent to the appellant and was sufficient in law to make the appellant's promise binding. It was submitted on behalf of the appellant that there was no evidence that the respondent had authority from the vendor to discharge that company's rights against the purchaser, but it is immaterial whether or not that submission is correct. The evidence suggests that the respondent had power to control the decisions of the vendor, but it does not matter whether or not that was so, or whether or not the vendor was bound by the respondent's conduct; the promise given by the respondent to the appellant amounted to consideration and it was a consideration that moved from the respondent, notwithstanding that what he promised was to act so as to cause another person, namely the vendor, to discharge or release the purchaser from its obligation to that other person.

10. For these reasons I consider that there was sufficient evidence to support the conclusion that the appellant was legally bound to pay to the respondent the sum mentioned in the document of 14 February 1982. I would accordingly dismiss the appeal.

MASON and WILSON JJ. This is a sad case of friends 'falling out' over a business transaction. They pursued a course of conduct which in the context of that friendship may have seemed natural and appropriate enough but which in the result has given rise to costly controversy.

2. The primary facts are not in dispute. The appellant and the respondent each engaged in commercial activities through a family company. The appellant's company, of which he was a director, was I.B.G.Y. Pty. Ltd. ("the purchaser company"), and that of the respondent N.J. Management Consultants Pty. Ltd. ("the vendor company"). The evidence records that the respondent and his wife were the directors of the vendor company and that all decisions at management level were made and implemented by the respondent in conjunction with his wife. By a contract of sale dated 15 December 1981 the vendor company agreed to sell and the purchaser company to purchase a sports and toy business trading as Greystanes Sports and Toys located in the Greystanes Shopping Centre. The price was $32,000 in respect of goodwill, plant fittings, fixtures and chattels plus stock-in-trade. The stock-in-trade remained to be valued but its value was estimated at $43,000. Clause 2 of the contract, after referring to the estimated value of the stock-in-trade continued:

" PROVIDED always that if the value of such
stock-in-trade exceeds $43,000 the Purchasers may
at their option reject such items as they may
select as may be necessary to reduce the total
value to the said $43,000 amount ... The
Valuation shall be made prior to completion and
the sum payable for the stock-in-trade in
accordance with this Clause shall be paid on
completion."

3. The appellant and respondent, together with their respective wives, collaborated in the stock-taking which was carried out over the weekend following the execution of the contract. Considerable work remained to be done after the physical stock-taking to finalize the value of the stock but it soon became evident that its value was considerably more than the estimated $43,000. About one week after the stock-taking the appellant and the respondent had a conversation about the surplus stock. This conversation is of critical importance and the respondent's evidence about it is as follows:

" When we realised that there was more than the
stock, Mr. Thomas' comments to me were that he
felt it would be difficult for him to finance
that as he borrowed pretty heavily to buy the
shop. He was also concerned that if we took that
amount of stock out of the shop it would leave it
a little bare. It was at that point I said the
preceding owner I had purchased the shop from had
helped me out somewhat similar. It was at that
stage I offered to finance the additional loan
for the value of the stock via a loan until such
times as I had sort of purchased my hotel. We
were looking around about the April. I said I
would do an interest-free loan for four months
until I sold my house and purchased the hotel.

Q. Was anything said in that conversation about
repayment of the moneys? A. There were no set
terms. It was more a gentlemen's agreement that
as soon as moneys - (Objected to).

Q. What was said? A. I requested that if any
moneys were available that he would reduce the
loan as quickly as possible."

It seems plain from this evidence that although the respondent spoke of a "loan" he was in fact offering the purchaser company four months in which to pay for the excess stock and without incurring any liability for interest during that period. The purchaser company was not obliged by the contract to take the excess stock and no doubt the offer was made by way of inducement so that the vendor company would not be required to remove the unwanted stock. The offer of time to pay was in no way inconsistent with a request that the purchaser company reduce the outstanding liability at an earlier time if it could.

4. This conversation took place towards the end of December. The process of valuation continued thereafter and the appellant and respondent met on 14 February 1982 to finalize the account. It appears to have been on this occasion that a figure was struck as the value of all the stock, namely, $95,164.61. A conversation then ensued. The appellant said:

" I have been told that I need not accept the full
valuation of the stock."

The respondent replied:

" "Bear in mind David that I am not charging stock
at market value but rather at what I have paid
and where I have found stock that is a slow mover
I have put it in at a price lower than cost."

The appellant then said:

" Seeing as you have done that and you have agreed
to give me an interest-free loan of four months I
will accept the stock at the values put on them
by you."

This conversation does not appear in the evidence at trial but it is sworn to by the respondent in his affidavit accompanying the summons and is not denied by the appellant. It is obvious that some such conversation would have accompanied the acceptance of the valuation of the stock and the incorporation of the total figure in the account stated which was drawn up on that day. Furthermore, there is no suggestion in the evidence that there was a binding decision by the purchaser company prior to 14 February to take the excess stock. The account sets out certain credits against the total purchase price for the business (inclusive of stock). Those credits consisted of moneys paid by the purchaser company to the vendor company and also moneys paid to creditors of the vendor company on its behalf in respect of stock supplied, leaving a balance agreed to be payable of $48,296.71.

5. There then followed the episode which has given rise to the litigation. Having agreed the amount owing by the purchaser company, with payment deferred on interest-free terms until about April subject to earlier payment in part or in whole if the purchaser company found it possible to do so, the respondent then told the appellant that his bank was getting nervous because he had been unable to sell his house and had suggested that he secure from the appellant a document evidencing the debt owed to the vendor company. He asked the appellant to give him an I.O.U. signed by him personally as that had been suggested by the bank. The appellant then prepared in his own handwriting on a plain piece of paper a document reading as follows:

" 8 Namoi Place,
TOONGABBIE NSW 2146

14.2.82

I owe Neale Hollier the sum of forty eight
thousand two hundred and ninety six dollars and
seventy one cents ($48296.71). Payable on demand.

DAVID IAN THOMAS"

He signed the document and gave it to the respondent. In cross-examination the appellant testified as follows:

" Q. You signed that perfectly deliberately in your
own name rather than in the name of the company
though, did you not? A. The reason I did that
was because Neale needed it for his bank manager.

...

HIS HONOUR: Q. He needed what for his bank
manager? A. Neale and I had been friends for a
long time. He needed an I.O.U. or some form of
security so his bank manager could proceed with
the loan for the hotel.

Q. You did not give him an I.O.U. on behalf of
the company. You said the reason for that was
the bank wanted an I.O.U. like that? A. I was
doing Neale a favour by giving an I.O.U. in that
format. The actual I.O.U. was for the stock.

Q. Do not just agree with me because I am asking
the questions. Do you mean that you gave him a
personal I.O.U. merely because he requested it
because of his problems with the bank? A. That
is correct, in relation to the stock, yes. That
was the best way we had of satisfying his bank
manager. It was worked out between the both of
us."

The address appearing at the top of the document is the private address of the appellant. It may seem strange that the wording of the promise should have included the words "Payable on demand" when the variation agreement which had just been concluded provided for interest-free terms. The explanation must lie in the fact that the appellant was simply asked to complete an I.O.U. in the same form as had been exchanged between the same parties on an earlier occasion when an I.O.U. had been given by the respondent in recognition of a cash loan made to him by the appellant. The respondent testified that "David Thomas recalled the wording of it from memory".

6. Subsequent to the giving of the I.O.U. a payment was made in reduction of the debt owing in respect of the stock by cheque for $1,000 dated 20 March 1982 payable to N.J. Managements (sic) Consultants Pty. Ltd. and drawn by the purchaser company. The cheque was crossed "A/c Payee only" and was duly paid into the vendor company's account. A receipt was given for this amount. It was handwritten, apparently on plain paper, and read simply "Received from David Thomas the sum of One Thousand dollars". It was signed "Neale W. Hollier".

7. Unfortunately, no further payment was made, despite a demand. In August 1982 the respondent instituted proceedings in the Supreme Court of New South Wales seeking judgment against the appellant in the sum of $48,296.71 together with interest and costs. The action was heard and determined by Cross J. on 4 February 1983. His Honour found that the appellant understood that he was being required to give a personal I.O.U. and that he executed the I.O.U. in that capacity. His conclusion was expressed as follows:

" I am satisfied that in the light of the history
and the existing circumstances, there arose from
the conversation between the plaintiff and the
defendant on 14th February, 1982, an agreement
that in consideration of the plaintiff or his
company not making a demand, as they were
entitled to do at any time, for the repayment of
the loan - which was in fact repayable on
demand - the defendant would hand over to the
plaintiff the defendant's personal I.O.U. for the
amount of the loan. In these circumstances the
defendant became liable to be sued on the I.O.U."

Judgment was entered for the respondent.

8. The appellant's appeal to the Court of Appeal was dismissed by majority (Hutley and Mahoney JJ.A., Samuels J.A. dissenting), subject to a reduction in the amount of the judgment to take account of the repayment of $1,000 made in March 1982. Each of their Honours took a different view of the conclusions that were to be drawn from the facts. Hutley J.A. found it unnecessary to consider whether the learned trial judge was wrong in finding that the "loan" could be called up at any time. His Honour took the I.O.U. to be an admission of a personal debt as between the appellant and the respondent and found sufficient consideration for the debt to lie in the inference that the parties, in order to satisfy the bank manager, were agreeing to replace inter-company liability with inter-personal liability. Samuels J.A. could see no evidence or any other ground to support the finding of Cross J. that on 14 February 1982 the "loan" from the vendor company to the purchaser company was due and payable. His Honour approached the matter on the footing that as a friend the appellant was prepared, by signing the I.O.U., to bind himself to pay the amount in satisfaction of what the bank manager required. However, his Honour also came to the conclusion that the parties never directed their minds to the question of consideration or the question of substituting a debt evidenced by the I.O.U. for the debt which had arisen from the contract of sale. The former debt, therefore, was unenforceable for want of consideration. Mahoney J.A. appears to have proceeded on the view that cl. 2 of the written contract conferred on the vendor company the right to require immediate payment for the whole of the stock notwithstanding that its value exceeded the estimate of $43,000. His Honour was unable, on that premise, to find an enforceable variation of the written contract whereby the vendor company relinquished that right and undertook to extend interest-free terms for four months. Against the background provided by this view of the course of events, his Honour found sufficient consideration for the appellant's personal promise in a holding out by the vendor company that it would, at least for the time being, continue to refrain from demanding payment of the balance owed for the stock.

9. The diversity of judicial opinion in the Supreme Court as to the conclusions that are to be drawn from the deceptively simple history of the transaction underlines the difficulty of the point in issue and induces caution in seeking a solution. Although Counsel for the appellant sought to widen the scope of the argument by resisting the conclusion that the I.O.U. evidenced the existence of a personal debt, the evidence as a whole furnishes no support for any alternative proposition. In our opinion, the point of substance in the appeal is the same as that canvassed in the Court of Appeal, namely, whether there was any consideration for the promise that was made. Two alternative propositions in support of an affirmative answer to that question have found support in the Supreme Court. Both the learned trial judge and Mahoney J.A. have found the consideration to lie in an informal abstention on the part of the vendor company for an indeterminate period from exercising its right to make immediate demand for payment of the debt by the purchaser company. But that proposition depends wholly on the correctness of the finding that at all times prior to the making of the personal promise by the appellant the vendor company was entitled to demand immediate payment of the debt owed by the purchaser company in respect of the excess stock. With all respect to their Honours, we agree with Samuels J.A. that there is no evidence to sustain such a finding. On the contrary, there is in our opinion very strong evidence pointing the other way. The stock was valued at approximately $95,000 compared with the estimate of $43,000 in the contract. In this event, the purchaser company was entitled in accordance with the provisions of cl. 2 to decline to accept more than $43,000 worth of stock; furthermore, it was entitled to select the items which were to be rejected in order to bring the total value down to $43,000. The purchaser company was therefore in a powerful position to bargain a compromise with the vendor company. The latter company could find itself in a parlous predicament with no shop and more than $50,000 worth of rejected stock on its hands. It is therefore not surprising that the vendor company should offer four months interest-free terms for payment of the stock value in excess of $43,000. Then, on 14 February 1982, when the total value is ascertained, the parties agree on a variation to cl. 2 of the contract. Induced by the marking down of stock below market value and the offer of interest-free terms, the purchaser company agrees to buy all the stock. In our respectful opinion, it is inconceivable that the vendor company would insist on a right to demand immediate payment for all stock that the purchaser company should agree to take in excess of a value of $43,000 when the latter was not obliged to take any of it and had expressed some disinclination to do so.

10. The alternative basis to a finding of the existence of consideration was that favoured by Hutley J.A. As we have said, his Honour drew the inference that the parties, in order to satisfy the bank manager, agreed to replace inter-company liability with inter-personal liability. With all respect, we think this is more speculation than inference. There is no evidence to suggest that either of the parties contemplated that changes might result to the legal relationship between the vendor and purchaser companies in consequence of the appellant's giving of a personal I.O.U. They were friends, the bank manager wanted evidence of the existence of the debt owed to the client company which the bank was being asked to accommodate financially and wanted it in the form of a personal I.O.U. and so the appellant was willing to do what was asked of him. It is one thing to infer from this a willingness on the part of the appellant to assume a personal liability but it is quite another to infer an intention to thereby relieve the purchaser company of its liability. Only that very day the extent of the liability of the purchaser company to the vendor company for the stock had been finally determined together with the arrangement for interest-free terms. Yet that variation of the original agreement is said to have been immediately displaced by the assumption by the appellant of a personal liability for an equivalent sum payable on demand. In our opinion, there is no evidence to support such an inference. Nor is there any evidence to show that the respondent had the authority of the vendor company to relinquish the rights of that company against the purchaser company. We are also inclined to regard the manner of payment in March 1982 of $1,000 in reduction of the debt as militating against the inference which Hutley J.A. was prepared to draw. That payment was made by cheque drawn "A/c Payee only" by the purchaser company in favour of the vendor company and was paid to the credit of the latter's account. Although the receipt was framed in a personal way the fact that the payment was made to the vendor company in reduction of the debt is quite inconsistent with an inference of a prior agreement to extinguish that company's liability.

11. It will be plain from these considerations that we are unable to find any consideration for the personal promise given by the appellant. In our opinion, therefore, the respondent's action cannot succeed.

12. We would allow the appeal.

BRENNAN J. I need not repeat the circumstances out of which this appeal arises. It is sufficient to recall that, on 14 February 1982 before Mr Thomas gave his I.O.U. to Mr Hollier, they had agreed that the purchaser company would take all the stock in trade and pay the vendor company the sum of $48,296.71 and that the purchaser company would have some time in which to pay that sum interest-free. The time stated by Mr Hollier in evidence was four months. It is not clear whether that time was to run from the date when possession of the business was given (18 December 1981) or from a date when the credit terms were offered (about a week later) but the precise date is immaterial. A debt in the sum of $48,296.71 was payable by the purchaser company to the vendor company at some later date, probably in April 1982. At all events, Mr Hollier's evidence makes it clear that, on 14 February 1982, that debt was not payable on demand.

2. Mr Hollier gave evidence that he said to Mr Thomas that he needed "an I.O.U. somewhat similar to what I had given him in some earlier arrangements, so that my bank would hold me over until such times as I had sold my house". (Mr Hollier had once given Mr Thomas an I.O.U. payable on demand). Mr Thomas thereupon gave Mr Hollier an I.O.U. in the terms requested. It read:

" I owe Neale Hollier the sum of forty eight
thousand two hundred and ninety six dollars and
seventy one cents ($48296.71) Payable on demand."

This instrument is the only evidence tending to show that Mr Thomas became indebted to Mr Hollier in the amount of $48,296.71 which, as Mr Hollier admitted, was the sum "which had been agreed was owed by one company to the other". Mr Hollier sued Mr Thomas in the Supreme Court of New South Wales for $48,296.71 and interest thereon. He did not specify a cause of action. Cross J. found in his favour; the Court of Appeal by a majority (Hutley and Mahoney JJ.A., Samuels J.A. dissenting) dismissed Mr Thomas' appeal subject to a reduction of $1,110 in the amount of the judgment.

3. The question is whether Mr Thomas in fact owed Mr Hollier a debt of $48,296.71 when the I.O.U. was given. Although the I.O.U. purports to acknowledge such a debt, Mr Hollier had no cause of action if there was in truth no such debt owed to him by Mr Thomas. The I.O.U. did not itself create a debt for which Mr Thomas might be sued. The instrument was not a promissory note, for it did not contain an undertaking to pay as distinct from such an implied promise to pay as arises from acknowledgment of a debt: see per Lord Atkin in Akbar Khan v. Attar Singh (1936) 2 All ER 545, at pp 549-550. The holder of a promissory note given for consideration may sue upon the note without proof of an antecedent liability for the amount stated in the note, but a person to whom a mere I.O.U. is given can rely upon it only as evidence of a liability arising aliunde: Fisher v. Leslie (1795) 1 Esp 426 (170 ER 407); Beeching v. Westbrook [1841] EngR 724; (1841) 8 M & W 411 (151 ER 1099). In the absence of an antecedent account stated or debt, the I.O.U. gives rise to no new cause of action upon which a judgment might be recovered (Lemere v. Elliott [1861] EngR 577; (1861) 6 H & N 656 (158 ER 271)). It is some evidence of liability on an account stated or of a debt (Buck v. Hurst and Bailey (1866) LR 1 CP 297), but it is not conclusive evidence. If, upon the whole of the evidence, a defendant who has given an I.O.U. to a plaintiff is shown not to be liable to him on an account stated or for a debt, the plaintiff fails: Petch v. Lyon [1846] EngR 738; (1846) 9 QB 147, at p 154 [1846] EngR 738; (115 ER 1231, at p 1233). How had Mr Thomas become liable for a debt of $48,296.71 payable on demand to Mr Hollier?

Mr Hollier's case, unsupported by any direct evidence,

is that a new contract was made on 14 February 1982, and that the I.O.U. evidenced a new liability contractually binding on Mr Thomas. In the Court of Appeal, Hutley J.A. inferred that such a contract had been made. His Honour said:

" ... it seems to me that the inference to be drawn
is that in this particular case, in order to
satisfy the bank manager, they were agreeing to
replace inter-company liability with
inter-personal liability, ...".

4. To infer a discharge of the inter-company liability is to infer a substitution of Mr Thomas as a debtor in place of the purchaser company, an assignment to Mr Hollier by the vendor company of the debt owing to it, and a variation of the terms of the debt so that it became payable on demand. The slender evidence given in the case is, in my view, against the drawing of that inference. If Mr Hollier had acquired the vendor company's debt, it is unlikely that Mr Thomas, when he later signed a cheque drawn on the account of "Greystanes Sports and Toys" for $1,000 in part-payment of $48,296.71, would have made the cheque payable not to Mr Hollier but to N.J. Management Consultants Pty. Limited, the vendor company, crossed it and added the words "A/C PAYEE ONLY". Mr Hollier did not object to the making of a payment to the vendor company. On the contrary, he deposited that cheque to the credit of the vendor company's account. Nor was there anything apart from the I.O.U. to suggest that the purchaser company had been discharged from its liability to the vendor company. And it is most unlikely that on 14 February 1982 Mr Thomas would have agreed to pay on demand to Mr Hollier the sum which the purchaser company had undertaken to pay only upon the understanding that it should have time to pay.

5. An arrangement in different terms was found by Mahoney J.A. His Honour proceeded on the footing that Mr Thomas promised to pay Mr Hollier $48,296.71, and found that the consideration for that promise was the vendor company's holding out to him that it would, at least for the time being, continue not to make demand for the amount due to it. I do not find it necessary to consider whether Mr Hollier might have been entitled to recover upon a promise for which the vendor company alone had provided consideration (cf. Coulls v. Bagot's Executor and Trustee Co.Ltd. [1967] HCA 3; (1967) 119 CLR 460, at p 495), for I am unable to agree that the evidence supports his Honour's finding that Mr Thomas promised to pay Mr Hollier $48,296.71. Such an arrangement would have left the liability of the purchaser company undiminished while it created a new liability in the same amount resting on Mr Thomas personally. It cannot be supposed that the parties made an agreement imposing a duplicated liability on Mr Thomas. If they did not intend a duplication of liability, the I.O.U. is the only evidence to suggest a substitution of Mr Thomas' personal liability for the liability of the purchaser company. Such an arrangement is similar to the contract inferred by Hutley J.A., though the creditor remains unchanged. In my opinion, it is not reasonable to infer that on 14 February 1982 Mr Thomas, after agreeing the amount to be paid by his company only upon the understanding that it would be given time for payment, had immediately accepted a personal liability to pay that debt on demand.

6. At first instance, Cross J. had found that an agreement had been made between Mr Hollier and Mr Thomas that in consideration of Mr Hollier or his company not making a demand for repayment Mr Thomas would hand his personal I.O.U. for the amount of the loan to Mr Hollier. If there were such a contract, it was fully performed by the delivery of the instrument - an event which, for reasons earlier stated, created no liability in Mr Thomas.

7. It is necessary to avoid, as Samuels J.A. said, "the temptation to tidy up the transactions which emerged by attributing to (the parties) particular intentions and commercial initiative which they might never have possessed". Clearly enough, the I.O.U. was given in order that Mr Hollier might produce to his bank manager an acknowledgment by Mr Thomas that he was personally liable for the sum of $48,296.71. But on the whole of the evidence in the case it would be wrong, in my opinion, to draw the inference that Mr Thomas antecedently owed Mr Hollier the debt which the I.O.U. purported to acknowledge. It follows that I would allow the appeal, set aside the judgment of the Court of Appeal and of Cross J., and order that judgment in the action be entered for the defendant.

ORDER

Appeal allowed with costs.

Order of the Court of Appeal of the Supreme Court of New

South Wales set aside and in lieu thereof order:

(1) that the appeal to that Court be allowed with
costs;

(2) that the judgment of Cross J. be set aside and in
lieu thereof order that there be judgment for the
defendant against the plaintiff with costs.