Admissibility of oral evidence to contradict terms of the contract.

The appellant was the managing director of the Deccan Chemicals Limited, a company registered, under the Indian Companies Act, 1913. The company had borrowed from the first respondent a sum of Rs. 10,000 on pledge of certain goods. Interest was agreed to be paid at six per cent per annum on the amount due. The company defaulted in the due repayment of the debt. After giving the statutory notice demanding payment of money due the first respondent filed on 8th February, 1955, O.P. No. 68 of 1955, for the winding up of the company on the ground that it was unable to pay its debts. The managing director who was anxious to avoid the winding up proceedings negotiated a settlement with the first respondent under which the latter agreed to withdraw the winding up proceedings initiated by it, if he were to guarantee the payment. To this the managing director agreed. Accordingly he executed on 6th August, 1955, a letter in favour of the first-respondent in the following terms:

“In consideration of your having agreed at my request to give time to the Deccan-Chemicals, Ltd., for payment of the debt due by them and for settling the O.P. No. 68 of 1955, filed by you for the winding up of the Deccan Chemicals, Ltd., I hereby agree to guarantee . the due repayment of all monies due by the Deccan Chemicals, Ltd., to the Indo-Commercial Bank, Ltd. ‘If the said company fails to pay off the entire amount due on or before 31st October, 1955, I shall pay the same personally and I am liable for the same.”

The contingency contemplated by that letter happened. The company defaulted to pay the amount due within the time specified. The first respondent thereupon issued a statutory notice upon the company making a demand for payment. It also issued a notice to the appellant calling upon him to perform his obligations under the letter aforesaid. There was no response by either party to the demands made either by payment or even by any answer to the letters. As we stated the bank had certain security by way of pledge of goods for the account due to it. With the consent of the parties concerned, those goods were sold by public auction and a sum of Rs. 3,000 was realised at such sale ; the proceeds were appropriated by the 6rst respondent in part satisfaction of the amount due to it under the loan transaction. Soon after the sale, on 7th March, 1956, the appellant wrote another letter to the bank accepting the sale of the pledged goods; referring to the letter of personal guarantee executed by him, he stated:

“I accept the above arrangement and hold myself responsible for the payment of the balance due to you and my guarantee to that extent will be in full force.”

The company was not able to pay the balance of the amount due under the loan transaction; nor did the appellant honour his obligations which he undertook under the letters aforesaid. The bank there upon filed O.P. N0.147 of 1956 on the Company side of this Court to wind up the company. That application was successful. Sometime after the initiation of those proceedings, it filed the suit out of which this appeal arises against the appellant for recovery of the amount due by the company from the appellant, the guarantor.

The substantial defence to the action was that the letter of guarantee was one executed on the express understanding that the company would never be proceeded against by initiating the winding up proceedings and in as much as the bank had, contrary to such undertaking, commenced such proceedings, it would not be entitled to maintain any action on the letter of guarantee. In support of that contention evidence was sought to be let in to show that the consideration for the letter of guarantee, in addition to what was stated in it, consisted in an undertaking on the part of the creditor not to proceed against the company at any time thereafter by way of winding it up by reason of any inability to pay up its debts. The learned Assistant Judge, City Civil Court, Mad