Satyanarayana Raju, C.J.
(1) This appeal, under Cl. 15 of the Letters Patent, arises out of a suit filed by the appellant for recovery of a sum of Rs. 5,666-6-6 on the foot of a promissory note, dated the 30th September 1953, executed by the defendant in his favour. The amount sued for represents the original principal of Rs. 4,800 and in interest which accrued thereon. In a short written statement filed by the defendant, he contended that.
'the suit pronote was cancelled by the terms of agreement entered into between the plaintiff and the defendant on 20-12-54 and the cause of action has merged in the agreement.'
The defendant further pleaded that the plaintiff had no right to sue upon this pronote and if at all, his right was to sue for specific performance of the above contract which was acted upon. There is a further plea that nothing was due upon the suit promissory note. The Subordinate Judge framed two issues which are as follows:
1. Whether the novation pleaded by the defendant is true and valid?
2. To what relief?
On a consideration of the evidence adduced by the parties, the trial Court held that Ex. B-1, did not extinguish the prior contract, namely, the promissory note Ex. A-1; that it was only a contingent contract, and that there was no novation as pleaded by the defendant. The trial Court further found that the defendant made no payment either towards the first instalment or towards the second instalment provided by Ex. B-1 and that Ex. B-1 was not acted upon. On the findings reached by him, the Subordinate Judge decreed the suit as prayed for by the plaintiff.
(2) Against the said decree, the defendant preferred an appeal to the District Court, Guntur. The District Judge held that the cause of action on the suit promissory note, Ex. A-1, did not merge in the agreement Ex. B-1 and that, therefore, the plaintiff was entitled to sue upon the promissory note. He substantially confirmed the findings reached by the trial Court, with the result that the appeal was dismissed.
(3) Against the decree of dismissal, the defendant preferred Second Appeal No. 711 1961 on the file of this Court. On a construction of the terms of Ex. B-1, the learned Judge Mr. Justice Gopal Rao Ekbote held as follows:-
'A close examination of the cases cited above and a careful scrutiny of Ex. B-1 leave me in no doubt that it is a contract which substituted by material alteration the original contracts and it is that contract on the basis of which the plaintiff has the cause of action and not on the old contracts which were merged in Ex. B-1. The plaintiff's suit, therefore, could not have been based on the suit promissory note.'
It was contended by the learned counsel for the plaintiff before the learned Judge that even so, a decree should be granted on the basis of Ex. B-1. This contention was negatived on the ground that there was neither a pleading with regard to Ex. B-1, nor was there any issue of investigation into the allegations and counter allegations. As a result of the findings reached by him, the learned Judge allowed the appeal, set aside the judgments and decrees of the Courts below and dismissed the plaintiff's suit.
(4) Though the argument before the learned Judge and before us ranged over a wide ground, the ultimate issues which arise for determination lie within a narrow compass, and they are; (1) what is the legal effect of the agreement, Ex. B-1, dated the 20th December 1954, and (2) whether the plaintiff abandoned his rights under the suit promissory note by reason of the agreement, Ex. B-1.
(5) As pointed out by their Lordships of the Supreme Court in Union of India v. Kishorilal, : 1SCR493 , the law on the point is well settled. One of the modes by which a contract can be discharged is by the same process which created it, that is, by mutual agreement; the parties to the original contract may enter into a new contract in substitution of the old one. Their Lordships referred to the decision of the Privy Council in Payana Reena Saminathan v. Pana Lana Palaniappa, 1914 AC 618 at p. 622, where Lord Moulton defined the legal incidents of a substituted contract in the following terms:
'The 'receipt' given by the appellants, and accepted by the respondent, and acted on by both parties proves conclusively that all the parties agreed to a settlement of all their existing disputes by the arrangement formulated in the 'receipt'. It is a clear example of what used to be well known in common law pleading as 'accord and satisfaction by a substituted agreement'. No matter what were the respective rights of the parties inter se they are abandoned in consideration of the acceptance by all of a new agreement. The consequence is that when such an accord and satisfaction takes place the prior rights of the parties are extinguished. They have in fact been exchanged for the new rights; and the new agreement becomes a new departure, and the rights of all the parties are fully represented by it.'
The rule is stated by Cheshire in his Law of Contracts as follows:-
'The modern rule is, then, that if what the creditor has accepted in satisfaction is merely his debtor's promise to give consideration, and not the performance of that promise, the original cause of action is discharged from the date when the agreement is made.
This, therefore, raises a question of construction in each case, for it has to be decided as a fact whether it was the making of the promise itself or the performance of the promise that the creditor consented to take by way of satisfaction.'
(6) Exhibit B-1, dated the 20th December 1954, is an agreement entered into by the defendant (referred to therein as the first party), and the plaintiff, (referred to therein as the second party). It is in the following terms:
'In full settlement of all expenses, etc., met by the Second Party in the business of Sarma and Co., so far, the first party agreed to pay Rs. 15,000 Rupees Fifteen thousands, to the second party. Out of the said rupees fifteen thousands, the first party has to pay Rupees seven thousand and five hundred by 12-1-1955 to the second party and the balance of seven thousand and five hundred has to be paid within four months without any interest. Immediately after the first pays the second party the sum of rupees seven thousand and five hundred on the 12-1-1955, the second party shall withdraw the suit filed by him against the first party and Karpurepu Sheeramamurthi, and shall cancel and return the pronote executed by the first party in favour of the second party, and also the pronote executed by Maidavol Jairam in favour of the second party for Rupees five thousand.'
The document is clear and unambiguous and there is, therefore, no need for us to find out the intention of the parties. It is contended by the learned counsel for the defendant that Ex. B-1 gave a new cause of action and obliterated the earlier one and that, therefore, the cause of action based upon the promissory note was extinguished and could not be enforced. On a fair reading of the terms of Ex. B-1, we are unable to agree with this contention. The first clause of Ex. B-1 provides that the defendant shall pay a sum of Rs. 15,000 to the plaintiff in full settlement of the expenses incurred by him in the business. The second clause provides that the said amount of Rs. 15,000 should be paid in two moieties-Rs.7,500 to be paid on or before the 12th January 1955 and the balance of Rs.7,500 to be paid within four months from the date of the agreement without any interest. The third clause is more important. It is stipulated that immediately on the defendant making the payment of the first instalment of Rs. 7,500 on or before the 12th January 1955, the plaintiff shall do three things-(a) withdraw the suit filed by him against the defendant and Sreeramamurty, (b) return the pronote executed by the defendant in his favour after cancelling it, and (c) also return the pronote executed by Jairam in favour of the plaintiff after cancelling the same. A plain reading of the terms of Ex. B-1 indicates that the obligation under Ex. A-1, the promissory note executed by the defendant in favour of the plaintiff, continued till the defendant paid the sum of Rs. 7,500 on or before the 12th January 1955. Therefore, the liability under Ex. A-1 continued to govern the rights of the parties till payment was made by the defendant. It was, for this reason, that the question whether the sum of Rs. 7,500 was in fact paid by the defendant to the plaintiff as provided under Ex. B-1, assumed importance in the Lower Court. The parties rightly concentrated on this question and adduced evidence. The following extract from the defendant's evidence is highly interesting:-
'I made the first payment of Rs. 7,500 as in terms of Ex. B-1. I made the payments of the business transactions as Ex. B-1 was included in them as per the terms. I cannot say on which date I made the last instalment of Rs. 7,500. The first half I paid or second half of Rs. 7,500 I cannot give the dates. The payments were mixed up with the payments for the invoices. I was paying over and above the invoices prices ...... I cannot say whether they (accounts) show that a sum of Rs. 15,000 was paid towards Ex. B-1.'
On a consideration of the evidence adduced by the parties, the trial Court recorded a definite finding that neither the first instalment, nor the second instalment of Rs. 7,500 agreed to be paid by the defendant, was in fact paid. The appellate Court confirmed this finding.
(7) It may be stated that the defendant did not aver in his written statement that he discharged his obligations under Ex. B-1. There is a somewhat equivocal statement made by him which reads: 'There is nothing due upon the suit pronote.' There was no amplification as to whether the suit pronote, Ex. A-1, became discharged by reason of subsequent payments. Presumably, the plea implied that by reason of the execution of Ex. B-1, his liability under Ex. A-1 became discharged.
(8) That the defendant at no time demanded the return of the two promissory notes including the suit promissory note, or that he did not insist on the withdrawing of the other suit is not in dispute. Indeed, in the suit filed by the plaintiff which is referred to in Ex. B-1, the defendant was eo nomine party. He filed his written statement, but thereafter he did not contest the suit. He was examined as a Court witness. How a party to the suit could be examined as a Court witness is incomprehensible to us. But even in his evidence as C.W. 1, he did not make any assertion, which he could have done, that by reason of his discharging the obligations mentioned in Ex B-1, the suit should be dismissed. It is no answer to the defendant to say that because he remained ex parte. As D.W. 1 in the present suit, he stated that his written statement did not say that he made the payments referred to in Ex. B-1. There is, therefore, ample material on record on which the trial Court as well as the appellate Court could reach the conclusion that the defendant did not make the payments as stipulated in Ex. B-1.
(9) A reading of Ex. B-1 clearly shows that it was performance of the promise, which in this case is the payment of the amounts agreed upon under Ex. B-1, that the plaintiff consented to take by way of satisfaction and not a mere promise. This is emphasised by the words 'immediately after the payment of the sum of Rs. 7,500, on the 12th January 1955.' We have not doubt on the terms of Ex. B-1 that it is the actual payment of the sum of Rs.7,500 that would discharge the liability of the defendant under the suit promissory note. We are unable to agree with the conclusion reached by the learned Judge that the mere execution of Ex.B-1 put an end to the liability of the defendant under Ex. A-1. As we have already pointed out, it was the actual payment of the amounts stipulated therein that would constitute accord and satisfaction.
(10) In the view we have taken, we must hold that the rights of the plaintiff under the suit promissory note, Ex. A-1, continue by reason of the fact that the obligations undertaken by the defendant under Ex. B-1 had not been fulfilled and that, therefore, the plaintiff could maintain the suit.
(11) For the above reasons, the judgment under appeal must be reversed and the decree granted by the trial Court and confirmed by the appellate Court must be restored.
(12) The appeal is accordingly allowed. The appellant will be entitled to his costs in this appeal as well as in the second appeal.
(13) Appeal allowed.