A new agreement does not extinguish the prior contract unless there is actual performance of the promise made in the new agreement.

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 30/09/1953, 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 plaintiffs 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 plaintiffs 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 20/12/1954, 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, AIR 1959 SC 1362, 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 Ree

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