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Judgment
This appeal arises out of an award in a land acquisition case. The immediate point before the Lower Court was what proportion of the amount
awarded should go to certain mortgagees of the appellant in discharge of their mortgage for Rs. 10,000, dated 11th July, 1912. The mortgage
bore interest at 7 1/2 per cent. per annum, but on default of payment of principal or interest, the rate of interest was to be increased to 9 per cent.
It is admitted that there was default. In dealing with the point the Lower Court has shut out evidence of an agreement alleged by the appellant
whereby his mortgagees agreed ""to waive the default in the payment of interest and to waive their right in future also to claim enhanced rate of
interest at 9 per cent. per annum and to receive payment of interest throughout only at 7 1/2 per cent. per annum"". It was further alleged that in
pursuance of this agreement certain renderings of account, Exs. I and II in C.M.P. No. 5514 of 1929, had been submitted by the mortgagees to
the mortgagor calculating interest at the 7 1/2 per cent. rate only. The District Judge held that proof of such an agreement was inadmissible u/s 92
of the Indian Evidence Act, rejected such proof, and refused to admit Exs. I and II or any other evidence on the point. It is against this refusal that
the appellant now comes up here.
We think the District Judge has not sufficiently considered the legal aspect of the problem and the particular that he has overlooked the
provisions of section (sik) the Indian Contract Act. The application of Section 92 of the Evidence Act is only called for in so far as the alleged
agreement is put forward in variation of the original contract of mortgage. So far as the alleged arrangement is advanced as imposing any legal
obligation on the mortgagee to accept a lower rate of interest than that specified in the contract, it tantamounts to a binding agreement that the
penalty clause is inoperative and therefore is a variation of the contract, and proof of it is in- admissible: but in so far as it is put forward merely as a
promise of grace imposing no legal obligation, Section 92 cannot; be any bar and evidence of it is relevant, so far as may be, to probabilise the
alleged acceptance of a lesser rate of interest. Since no legal obligation to accept the less amount can be proved, the only value as evidence of such
an arrangement would be to support other independent evidence that such less amount was actually accepted, not on account or in part payment,
but in satisfaction of a larger amount due; and the crucial evidence in the case would not be evidence of the arrangement, but evidence of such
actual acceptances in satisfaction. To state the proposition of law in another form, if the evidence of such acceptance cannot be understood or will
not prove the acceptance without evidence that the mortgagee was under a legal obligation so to accept, the evidence is inadmissible; but if it can
be understood and proved without proof that the mortgagee was under such legal obligation, there is nothing in Section 92 to prevent the
admission of such evidence. By way of example we may cite illustration (e) to Section 63 of the Contract Act that evidence of a composition
arrangement made with creditors, by which they agree to receive less than the sums due to them, can be admitted to explain receipt of a less sum in
full discharge of a debt due.
Section 63 of the Indian Contract Act is clearly in point. It is obviously intended to apply not to cases where the whole contract has been
supplanted by a new one because then it will be superfluous, but to cases where the old contract subsists, but there is a voluntary remission of
performance of some promise in it, for example, a remission of part of the debt at the time when it becomes payable. Section 63 will not be
extended to cover a case of a binding promise to dispense with or remit performance in the future unless that waiver is made the subject of a fresh
contract, because then Section 92, Indian Evidence Act, will stand in the way.
Several reported cases bearing on the subject have been brought to our notice. We shall consider only those which to our minds throw light on
the problem. A Full Bench case in the Allahabad High Court, reported so far in Collector of Etah Vs. Kishori Lal and Another , is in point, and
supports the above conclusion. It relies inter alia on various decisions of this Court, including the Full Bench case in Mallappa v. Matum Nagu
Chetty ILR (1918) 42 M. 41 : 35 M.L.J. 555 The only reasonable ground on which this case can be distinguished from the present is that there
the remission was accepted in discharge of the whole contract, while here the contention is that remission was from time to time accepted in
payment of parts of the contract, leaving the contract still alive. This is a point to which we shall come later. The respondents challenge the
interpretation put by the Allahabad Court on Mallappa v. Matum Nagu Chetty ILR (1918) 42 M. 41 : 35 M.L.J. 555, but we cannot see that
there is any misinterpretation of that decision. The head-note is worded in very general terms but the whole tenor of the judgment shows that the
Full Bench was considering the admissibility of an oral agreement which remitted the legal obligation under the contract, a case obviously within the
mischief of Section 92 of the Indian Evidence Act. This is particularly clear from the language used by Seshagiri Aiyar, J. This Full Bench case
follows Gosetti Subba Row v. Varigonda Narasimham ILR (1903) 27 M. 368 : 14 M.L.J. 218. The learned District Judge here relies on these
decisions which no doubt support his view of what he thought was the only problem in the case, namely, whether an oral agreement varying the
legal obligation under the contract could be proved. He also relied on Yegnanarayana Aiyar v. Suppan Chetty (1926) 52 M.L.J. 224 a judgment
of a single Judge, which goes further and holds that the actual discharge of a mortgage by payment of a less amount than is due in pursuance of an
oral agreement to that effect cannot be proved. The learned Judge there relied mainly on Jagannath v. Shankar ILR (1919) 44 B. 55. The ratio
decidendi of the latter decision seems to be that proof of actual acceptance of a less amount in full discharge cannot be given because underlying
such acceptance there must have been an agreement to accept, which, the Bench held, would be inadmissible u/s 92. With respect we would point
out that this annuls the operation of Section 63 of the Contract Act and ignores the contingency that the less amount is accepted not because some
oral agreement has imposed on the creditor a legal obligation so to accept but as a matter of grace. The decision in Jagannath v. Shankar ILR
(1919) 44 B. 55 has been dissented from in various other cases, twice by the Calcutta High Court and by a Bench of this Court in Balasundara
Naicker v. Ranganatha Aiyar (1929) 58 M.L.J. 503, which case, if we may say so with respect, gives a very luminous exposition of the legal
position, pointing out that the remission of debt u/s 63 of the Contract Act is not in pursuance of an agreement at all. The same view is taken by
another Bench of this Court in Ramanathan Chettiar v. Sethuram Madige Rao Sahib (1927) 27 L.W. 47. Similar views had already been
expressed in earlier cases of this Court, Karampalli Unni Kurup v. Thekku Vittil Muthorakutti ILR (1902) 26 M. 195, Kattika Bupanamma v.
Kattika Kristnamma ILR (1906) 30 M. 231 : 17 M.L.J. 30 and Neelamani Patnaik Mussadi v. Sukaduvu Beharu ILR (1920) 43 M. 803 and
these are in consonance with the Privy Council view in Firm Chhunna Mal-Ram Nath v. Firm Mool Chand Ram Bhagat (1928) L.R. 55 IndAp
154 : ILR 9 Lah. 510 : 55 M.L.J. 1 (P.C.). We may add with reference to the case in Yegnanarayana Aiyar v. Suppan Chetty (1926) 52 M.L.J.
224, that we looked into the printed papers and it would appear from them that the alleged discharge was said to have been in pursuance of an
undertaking underlying the mortgage contract which was that the rate of interest should be Rs. 1-4-0 and not Rs. 3-12-0 as stated in the contract.
Such an agreement would of course clearly be inadmissible u/s 92.
To sum up this point, there is nothing to prevent proof of actual waiver of past breaches whether or not this is in pursuance of a promise to
waive or not. A promise of grace to waive future breaches may be proved but is of no value unless performance has been actually waived. A
binding agreement to waive future performance cannot be proved.
Two points then arise: first, whether in the case of a remission of payment Section 63 is restricted to cases where by the remission the whole
contract is discharged and extinguished and, secondly, whether the case now put forward by the mortgagor was pleaded in the Lower Court and
ought to be allowed to be pleaded here. As to the first point, it is contended that the mortgage debt is indivisible and cannot be discharged in part,
and that therefore there cannot be a remission of part of the amount due under the contract unless thereby the contract as a whole is discharged.
But Section 63 on the face of it contains no such restriction and its applicability would seem to arise on any and every occasion on which any sum
becomes due and payable under the contract. Any sum becoming payable can prima facie be the subject of remission, and there seems no
reasonable ground for holding that in law a mortgagee can as of grace remit u/s 63 only when the whole contract is thereby extinguished. We are
not shown any reported authority for such a proposition. On the contrary the case reported in Karampalli Unni Kurup v. Thekku Vittil
Muthorakuiti ILR (1902) 26 M. 195 is one where the acceptance of a less amount than the lease amount for the first year of lease was held
binding although the lease was still current. So in Kattika Bapanamma v. Kattika Kristnamma ILR (1906) 30 M. 231 : 17 M.L.J. 30 the
acceptance of possession of land in discharge of a debt for maintenance arrears was held provable although the whole obligation to pay
maintenance was not thereby discharged. We think there is no substance in this contention of the respondent.
As to the second point the word used in the pleadings to describe the alleged agreement is ""waiver"" and the waiver is related not only to the past
but the future. Waiver of a ground of forfeiture or of breach of a term or condition in a contract arises when one party with knowledge of the fact
giving rise to the forfeiture or the breach does or says something which expressly or by implication shows an intention to treat the thing which might
be forfeited as subsisting or the breach as forgiven. It assumes a ground of forfeiture or a breach. The intention once expressed the waiver is
complete. It is apparent therefore that ""waiver"" is not entirely apt to describe a remission which falls within Section 63 of the Contract Act. Further
even if we can speak of a waiver that will operate as to future breaches it is clear that such a ""waiver"" would amount to a variation of the contract.
In the present case the alleged remission assumes that the old liability to pay 9 per cent. continues. The creditor receives the 7 1/2 per cent. in
satisfaction and thus remits 1 1/2 per cent. There is thus no question of a breach forgiven. In the eye of the law the contract liability is deemed to be
performed, not because one party has precluded himself from relying on a breach (waiver) but because one party has received in satisfaction of a
liability something less than the contract liability. The fundamental question is not ""Has the contract liability been altered?"" but ""when 7 1/2 per cent,
was paid and received was it received in part payment or in satisfaction?"" This raises not a question of waiver but of remission. At the same time
though the pleadings are not very aptly worded we are satisfied that the point of substance was raised and certainly from the argument before us it
was apparent that the respondent had not been taken by surprise.
It is argued that the present position was not taken up in the Court below. Of that we are not satisfied. The Lower Court in its order, paragraph
14, admits that while the appellant conceded that the subsequent oral arrangement cannot be proved to modify the written registered contract, he
did urge that payments made in pursuance of such oral agreement could be proved constituting a discharge. The Lower Court held that no actual
discharge was alleged. This does not appear to us to be correct, unless the learned Judge means a discharge which extinguished the whole
contract. Paragraph 6 of the written statement of the appellant to our minds implies a contention that the mortgagee had at least accepted and
appropriated up to 15th December, 1923, payments of interest at 7 1/2 per cent. up to an aggregate sum of Rs. 4,549-1-0, that is, that the interest
debt nominally at 9 per cent. contract rate had been discharged up to that date by payment at 7 1/2 per cent, accepted by the mortgagee, and in
proof of that Ex. I in the C.M.P. was offered; and similarly it was contended that in December, 1927, the mortgagee had, by account rendered,
Ex. II in the C.M.P., accepted and appropriated payments of interest at 7 1/2 per cent. up to the 14th April, 1924. The Lower Court refused to
admit both these documents, holding that no such evidence was admissible. Undoubtedly in his written statement the appellant did endeavour to
establish the untenable proposition that the alleged agreement was binding as such on the mortgagee and that therefore he must be held to have
accepted the 7 1/2 per cent, rate for all interest payments up to 24th August, 1926, although even then in paragraph 11 he did not claim that the
agreement prevented the mortgagee claiming interest at 9 per cent. subsequent to 24th August, 1926; so that it cannot be maintained that the
written statement alleged an agreement binding on the mortgagee to forego the default penalty in toto. There is no evidence at present brought to
our notice as available beyond Exs. I and II which only carry the possibility of proof of actual acceptance of the 7 1/2 per cent. rate up to 14th
April, 1924. Nevertheless, so far at least as acceptance up to that date is concerned, available evidence should not have been excluded nor can
any other evidence that may be available to prove other late acceptances at the same rate be shut out.
For the reasons given above therefore, we must set aside the decree of the Lower Court and remand the case for fresh disposal in the light of
the above remarks. The appellant will get his costs here and costs in the Court below will abide the result.
Court-fee on the appeal memorandum will be refunded.