OPINION
This is a suit for breach of contract. The controlling issue is whether and to what extent an interpretation of the contract provision in dispute made in a prior action between the parties is binding on them in the present suit, and dispositive of the questions presented in it.
In 1965 and 1966, respectively, the City of Fayetteville entered into contracts with the Highland Rim Utility District and the Mulberry Utility District in which the City agreed to furnish water to the districts. The following provision appeared as paragraph four of both contracts:
The rates to be paid by the District for water consumed in each calendar month shall be twenty cents for each thousand (1000) gallons. In the event the City shall increase or reduce the lowest resi*423dential rate to all other customers supplied by its water system, then the rate to the district herein provided, shall be increased or reduced in the same ratio as the residential rate is increased or reduced to all other customers.
The rate schedule in effect at that time provided for a minimum charge of $3.25 for the first 300 cubic feet of water used. The rate decreased as the amount of water used increased, reaching a low rate of thirty cents per 100 cubic feet after the consumption of 3,000 cubic feet. In 1974, the City increased the rates, with the new schedule providing for a minimum charge of $2.75 for the first 100 cubic feet, and for graduated reductions down to 27 cents per 100 cubic feet after the consumption of two million cubic feet. The City calculated that the rate increase applicable to the utility districts under paragraph four of the contracts was 46.6 percent, the percentage increase of the 1974 minimum charge over the 1965 minimum charge, and adjusted the rate charged the districts accordingly. The utility districts brought suit against the City, contending that this interpretation of the contract provision was incorrect. The chancellor agreed, noting that the minimum charge used by the City to determine the districts’ rate increase was in fact the highest residential rate, rather than the lowest, which is the proper basis for the calculation of the rate increase applicable to the districts under paragraph four of the contracts. Construing that paragraph, the chancellor found
. that [“lowest residential rate”] was intended to mean the lowest residential rate all customers would pay, taking into account the whole residential rate structure . . . [,]
and that the increase in the rates payable by the utility districts upon an increase in the general residential rate structure should be computed as follows:
[Cjompute the cost of water to be used by a utility district ... at the residential rates shown in the 1965 and [new] schedules as if the district was to pay for the water at these rates. Compute the percentage of change and apply it to the rate mentioned in the contract. Use the changed rate to compute the cost of water to the district.
The chancellor’s decree has become final.
In 1975, a new rate schedule was issued, calling for a minimum charge of $3.25 for the first 100 cubic feet, a charge of $1.10 per 100 cubic feet for the next 900 cubic feet, and a charge of 80 cents per 100 cubic feet after the consumption of the first 1,000 cubic feet. The City determined the percentage increase applicable to the rates paid by the utility districts in the manner set forth in the chancellor’s decree. The utility districts then filed the instant case, contending in substance that the application of the method of determining the increase in the districts’ rates set forth in the chancellor’s decree to the 1975 rate schedule produced an inequitable result. The City moved for summary judgment on a plea of res judicata, asserting that the chancellor’s opinion in the prior suit was controlling. The chancellor granted the motion. On appeal, the Court of Appeals reversed, and remanded the case for trial. The City petitioned for certiorari.
In determining the effect of the prior judgment on the present action, a distinction must be made between the concepts of res judicata and collateral estoppel. See Shelley v. Gipson, 218 Tenn. 1, 400 S.W.2d 709 (1966). The maintenance of the present action is not barred by the doctrine of res judicata, which, strictly speaking, bars the bringing of a suit on a cause of action that has already been the subject of a final judgment in prior litigation. See National Cordova Co. v. City of Memphis, 214 Tenn. 371, 380 S.W.2d 793 (1964). That situation is not presented here, for, although the subject matter of the two suits between the districts and the City is the same, the cause of action that is the basis for each is not: Fayetteville’s alleged present breach of contract gives rise to a cause of action distinct from that which arose as a result of the alleged breach that was the subject of the suit based on the 1974 rate increase. See Copeland v. Cope*424land, 180 Tenn. 609, 177 S.W.2d 555 (1944). However, although the new action itself is not barred as the result of prior litigation, the relitigation of certain facts determined in the former action is. Under the doctrine of collateral estoppel, when an issue has been actually and necessarily determined in a former action between the parties, that determination is conclusive upon them in subsequent litigation. See Shelley v. Gipson, supra; A. L. Kornman v. Metropolitan Government of Nashville and Davidson County, 216 Tenn. 205, 391 S.W.2d 633 (1965); Pile v. Pile, 134 Tenn. 370, 183 S.W.2d 1004 (1916).
The meaning of paragraph four of the contracts was at issue in the prior suit between these parties. The chancellor was called upon to interpret the provision by determining the meaning of the terms “lowest residential rates.” The chancellor defined “lowest residential rate” by providing a method, or formula, for its computation. The definition of “lowest residential rate” is the essence of the chancellor’s interpretation of the contracts, and the method by which that rate is computed is the essence of that definition — it is the definition of these terms for the purpose of these contracts and these parties, and is conclusive upon them in the present action.
The method by which the “lowest residential rate” is computed may not be altered without altering the chancellor’s definition of those terms, and his interpretation of the contract provision. That we may not do. Although the parties — or, for that matter, this court — may disapprove of the result of the application of the chancellor’s definition to the 1975 rate schedule, that definition may not be questioned at this time and in this action. Any objections should have been raised on appeal of the prior case. They were not, and thus the parties are bound, as are we.
If the chancellor’s definition of “lowest residential rate” and his interpretation of the contract provision at issue, as set forth in his opinion in the prior action, are applied to the present case, it is apparent the Fa-yetteville’s action in raising the rates charged the utility districts was proper under the contracts. Accordingly, the chancellor’s grant of summary judgment to the City was correct.
The judgment of the Court of Appeals is reversed, and the case dismissed. The costs will be taxed to the respondents.
HENRY, C. J., and HARBISON, J., concur. FONES and BROCK, JJ., dissent.