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Mathilda Sice v. Fritz Gaebele
Case Summary — Odgers, J. (with Madhavan Nair J. concurring)
Factual and Procedural Background
This appeal arose from a mortgage suit decided by the Subordinate Judge of Salem. In 1886 Jules Sice mortgaged part of the Tanny Pandal Estate and the whole of St. Josephs' Estate to Lob Levyt (Ex. A). Jules Sice died in 1892 and his widow and children were the defendants in the suit.
On 31 July 1908 Madame Sice entered into a contract (Ex. B) with Fritz Gaebele to work the estates and furnish money at 8% interest; Gaebele was to be treated as first mortgagee for Rs. 24,000 and the contract was to last ten years (until 1918). In 1909 Gaebele took assignment of Levyt's mortgage (Ex. C). On 22 June 1910 an English mortgage was executed in Gaebele's favour (Ex. D), which recited advances of Rs. 15,200 and referenced Rs. 13,200 previously paid to Levyt (a total of Rs. 28,400), but it was conceded that Rs. 15,200 was never in fact paid.
Gaebele, in the position of mortgagee in possession, brought suit (filed 14 December 1918) for Rs. 49,877 on the footing of Ex. D, seeking foreclosure and directions putting him in possession alleging defendants had taken possession after the agreement expired on 30 October 1918.
The Subordinate Judge initially held Ex. D supported by consideration only to the extent of Rs. 13,200, that the plaintiff was a mortgagee in possession bound to account, and that defendants could re-open settlement of accounts. Accounts were referred to a commissioner. The commissioner reported numerous deficiencies in the plaintiff's bookkeeping and supporting evidence. The Subordinate Judge allowed principal of Rs. 13,200 and a balance of interest of Rs. 803, disallowing certain interest and relying on the commissioner’s findings. Against this decree the defendants (appellants) appealed.
Legal Issues Presented
- Whether Ex. D (the 1910 mortgage deed) was supported by consideration to an amount greater than Rs. 13,200.
- Whether the plaintiff, as mortgagee in possession, had fulfilled the statutory duty to keep and produce proper accounts (including compliance with Section 76(g) of the Transfer of Property Act) and whether the documentary accounts could be relied upon to charge the defendants.
- What remedial course the court should follow when the mortgagee's accounts are inadequate or uncorroborated — whether to dismiss the accounts, to re-open accounting proceedings, or for the appellate court itself to compute and decide on a figure.
Arguments of the Parties
Appellants' (Defendants') Arguments
- Properly taken accounts would show a large sum due to the defendants — i.e., the defendants contended the plaintiff's accounts understated amounts payable to them.
- Correspondence exhibited showed managers under Gaebele's authority were behaving improperly, payments to Madame Sice were irregular, and the manager did not properly manage the estate (including complaints as late as February 1918).
- The defendants asserted that the commissioner’s report and irregularities in accounts warranted a re-opening of accounts and a finding favourable to them if accurate accounting were undertaken.
Respondent's (Plaintiff / Fritz Gaebele) Arguments
- The plaintiff produced books of account (Exs. M, N, O, P, Q) and contended these reflected the cash, crop and office accounts maintained by his agents (Bosen and Ramdhoni) and his Pondicherry office.
- Mr. C. S. Venkatachariar for the respondents admitted the accounts were improper but sought to place the burden on the mortgagors to prove what the mortgagee ought to have received.
- Mr. Aiyangar for the appellant (note: appellant here refers to the party pressing a specific procedural relief on appeal) urged the appellate court to decide the accounts itself and to make adverse presumptions against the plaintiff, claiming this would yield a particular balance (about Rs. 38,000) in favour of the appellants; the appellant pressed the court to adopt a final figure on the record.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Kundanmal v. Kashibai | It is for the party who puts forward accounts to explain and support them so as to convince the judge of their probable accuracy; mere accounts without corroboration are insufficient. | The court relied on this principle to hold that the plaintiff's account-books, unsupported and imperfectly proven, could not be accepted item by item to fasten liability on the defendants. |
| Yesuvadiyam v. Subba Naicker (Abdur Rahim and Oldfield JJ) | Mere proof of the existence of entries in books of account kept in the ordinary course of business is not sufficient to establish their correctness for charging another party. | The court invoked this authority to reinforce that the plaintiff needed corroborative evidence beyond the book entries, which was absent, so the books could not on their own establish the plaintiff's claims against the defendants. |
| Imambandi v. Motasuddi | Mere assertion that particular pages were written by a particular writer is not sufficient compliance with evidentiary requirements for proving books of account. | The court used this precedent to support the conclusion that the plaintiff's bare assertions about the origin and maintenance of account pages did not suffice; item-by-item proof or credible supporting evidence was required. |
Court's Reasoning and Analysis
The court proceeded in a stepwise analysis:
- Examination of the commissioner’s report and the accounts: The commissioner found the plaintiff's books deficient — subsidiary books were not produced; witnesses called (Bosen and Ramdhoni) were not examined; Exs. P and Q were derived from unproduced subsidiary books and therefore unverifiable; entries thinned out into monthly extracts; crop and produce accounts lacked explicable abstracts of disposals and year-end stock; cash account incomplete (no cash account 1915–1918); management charged at 20% in ledgers though the contract provided 15%; advances and interest figures did not reconcile with statements sent to Madame Sice; no proper stock book. The commissioner therefore produced figures only from available material.
- Legal standard for proving accounts: The court reiterated that a mere production of account-books does not prove their correctness. Citing Kundanmal v. Kashibai, Yesuvadiyam v. Subba Naicker and Imambandi v. Motasuddi, the court held that the party putting forward accounts must explain and corroborate them so as to make them acceptable to a prudent judge. Mere assertion about the books' origin or the existence of entries is insufficient.
- Differentiation as to admissions: The court noted an important evidentiary distinction found in the reported authorities — while the general correctness of an account-book requires item-by-item proof, entries constituting admissions against the producer's pecuniary interest may be accepted if the book's general character as produced by or under the authority of the producer is proved. Thus entries adverse to the plaintiff could be relied upon without the stricter proof required for items claimed by the plaintiff.
- Statutory duty and failure: The court concluded that the mortgagee had neglected to keep proper accounts as required by Section 76(g) of the Transfer of Property Act (the opinion specifically identifies the mortgagee's failure in this respect).
- Remedial discretion and fairness: Given the inadequacy of the accounts and the fact that the plaintiff had an opportunity to produce credible evidence (but failed to call his two present witnesses), the court considered possible remedies. It declined to accept the plaintiff's accounts to fasten liability on defendants. It also declined the appellant's invitation to the appellate court itself to compute accounts on the record by making all presumptions against the plaintiff — because the appellate court could not properly take accounts without further evidence.
- Practical directions: The court determined that the proper course was to set aside the final decree and remand the matter to the Lower Court to re-open the accounts, giving both parties liberty to adduce fresh evidence. The court further observed that if, after retaking accounts, a balance was found against any party, that party must pay the balance (and that a decree could be entered for defendants upon their payment of the requisite court fee).
Holding and Implications
Holding:
The appellate court ALLOWED the appeal, set aside the final decree of the Subordinate Judge, and remanded the case for re-opening of the accounts with liberty to both parties to adduce evidence. The opinion expressly directs that the appellants are to have their costs of the appeal; the costs of the final decree are to await the outcome of the fresh accounting.
Implications and immediate practical effects:
- The Subordinate Judge's final decree is set aside and the accounting will be taken afresh in the Lower Court.
- Both parties are permitted to adduce new evidence at the re-opened accounting; the plaintiff's existing book-entries may be treated unfavourably where they contain admissions against the plaintiff's interest.
- The appellate court refused to compute the accounts itself on the incomplete record and declined to make extreme presumptions against the plaintiff without an opportunity for the parties to lead evidence.
- If the retaken accounts show a balance due in favour of the defendants, a decree may be entered for them upon their payment of the requisite Court fee; conversely, if a balance is due to the plaintiff, the usual enforcement measures in foreclosure/redemption proceedings will apply.
- Costs: appellants awarded costs of the appeal; costs relating to the original final decree are to be determined after the re-opened account is concluded.
- The opinion applied existing evidentiary authorities to resolve how account-books should be treated; it did not purport to lay down a new principle of law beyond applying those precedents to the facts before the court.
Concurrence: Madhavan Nair J. agreed with Odgers, J. and added nothing further. The case was remanded to the Lower Court for accounting as directed.
Odgers, J. — This is an appeal against the final decree of the Subordinate Judge of Salem in a mortgage suit. By Ex. A dated 24th August, 1886 one Jules Sice who was a coffee planter in the Shevaroy Hills mortgaged certain property, namely, ½ of the Tanny Pandal Estate and the whole of the St. Josephs' Estate to one Lob Levyt. In 1892 Jules Sice, the mortgagor, died. His widow, sons and daughters are the defendants in this case. On the 31st July, 1908, Madams Sice, the widow of Jules Sice, entered into a contract Ex. B, with one Mr. Fritz Gaebele, by which the latter undertook to work the coffee estate and to furnish the necessary money for it, which latter should bear interest at 8 per cent. Mr. Fritz Gaebele was to be treated as the first mortgagee of the estate for Rs. 24,000 and was to work the plantation without any interference from the defendants. The agreement provided that an account and inventory should be taken on the 1st March every year and that after providing for certain charges, the profits should be divided by allotting 60 per cent. to the hypothecation debt, 25 per cent to Madame Sice’ and her heirs and 15 per cent for management. The contract was to last for 10 years i. e., upto 1918. In 1909 Fritz Gaebele’ paid off Levyt and took an assignment of the latter's mortgage rights by Ex. C, and on the 22nd June, 1910, an English mortgage was entered into, by Madame Sice in favour of Gaebele’. This deed recited that Gaebele had advanced Rs. 15,200 making with the sum Rs. 13,200 paid to Levyt Rs. 28,400. It is, however, conceded that the sum of Rs. 15,200 was never in fact paid. Now it is admitted by both sides that Fritz Gaebele’ is in the position of a mortgagee in possession and the suit was brought for a sum of Rs. 49,877 on the footing of Ex. D. The plaintiff prayed that there might be a decree for foreclosure and that the defendants be directed to put the plaintiff in possession of the properties, the defendants having according to the plaintiff taken possession of the properties after the agreed period which expired on 30th October, 1918 the suit having been filed on 14th December, 1918. In the preliminary judgment the Subordinate Judge held that Ex. D was not supported by consideration to a larger extent than Rs. 13,200, that the plaintiff under Ex. D. was in the position of a mortgagee in possession and that he was bound to account for the income of the properties, further that the defendants are entitled to re-open the settlement of accounts of the plaintiff's management. There was a decree for foreclosure and an account to be taken of what was due to the plaintiff for principal and interest on the mortgage. In giving directions for the account the learned Subordinate Judge directed that the principal due on the mortgage would be taken at Rs. 13,200 and accounts taken and usual adjustments made out of the profits according to Ex. K till the date of Ex. D i.e, 22nd June, 1910 and thereafter under the terms of Ex. D with due regard to Sect. 76 of the Transfer of Property Act. The accounts were referred to a commissioner from whose report it is seen that the plaintiff produced certain books of account, that he summoned two witnesses who were not examined, that books, Exs. P and Q were written from subsidiary books not produced, that the entries in Exs. P and Q could not, therefore, be verified and these entries gradually dwindled into one or two entries a month and practically became a monthly extract. The produce-accounts, Ex. N and O, did not contain any explicable abstracts as to the disposals and balance in stock at the end of each year. It was, therefore not possible to arrive at the balance of coffee in stock at the end of each year, Ex. M, the cash account, upto 1915 does not help in this respect and there is no cash account from 1915 to 1918, Again management is entered in the ledger at 20 per cent instead of 15 per cent as per Ex. K. The advances made by Fritz Gaeble’ and the amount of interest due to him do not agree with the statements forwarded to Madame Sice. There is no proper stock book maintained and the result the commissioner had arrived at is with reference to the figures available in the accounts produced. To this report the defendants took certain objections set out in pages 56 to 58 of the printed papers. The Judge on the defendants' contention that the accounts which the commissioner has examined were not reliable and were not kept in the regular course of business and that no vouchers have been produced in support of the items of expenditure says that the plaintiff was a resident of Pondicherry that the management of the estate was entrusted to one Bosen and to one Ramdhoni and was of opinion that these facts are not sufficient to condemn the whole account as unreliable though he admits that the facts seemed to be that the plaintiff being an absentee landlord had not sufficient control over the managers. In the result he says the defendants have not called evidence as to the annual average yield either prior to the plaintiff's possession or after they got possession in 1918. All he does is to disallow all interest on the advances to the plaintiff, namely, Rs. 3,155 and to find without reasons that the plaintiff had recouped himself the actual amounts advanced for expenses. He, therefore, decreed for Rs. 13,200 the principal and Rs. 803 the balance of interest. Against this the defendants appeal and state that if accounts were properly taken a very large sum would be found due to them A number of letters have been exhibited which show that Fritz Gaebele’ knew that his managers were behaving improperly. He complains that it is very hard to get particulars from them. The allowance to Madame Sice was paid irregularly and according to the plaintiff's own admission the manager does not properly look after the estate. In fact as he says “he has become madder every day.” In spite of letters and wires he gets no reply That is in February, 1918. The question is what to do with this account? It is perfectly clear to my mind that the plaintiff's books are of very little real value in arriving at a figure. Mr. C. S. Venkatachariar for the respondents admits the accounts are improper but wants to throw the responsibility for proving what the mortgagee ought to have received on to the mortgagors. There is no doubt that merely putting forward accounts is of no use whatever. They must be supported by some other evidence which the Court believes. All that the plaintiff says as P. W. 1 is that Ex. M is the cash account from 1908 to 1915 kept by his agent Bosen Ex. N is the crop account from 1908 to 1917 kept by Bosen and continued by Ramdhoni Ex. O is the continuation of Exs. M and N. Exs. P and Q are the accounts maintained in his (plaintiff's) office at Pondicherry, under the control of his accountant. That statement to my mind is totally insufficient to afford the slightest corroboration of the accounts which the plaintiff literally threw at the head of the Court. As said in Kundanmal v. Kashibai(1), it is for the party who puts forward the accounts to explain them and support them in such a way as to convince the judge that there is such a probability of their accuracy as to make it reasonable for a prudent man to accept them. It has been laid down over and over again that a mere account book without more does not prove anything. See Yesuvadiyam v. Subba Naicker(2) (Abdur Rahim and Oldfield JJ). There mere proof of the existence of certain entries in books of account kept in the ordinary course of business was held not sufficient. As laid down in Imambandi v. Motasuddi(3) mere assertion that particular pages of volumes were written by this or that writer is not sufficient compliance with the provisions of law. It appears to me therefore that the books cannot be said to have been proved item by item for the purpose of charging the defendants. Their general character has no doubt been proved by plaintiff. There are, however, pertain admissions in them which all go to the debit of the plaintiff. I take it that the law requires proof not only of account books generally but of each item, that is, in the interest of the person producing the books but with regard to admissions i.e, entries against the producer's own pecuniary interest, the law dispenses with all proof save that the book has been kept by or under the authority of the producer. We must, then, it seems to me set aside the evidence as far as the plaintiff seeks to fasten the liability on the defendants by the entries in these books of account. The mortgagee is, therefore, in the position of having neglected to keep proper accounts as required by Sect. 76(g) of the Transfer of Property Act. The question is what ought to be done under these circumstances? The plaintiff has had an opportunity of producing his evidence. He only produced these books that are now in question. He brought two witnesses with him who it is stated without contradiction were Bosen and Ramdhoni and they were not examined. The defendants stated that they had no evidence to put before the Court. They of course were out of possession for 10 years as it will be remembered that under Ex. K they were to have nothing to do with the management of the estate during that time. But for the fact that the defendants beyond disputing the legal value of these accounts should have, in my opinion, shown or attempted to show that the figures (for instance with regard to the yield) were prima facie wrong, I should have sent these accounts back with a direction that the plaintiff was to be disallowed all items of expenditure in his accounts and debited with all items of receipt. I think, however, the defendants were under the circumstances wrongly advised. It may be that having been in possession upto 1909 and since 1918 they could have afforded the Court some assistance in the taking of these accounts. Under the circumstances I do not see how I can direct a fresh account without giving both parties an opportunity of adducing fresh evidence it being borne in mind that on the admissions of the plaintiff any entries in the books already produced will be debited against him. Mr. Aiyangar for the appellant pressed us to decide on a figure for ourselves, to take the accounts ourselves on the basis of disallowing the plaintiff everything and making every presumption against him which the learned counsel said would result in a balance in his favour of about Rs. 38,000. This we cannot do for obvious reasons. But I do not see why if on retaking all these accounts it turns out that a balance is due to the defendants a decree should not be given in their favour on their paying the requisite Court fee. As Ghose says at P. 598 of his book it is the essence of foreclosure in redemption suits, that each party is entitled in such suits to enforce his rights against the other. If the balance is, therefore, against any party he must pay it. The appeal therefore is allowed. The appellants must have their costs of the appeal. The costs of the final decree, will abide the result of the decree, if any, after taking the accounts afresh. The final decree is set aside. The matter will go back to the Lower Court for the purpose of having the accounts re-opened, each side being at liberty to adduce evidence.
Madhavan Nair J.—I agree and have nothing to add.
C. K.Case remanded.
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