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Notes of Kecent Leading Cases.

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1. Smith 1. SMITH (28 L. J. Prob. and Mat. Court, 77)-Petition by

Wife for Dissolution of Marriage-Desertion-Decree of the
remedy of Judicial Separation.

230 COMMON LAW. 2. Scott v. Dixon (Hil. Term, 1859, Q.B.-Not yet reported)

Liability of Directors of Public Companies for Misrepresentations
-Fraud-Publication of Reports by Directors-Evidence. 230

1. Smith v. Smith. 28 L. J. Prob. and Mat. Courts, 77. Petition by Wife for Dissolution of Marriage-Desertion-Decree of the

remedy of Judicial Separation. In the above case the wife petitioned under 20 and 21 Vic., c. 88, s. 27, for a dissolution of marriage, on the ground of adultery, coupled with desertion, without reasonable excuse, for two years and upwards; and the prayer of the petition was simply for a dissolution of the marriage. The respondent did not appear.

The court (which was composed of the Lord Chancellor, Mr. Justice Wightman, and the Judge Ordinary) held that the adultery was proved, but that the desertion was not, as there were circumstances in the case leading to the belief that the petitioner and her husband parted by mutual

The Court was of opinion, however, “ that although the petitioner may pray a dissolution of marriage, yet it is competent for the Court to grant such relief as the facts proved would warrant." A judicial separation was therefore decreed, and the husband condemned in costs.


2. Scott v. Dixon.—(Hil. Term, 1859.-Not yet reported.) Liability of Directors of Public Companies for Misrepresentations-Fraud

Publication of Reports by DirectorsEvidence. Time was when directors of public companies were assumed to be nearly, if not quite irresponsible, for all that they said or did whilst seated behind the board-room door. When great companies failed, and gross frauds were found to have been committed by managers and directors, they escaped with comparative impunity. But then came the Royal British Bank swindle, and the law was awakened, and the public, laying to heart the verdict of " guilty ” which in that case was returned, by a natural re-action began to think that they could hold any and every director of a company liable for every inaccurate statement made by any director or officer of that company as to its affairs.

The case of Scott v. Dixon, having been also cited in support of the above opinion, we now purpose giving an account of it, not so much on the ground of its involving any new doctrine in point of law, but to expound clearly for what class of misrepresentations, and on what evidence, the defendant in that case was held responsible.

The action was brought by John Scott and Robert Robinson, against Joshua Dixon, one of the directors of the Liverpool Borough Bank. The plaintiffs, by their declaration, sought to recover of the defendant damages for certain false representations as to the solvency and affairs of the bank, alleged to have been fraudulently and deceitfully made by the defendant to the plaintiffs, to induce them, and whereby they in fact were induced, to purchase shares in the bank, the purchase-money of which shares they lost, the bank being insolvent and the shares worthless, and in respect of which shares they were compelled to pay certain calls made after failure of the bank, as a contribution to its losses.

The defendants pleaded, 1st, not guilty; and 2nd, that the plaintiffs were not so induced as in the declaration alleged. The false representations complained of were contained in a report (set out in the declaration) presented by the directors to the shareholders on the 28th day of July, 1857, which was as follows

“ LIVERPOOL BOROUGH BANK. “ Boarid of Directors for the year 1856.-William Rathbone, Esq., Chairman ; Christopher Hind Jones, Esq., Deputy-Chairman ; Edward Benn, Esq.; Duncan James Kay, Esq., John Cropper, Esq. ; David Lamb, Esq.; Robert Crosbio, Esq. ; Joseph Rater, Esq. ; Joshua Dixon, Esq. ; James Ryder, Esq. ; Robert Ellison Harvey, Esq. ; Thomas Sellar, Esq.; John P. George Smith, Esq., Manager.

« REPORT OF THE DIRECTORS TO THE PROPRIETORS. “ According to the last report, the paid up capital of the Bank was £900,000, and the reserve fund was £101,775, 10s. 11d.

“Since that date two calls of £1 per share have been paid upon the new shares, making the capital £1,000,000.

“ The nett profits of the past year, after payment of all expenses of management, and after deducting £45,825, 2s. ld. for losses by bad debts incurred during the same period, amount to £69,312 12 8

Appropriated as follows31 per cent. dividend upon £950,000 - £33,250 0 2

£1,000,000 - 25,000 0 Property tax paid by the bank . " .

3,629 6 8

£61,879 6 8


Balance carried to reserve fund

£7,439 6 0


“ Nearly the whole of the losses above-mentioned have been caused by the frauds of a customer.

“In winding up the affairs of 1851, a year which it is well-known was most disastrous to those customers of the bank who were engaged in the colonial shipping trade, heavier Joss has been sustained in the realization of the assets then taken over by way of security, and in the liquidation of estates then considered good, than could possibly have been anticipated.

“ The directors have thought it their duty at once to reduce the dividend to the rate of £5 per cent. per annum, on the grounds that, taking the most favourable view of the liquidation of these accounts, the whole of the reserve fund will be required to meet the losses incurred; and that, on the other hand, taking the most unfavourable view consistent with probability, the good current business of the bank will, in their opinion, be sufficient to admit of the regular continuance of the dividend without eucroaching on the capital at the same period in the ensuing year.

“In laying this statement before the shareholders, the directors desire strongly to impress upon them that its unsatisfactory character is to be attributed to the affairs of 1854, and that, apart from these, the sound and legitimate business of the bank would have enabled it to pay the ordinary dividends, and also to add largely to the reserve fund, notwithstanding the losses that have been incurred subsequently

They wish also to state their confident expectation, that the change they are making in the policy and regulations of the bank will effectually guard against the recurrence of similar results.

“Mr. Smith having stated to the directors that his health would not longer permit him to undergo the labour of conducting the details of the manager's duties, and having in consequence requested to be relieved from his office, they have with reluctance complied with his wish, and have made arrangements that Mr. Thomas Sellar, who is in every respect eminently qualified for the post, shall, from the 1st of August next, assume the position of manager. Mr. Smith has, at the request of the directors, consented to take a place at the board, and to continue to give the bank the aid of his valuable assistance.

“ The directors who go out of office by rotation are Mr. Rathbone, Mr. Dixon, and Mr. Benn, who are eligible for re-election.

to that year.


“ Proprietors legally exempt from the income tax, will be furnished with a certificate of the proportion due on their shares, on application to the manager.

“WILLIAM RATHBONE, Chairman." The cause was tried at Liverpool, on the 26th August, 1858, before Mr. Baron Martin,

The plaintiff's case was (according to the statement of his counsel, Mr. Edward James), that the defendant was a managing director of the company, having been appointed a director in 1854, and a managing director in July 1857, at the time the report of July 1857 was published, and had concurred in its publication; and that that report was false in its statements as to the solvency and affairs of the bank, on, amongst others, these grounds :

1. That the paid up capital of the bank was not £1,000,000, but £936,000.

2. That the report, by stating that a dividend was to be paid in respect of the half-year's profits, £69,318, 12s. 8d., induced the public to believe that the bank was in a sound financial condition; whereas the fact was, that though there might have been that amount of profits for that particular half-year, there was upon the whole account a deficit; the dividend, therefore, being in fact paid out of capital.

The plaintiffs further contended, that the defendant knew that such report misrepresented the facts; that such report was addressed not only to the shareholders, but to the public generally, and was intended to deceive them by concealing the state of the bank, and induce them to believe the bank to be in a sound financial condition; that the plaintiffs received the report, and, on the faith of its being true, bought ten shares in the bank, in August 1857, the damage to the plaintiffs being, that they lost the purchase-money of the shares, which were valueless (the bank failing on the 27th October, 1857), and were obliged, in respect of such shares, to pay calls made after the failure of the bank, as a contribution towards its losses.

In support of the case of the plaintiffs, the following evidence was given.

The above report of July 28, 1857, was put in.

The plaintiffs themselves were called, and proved that in August they applied to Mr. Brown, a stockbroker, for a report of the bank; that he procured the report of July 28 ; that in consequence of reading that report, vouched by the names attached to it, they bought ten shares in the bank; that the shares became valueless when the bank stopped, and that they had to pay calls as a contribution to losses.

Mr. Tinley, a sharebroker, was called, and proved that he

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had dealt in shares of the Borough Bank; that brokers always obtained the reports, such as that of the 28th July, upon making application to the bank, and as a matter of course; and that the value of the shares was generally determined by the reports.

The stoppage of the bank on the 27th October, 1857, was admitted

Certain reports of accountants appointed by the liquidators, of whom defendant was chairman, to investigate the affairs of the bank, were relied on, to shew that the whole capital of £1,000,000 had not been paid up, and that it appeared from the books that the bank was in an unsound state at the time the report of the 28th of July was issued. This evidence was objected to by the Attorney-general, but admitted by the judge, who observed, the whole question was the state of the defendant's mind on the 28th July, 1857. That so far as any thing since published could affect that question, the jury would give it due weight, but not suffer themselves to be led away by it from the actual question at issue.

To show the defendant's connection with the report, and his knowledge of the misrepresentation, a printed report of a meeting of shareholders, held on the 25th of February, 1858, was relied on, at which meeting the defendant made a speech containing the following passages

“I cannot but feel that the position in which the directors are place is one of very great discredit, and I wish as fully as I can to explain my part in the direction.” After alluding to one particular item of loss, the defendant said—“It was then, for the first time, that I became aware that the managing directors had almost as little control over, or knowledge of the affairs of the bank, as the outside directors. Towards the end of June last, Mr. Cross called upon me in London, and stated that Mr. Smith was going to resign, and he asked me if I would become a managing director. I assented. Immediately on my return to Liverpool, my first step was to inquire into the condition of the bank with respect to the declaration or non-declaration of a dividend. The statement of the affairs of the bank, laid before me by Mr. Smith, led me to the conclusion that no dividend ought to be declared. This view of the case was assented to at a meeting of the directors; but at a meeting afterwards, suddenly convened, the decision was reversed—(Mr. Woodward, By whole of Board or by purt?')—by the Board, and to which I yielded; the motive being that it was very dangerous in the then position of the bank, to run the risk of the excitement that might be produced by the non-declaration of a dividend : it might have resulted in a run, and the stoppage of the bank. I acceded to it, only on the understanding recorded in the ninutes, that the statement to the shareholders should contain a full and correct disclosure of the position of the bank, even although it


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