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#88 !T H E Ii E A T> E R. [^o. 444, Sept...
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TBE LIVERPOOL BOROUGH BANK. Nisi Prius C...
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Note: This text has been automatically extracted via Optical Character Recognition (OCR) software. The text has not been manually corrected and should not be relied on to be an accurate representation of the item.
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#88 !T H E Ii E A T> E R. [^O. 444, Sept...
# 88 ! T H E Ii E A T > E R . [^ o . 444 , September 2 & , 1858 .
Tbe Liverpool Borough Bank. Nisi Prius C...
TBE LIVERPOOL BOROUGH BANK . Nisi Prius Court , before Mr . Baron Mortln , Thursday , August 26 . Scott and Another p . Dixox . Mr . James , Q . C . V Mr . Wilde , Q . C ., and Mr . Brown were counsel for the plaintiffs ; Sir Fitzroy Kelly ( the Attorney-General ) , Mr . Atherton , Q . C ., and Mr . Melhuish appeared for the defendant . Mr . Brown opened the pleadings . lie said John Scott and Robert Robinson were the plaintiffs , and Joshua Dixon was the defendant . The declaration stated that the defendant -was a director of a banking company , and that the shares of the company were transferable ; that the defendant , intending to deceive the plaintiffs ,
fraudulently represented that there -were profits of the company to be divided amongst the shareholders , and fraudulently printed and published a report , whereby he represented that the financial condition of the bank was sound , and that the shares were then of great value ^ whereby the plaintiffs were induced to purchase shares ; that there were no profits to be divided among the shareholders ; and that the financial condition of the said company ¦ was not sound , whereby the plaintiffs lost the value of their shares and were forced to contribute towards the losses of . the company . To that the ^ defendant had pleaded , first s " not guilty ; " and , secondly , that the plaintiffs were not so induced . Upon these counts issue had been joined .
Mr . James , Q . G ., in opening the case , said the plaintiff sued for the value of ten shares purchased by the plaintiffs last August , together with the further sums paid upon them , 51 . a share , a call made subsequently to the failure of the bank , amounting altogether to 142 / . 7 s . 6 d . Thebank was established in 1837 upon the remains of that belonging to Messrs . Hope and Co . There was a deed of arrangement vesting the management in directors , who were to keep books , ¦ && , and " make out and declare a full , true , and explicit balance-sheet" half-r yearl y * At the general meeting in July such a balancesheet and repprt were to be exhibited , including all items the directors deemed expedient for the interests of the company to be nrtade public ; and every report was to the
be bindingjipon the proprietors , unless some error should be d ^ covere ^ d before next subsequent report , and thej ^ n rectified . Dividends were to be declared out of cla & r profits after deductions for bad and doubtful debts , and for providing a reserved surplus fund . If that and © ae-fourth of the paid-up capital were exhausted by losses , a meeting was to be called and the facts ' made known ; and upon the application of any two proprietors the company might be dissolved . The defendant ( said the learned counsel ) is a gentleman , I believe , of high position in the commercial circles of this town , and some few years ago he came to Liverpool from New ( Orleans , where he had , by the experience of several years—I dbm ' t know how manyacquired what is supposed to be an intimate acquaintance , with banking transactions . He had been a banker
at New Orleans , and soon probably after his arrival here the firm with which he was connected—I presume a commercial firm— -having an account with the Borough Bank , and he thinking that with the experience which he had acquired he probably might be enabled to benefit himself as well , as others—I give him credit for that intention—thought it was not undesirable on his part to become a shareholder and director in the Borough Bank ; and he accordingly examined well the published reports of the directors from time to time as they had been issued , and , making up his mind on the expediency of joining that company , he purchased shares solely that he might , according to his own words , become a djrecor ; and a director accordingly he did become ,
somewhere about three years ago . At the time when he soined the bank the affairs were not conducted exactly n the manner provided for by the deed to which I have nrited your attention . It provides for the management being vested in the directors . The directors consisted fpr the most part of gentlemen of eminence and Btanding 4 kthe > to ; vv : n , JMg 1 Mn < fcta ^ me , rcan 1 ; U , e world , and they delegated their , powers to three gentlemen who were elected from their body and called " managing direcore . " These managing directors likewise appointed nother person , called " the manager . " So that proably it will turn out that , in the groat multiplicity of nstancea for years gone by , previous to the . summer of ast year , the manager directed the managing directors , and the managing directors ruled the directors . That
will probably bo the state of things . All that the directors contributed to the concern was , the sanction of their high names and the lustre which could be shed about the bank by their undoubted respectability . Directors they were In name , but in name onlyr— luoua a . ffgti- % y ^ . ' ¦ ff '" . 'ffl-l ^ fui P . ! fl d . i .. i . . . . " . ao they , had , nothing to direct . There yfer' ^ acco placed before them , which informed them , aa I believe , of little or nothing that was transpiring . They trusted to the managing directors , and it is . not at ull unlikely that the managing directors trusted too much to the manager himself ,. There can be very little doubt—as I think you will see—that Mr . Plxon , with the experience that ho had acquired in banking in Now Orleans and with the expectation ho had formed of
having some part and parcel in the management and direction of this bank , when he became a director was not satisfied with the state of affairs , nor with the course which matters were pursuing ; ^ and I believe that from time to tiiiie he did utter certain murmurings of discontent , but that he never took any active step to set matters right which he suspected , arid suspected for some time , were going wrong . So , matters went on until June of last year , when Mr . Dixon , the defendant , having been informed that Mr . Smith , who had been a manager for- some years up \ o that time , was desirous of retiring , and was about to retire , was asked whether he would become a managing director , thereby of course having the opportunity of investigating and
sifting the affairs of the bank and thoroughly informing himself , if he was so minded , of what its true position and circumstances were . He acceded , to the request . That was in the beginning of June , and at the time he was in London . He returned immediately to Liverpool , and he set himself to work at once for the purpose of ascertaining the true position of things ; and I must say that I will give him credit—for I believe it is believed generally of him—that if he had pursued . the dictates of his own heart , and if he had attended to the warnings of his own conscience and common sense , and had stedfastly pursued the course which unquestionably he did mark out for himself in . the beginning , this case would not have been brought before you , because , probably , if not a thoroughly accurate statement of the affairs of the bank , yet at all events one showing that the state of
the concern was utterly insolvent , would have been put forth ; my clients would then never have become purchasers of shares , and would consequently never have had a right of action against Mr . Dixon . It appears that he did investigate . Mr . Smith , who still was the manager of the bank , laid before him , anxiously inquiring , as he was , whether there ought or ought not to be a dividend then declared—you may judge when he investigated that question that he had his own serious doubts whether there ought to be a dividend—Mr . Smith laid before him a statement . That statement , ' the learned counsel expected , would b e produced by the other side . It satisfied Mr . Dixon no dividend ought to be declared , but he was overruled . A report founded upon it was furnished to the directors , and sent to a printer , when-it was withdrawn and another substituted , upon which
this action was founded . The plaintiffs , who were warehousemen , studied this report , and , though the reduction of the dividend brought down the shares , they thought the report disclosed a state of things which would justify them in investing their money in shares , which they did . The report was addressed to the 2-lst annual meeting of the proprietors , on the 28 th July , 1857 . It represented the existing capital at 1 , 000 , 000 / ., that the net profits of the past year , after deducting expenses and 45 825 / . for bad debts , amounted to 09 , 318 / ., to be appropriated as dividend , leaving 7439 / . to be added to the reserve fund , which would make it 109 , 000 / . Nearly the whole of the 45 , 000 / . lost was attributed to the frauds of a customer to whom the bank
—the losses of 1854 being all liquidated and counted off—^ the good , genuine business of the bank will enable the directors to pay 5 per cent , per annum without encroaching one iota upon the capital . " Ia laying this statement before , the shareholders the directors desire strongly to impress upon ' them that its unsatisfactory character "—for it had been 7 per cent , before then— ' * is to be attributed to the affairs of 1854 J 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 , notwiths tanding the losses that have been incurred subsequently to that
year . 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 . " This was a misrepresentation , and the defendant knew it , and if he did not know it he was equally responsible ; and if it was to be said he was ignorant , it must be retorted that he ought not to have been ; But after the stoppage of the bank on the 26 th October , Mr . Dixon became chaiiirian of the liquidators , and Messrs . Banner , accountants , prepared a statement of the affairs of the bank " , which -was produced at a meeting at which Mr . Dixon presided , when he said that the position of the directors was one
of very great discredit ; that at the time of the great loss through Mr . Doherty , in 1856-7 , he placed oh the books a record of his opinion that the nature of the transaction by which the loss was incurred was unbusiness-like , and ought not to have been incurred j that the managing directors were as blameable aa the manager ; that immediately on becoming a managing director himself , he inquired into the condition of tbe bank , as to the . declaration or non-declaration of a dividend ¦ that Mr . Smith's statement led him to the conclusion that none ought to be declared ; that this was assented to at a meeting of the directors , but at a meeting afterwards , suddenly convened , the decision was re-.
versed . That was the statement upon which the report , afterwards withdrawn , was founded . At the meeting , Mr . Woodward , one of the members , asked if the report was withdrawn by the whole board or by a part only , and Mr . Dixon replied , " By the board , and to which I yielded , the motive being "— -his motive or the motive of the board , no matter which— "the motive being that it vi as -very dangerous in the then position of the bank to run the risk of the excitement that might be produced by the non-declAratipn of a dividend . It might have resulted in a run and the stoppage of the bank . " Not of the effect that would have been produced upon th ' s shareholders , but of the effect upon the public , the
customers of the bank , the moment it became bruited abroad , as it inevitably would have been , by a published report—a run upon the bank , its stoppage and ruin , they thought . " I acceded to it only on the understanding recorded in the minutes , that the statement to the shareholders should contain a full and correct disclosure of the position of the bank , even though it should disclose the fact "— he prayed attention to this" that a dividend was declared out of capital . " In the report issued there was no shadow of such an intimation ; there was no reference to the dividend , except intho passage read ; and yet Mr . Dixon said the report , " well examined , shows the fact , although I do feel that it does broad terms that would
had lent it carelessly . The directors continued m the report to say , "In winding up the affairs of 1854—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 loss has jeen sustained in the realisation of the assets —he prayed their attention to this— " in the realisation 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 . " What is the effect of hat ? It is this : that they hod actually realised the assets at that time , and that the estates actually had been , and then were , liquidated , and that there had been a loss in such realisation and liquidation—a loss then
not make the statement in the have been adopted if the intention had been to state that there was a very handsome surplus . " He added that during July he was the only managing director present ; that in that month he came to the reso ution to join the rest of the directors in the conclusion that « was highly improper to declare a dividend . W hen tne accounts wore published , the liabilities were far beyond the assets , calls had to be made , and the whole thing was a complete mass of rum and < o elation 1 and it could not bo said that the capital had been lost since July . Mr . Banner ' s first rcpor £ the 12 th November , said that 371 , 000 / . had been written off and lost between June 1854 and June 1857 ; uui m this
ascertained , because the assets had been realised and the estates liquidated . " The directors have thought it their duty at one to reduce the dividend to the rate of 5 per cent , per annum , on the grounds that , taking oven he most favourable view of the liquidation of these accounts , the whole of the reserve fund will be required to meet the losses incurred . " The losses ascertained , after the realisation of the assets and the liquidation of the estates , will amount to so much . They will require something more to place the bank clear , and that will be met by the reserve fund , 108 , 000 / . or 109 , 000 / .
the report presented on the 17 th February yonr , » r . Banner made a statement totally at variance with tliw , vis .,, that , from scarcely , any of M » VTT !^ rSomo been current upon the accounts of the Mllie for » ° J ° years had amounts been written off . " l >« t botoo . tw directors' report in July last an estimate was made oi possible losses , amounting in the aggregate to W "' ; f Therefore there can bo no doubt that tlil ^ w « s tl . o Iobjm 870 , 000 / . referred to in Mr . Smith ' s report to Al . vi * ° in the month of June , and averred by Mr . « " 'J had examined the books on the 12 th Woven bor , to bajP been written off before Juno in that year , and " ^™ t stated not to have been written off oltogot oi . * doe , that state of things show ? That In ie joj » T ., nn .. s . ^ nllnflx « n tlin rllrnntnra' own aCCOlUU , VII" '
•? The whole of the reserve fund will be required to meet the losses incurred . " Nothing more not a word about the capital boing required , but only that the whole of the reserve fund will bo required , clearly intimating that that will place them clear in their accounts . 1 hoy go on— " 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 time of the > dlvdend without encroaching , on the capital at . he Wm fl 'werio ^ - ^ f-tho- > co , mog ^ ear JU ^ U , ttdec WMthQ ,
of the reserved fund was swallowed up . J ° * " , d , „ h ? dg et l Q , 8 , fpQ 0 / , was q W Wiry fir the loflsoa » n » t '« - " thoB & ffJeff ; YfflcSSa m ^ : ^ S ! SmSm ocedlngit , Take that from the admitted load oi > so written off , and it will laava »> " ™^ , Und 270 , 000 / . of capital actually gone . II o > woi ^ by the clause of fholr deed , upon , ftS « orU JnB .. , ttui-up the reserve fund was gone and a fliartop of l . o p « J , capital , to summon their ( subscribe ™ b ° r" ° "" -foer . tuko measure * for the dissolution of \ U * co . npany .
most unfavourable oiroumstanoes consistent wim probability , the good current business of the hank will enable them at the same period of the next year--in the month of July , 1858-to divide 6 per cent , without encroaching upon , the capital . Not one word said about the capital but that . What is the meaning of H ? Hero is the capita Intact , and the good buainess of the bank is suoh that the annual nrolUa , after paying all expenses
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Citation
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Leader (1850-1860), Sept. 25, 1858, page 4, in the Nineteenth-Century Serials Edition (2008; 2018) ncse2.kdl.kcl.ac.uk/periodicals/l/issues/cld_25091858/page/4/
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