The Sun.
London, England, 1857-01-09 00:00:00

LAW INTELUGENCE.—Jan. 8.

BANKRUPTCY COURT.
(Before Mr. Commissioner Holroyd.)
IN RE THE ROYAL BRITISII BANK.

A private meeting was held to-day under the bank-
ruptcy, the object being to discuss a great number of
proofs on the part of shareholders, to prove as creditors
against the estate.
Mr. Mellish appeared in support of the claims ; and
Mr. Browne (instructed by Messrs. Linklater) for the
assignees, to oppose.
The following are some of the articles in the indenture
between the present directors and other subscribers and
trustees which are important:—
Clause 1. That the parties hereto associate to form a
company called the " British Bank," and promote to the
utmost its interests. They bind themselves to the articles
contained, which are to constitute the fundamental articles
of the company.
Clause 2. The capital is to be 100,0001., in 1,000 shares
of 1001. each, to be increased if required, by creation of
new shares. The shares not subscribed for, and afterwards
created, to be allotted according to the discretion of the
court. The profits to be carried to the "reserved fund."
No one to hold more than 600 shares unless acquired,
Clause 22. Directors appointed for present year and to
continue in office until Sept., 1850. Directors to nominate
others as co-directors for above period. One-fourth at the
least of the directors to retire at every annual general
meeting, those retiring to be chosen by the court, but al-
ways outof those who have been longest in office. The ♦a-
cancies to be supplied by election of other shareholders.
No retiring director to be re-elected for at least 12 months.
Appointment of governor and deputy-governor and of the
chairman.

Clause 23. A director to hold ten shares ii his own right;
no clerk, &c., of any other bank eligible as a director. The
circumstances rendering the office of director vacant. Of
relations, partners in trade, not more than one eligible for
director.
Clause 24. Directors to signify acceptance of office ; sub-
scribing declaration of secrecy tantamount to acceptance.
Failing the performance of both these, offices to be declared
vacant, and court to appoint another, who will stand in
all respects as the one superseded.
Clause 25. If conduct of director appears prejudicial to
company, court at special meeting by majority of three-
fourths may remove director. Shareholders at general or
extraordinary meeting by majorityof four-fifths in nusaber
and value, present in person or proxy, may remove any
director.

Clause 29. Directors and others to faithfully discharge
their several dudes, and observe secrecy on transactions of
the company with their customers, and on the state of ac-
counts with individuals. Director to pledge himself not to
make any revelation unless required to do so by the court
or meeting, or court of law.
Clause 30. Director or officer may resign on giving notice
to the general manager. In the case of the general manager
notice to be given to the court. Fourteen days' notice re-
quisite for a director, and three months for manager or
other officer.
Clause 31. Appointment of trustees; grants of land,dtc.,
made in their names. Appointment of William Cash and
others as present trustees, who may be removed by the
court. All purchases, Scc., in names of trustees, to be under
control of the court • and all writings made in their name
to be countersigned by general manager. The court's di-
rections obligatory on the trustees.
Clause 32. Directors, trustees, and officers, held harmless
from expenses in any proceeding at law or equity, except
incurred by their own neglect ; such expense to be paid out
of the assets of the company, and have a priority over all
other claims, and be satisfied, in the first place, out of the
" reserved fund." Each director and officer answerable for
his own negligence only.
Clause 33. The court to give credit on cash accounts,
agreeably to the bye-laws made to regulate advances. No
proprietor entitled as a right to demand a cash or other
credit. No director or vote on any motion benefiting him-
self directly or indirectly, or become surety in any loan
transaction.
Clause 34. Power to invest capital not required for im-
mediate purposes.
Clause 36. Books to be kept containing true, fair, and
explicit entries of receipts, payments, transactions, deal-
ings, profits, gains, and losses ; also an account of the capi-
tal and moneys deposited with the company. Books to be
balanced monthly, and statement published, fully mani-
festing the actual position of the company. No proprietor,
unless a director or auditor, entitled to inspect the books,
Ste., except those produced at any general meeting; nor
any proprietor entitled in equity to a discovery thereof.
Clause 44. General meeting of proprietors to be held in
September yearly. Directors to be then elected as pro-
vided. Fourteen days' notice specifying business of the
meeting to be given. No other than the specified business
to be transacted.
Clause 4J. Half yearly meeting may be held, notice and
business as in last clause. If no half yearly meeting be
held, a printed statement of the position of the company to
be forwarded to each proprietor. In September every
year a balance sheet, profit and loss account, and auditor's
report to be sent to every proprietor.
Clause 46. The court, or not less than nine proprietors
holding collectively 21 shares, may require an extraordinary
meeting to be called by requisition to general manager,
stating object of meeting, who will appoint meeting within
21 days, giving 14 days' notice. Nothing transacted at
such meeting to be binding unless ca,,firmed by a second
general meeting, which is convened by chairmen of the
Ent meeting upon notice of 14 days. Upon manager's re-
fusal to call meeting shareholders may call such meeting
upon 14 days' notice.
Clause 47. True balance sheet and report of profits apd
accumulation of capital to be exhibited at every general
meeting.
Clause 48. The governor, deputy governor, or director to
be chairman of extraordinary or general meeting. Chair-
man to have casting vote. Motion primarily decided by
show of hands. Four shareholders may demand a poll.
Proprietors entitled to vote as follow ;
Holders of 4 and less than 10 shares, one vote ; 10 and
less than 20, two votes ; 20 and less than 50, three votes ;
50 and upwards, four votes ; of above 100 shares, to have
one additional vote for every 50 shares above 100 held. No
shareholder to have more than fifteen votes ; and no one
possessing less than four to vote. General manager to fur-
nish form of proxy to applicants, kc.
Mr. Mellish appeared on behalf of a large body of new
shareholders in support of their claim to prove for money
had and received, for sums which had been received from
them by the Royal British Bank, on the ground that those
sums were obtained from them by fraud of directors and
managers of the bank—that those shareholders never dis-
covered the fraud until after the bank had stopped, but,
having discovered it, they said they were entitled to repu•
diate those shares, and to claim the sums paid by them as
money had and received. There was no doubt as to the
general proposition of law, that if a contract was procured
by fraudulent misrepresentation or by fraud, and money
was paid under it, as soon as the party who had paid that
money discovered the fraud, he had a right to elect to re-
cind that contract and recover the sum he had paid under
it in an action for money had and received. And, of course,
if entitled to recover in an action, he was equally entitled
to prove for the amount in bankruptcy. The general state
of the case was this :—The Royal British Bank was formed
by a charter issued February 17, 1849, and by that charter
the capital of the bank was fixed at 100,0001., divided into
1,000 shares of 1001. each, None of the parties he repre-
sented held any of the shares which formed the original
capital, hat they held shares under the new charter,
granted February 23, 1855. Prior to that time it was
clear that the directors had no power, by the terms of
the original charter, to increase the capital of the bank
without obtaining another charter of the Crown for that
purpose. It might be a serious question ultimately, in
point of law, whether even the Crown had power to give
them the right to increase their capital, because the Joint-
Stock Bank Act, 7 and 8 Vic., c. 112, had certain enact-
ments regarding the capital of the company which hal not
been complied with in this case. The fifth section ran
thus "Provided always, and be it enacted, that it shall not
be lawful for any such company to commence business
until all the shares have been subscribed for, and until the
deed of partnership shall have been executed personally,
or by some person duly authorised by warrant of attorney
to execute the same, on behalf of such holder or holders
being the holders all the shares in the said business, and
until a sum of not less than one-half of the amount of each
ghat e shall have been paid in respect of each such share :
And it shall not be lawful for the company to repay any
part of the sum so paid up without leave of the lords of
the committee." The learned counsel then proceeded to
argue that when the Crown issued tie new charter, the
preliminaries required by this act were not complied with
—lO per cept. of the capital was not paid up—and it was
therefore a serious question whether the parties had be-
cone shareholders at all. But the main ground was
fraudulent representation. It appeared from what had
been published in the newspapers that Mr. Coleman was
called in after the stoppage.
Commissioner—You must state what you are going to
prove.

Mr. Mellish said he would call Mr. Coleman to prove the
facts which he had set forth in his report. He should also
rely on the evidence of the books of the bank. He pro-
posed to read the affidavits of several shareholders to show
that they have been imposed upon by the representations
of the directors of the bank.

Mr. Brown said it was his duty, on behalf of the assignee s
of the bank, to object to the course proposed. This was an
important inquiry, involving proofs againtt the estate for
no less a sum than 60,0002. ; and, as each case might stand
upon different grounds, he must insist on viva voce exami-
nation in each case. He was not aware of any principle
on which the shareholders could be classified.

Mr. H. Mellish said he would begin with one case—that
of Mr. Edwin Booth, surgeon, of Great Queen-street,
Westminster.

His Honour said he thought the case ought to be con-
ducted as if they were at nisi prius trying an action for
money had and received.
Mr. Mellish was prepared to show that the directors had
knowingly published false reprosantations with the view
of inducing parties to take shares, and that they were so
induced. This would be sufficient proof of the fraud.
He would prove that tho directors had declared fictitious
dividends—not dividends out of profit, but out of capital,
and out of the deposits of the customers. He then road
the affidavit of Mr. Booth.

Mr. Brown objected to this, unless Mr. Booth was pre-
sent to be cross-examined.

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Mr. Mellish said the case of Booth was this. He kept
a drawing account at the Strand branch of the bank from
Oct., 1850, down to the stoppage. He perused the reports
periodically issued, especially one in liec., 1854, stating
that the bank had 804,7931. on loan, on convertible secu-
rity, &c. Shortly after he called on the manager, and
was by him induced to take shares as an eligible invest-
ment. In March, 1855, ho received a circular from the
directors announcing that a new charter had been granted,
and that 300,0001. would lie added to)the capital. He
would prove that the representations in that circular, as
to the amount of dividend, were false and fraudulent : at
the very time the report was issued the bank had lost the
whole of its subscribed capital and a large amount in addi-
tion; that the dividend of 6 per cent. had been paid out
of capital and out of depositors' money, and that there
really was no reservefund -of 10,0001. in existence. The
directors, manager, solicitor, and chairman had bor-
rowed very large sums of the bank—over from 40,0001. to
71,000/., 'which in the aggregate exceeded the paid.ap
capital, an d which the parties well knew they were unable
to pay. And yet these were all treated as available assets,
as were the bad debts due from Mr Oliver, of Liverpool, and
from the holders of Welsh mines. It could not be doubted
that at the time this report was issued they had lost so
much that they could not go on without this additional
capital, and that there was a scheme on the part of the di-
rectors to is duce new shareholders to come in. They must
have know• a that if a fair and honest statement had been
made not a single penny of the new capital of 300,0001.
would hay a been subscribed. To obtain this capital it was
necessary to misrepresent the affairs of the bank .Mr.
Booth, af' ;er per using this circular, applied for Biz new
shares, ar Lij had them allotted to him on March 17, paying a