Ralph and Arthur go to Arthur’s house, where Arthur’s servant Peg is missing. Arthur discovers that Peg has stolen important papers and deeds, ruining him financially. Ralph urges Arthur to notify the police, but Arthur says that he can’t, implying that he’ll be arrested if the papers come to light.

Ralph returns to his office and sends for Mr. Squeers. When Mr. Squeers arrives, it emerges that Ralph paid Mr. Snawley to pretend to be Smike’s father: Both Squeers and Ralph wanted to kidnap Smike to get back at Nicholas. Ralph points out that Mr. Squeers is in no danger if the plan is revealed, as he has only testified to actual events—e.g., Smike’s presence at his school. It is also revealed that one of Arthur’s stolen papers is a deed to a lavish house that Madeline stands to inherit. Ralph wonders if Nicholas helped Peg steal the deeds. Ralph employs Mr. Squeers’s help to track down the deed and burn it in front of Nicholas, assuming Nicholas is interested in Madeline for her inheritance.