Nicholas’ resolve to restrain his emotions crumbles as he sees Madeline on a regular basis. He enjoys indulging fantasies about her.
The Nickleby family lives in relative peace, except for the proceedings in which Mr. Snawley is trying to reclaim his son. Smike’s health begins to break under the stress, which alarms everyone. Nicholas has him see a physician, fearing Smike may have a common disease that is a death sentence. The physician’s findings are inconclusive. Smike’s health had been compromised in his childhood, and his weak health may be due to that and not the disease.
Smike doesn’t get worse, and Nicholas hopes this means he’ll get better. Nicholas would often reflect on these times years later, remembering how Smike would seem so happy to be in Kate’s company.
Nicholas has risen in the esteem of the Cheerybles by handling the trust they gave him with discretion. They start bestowing much-needed items, which makes the Nickleby’s home more comfortable. They also visit regularly, particularly Frank Cheeryble.
Mrs. Nickleby notices how attentive Frank is to her, but doesn’t notice how attentive he is to Kate. She plans to tell him he should marry a full blooded Englishwoman. She doesn’t like it when English blood is muddied with the blood of foreigners. Kate tries to talk her out of this comment.
Miss La Creevy calls on them, saying he saw Mr. Linkinwater and Frank Cheeryble on the road. Smike has went up to his room, and Mrs. Nickleby comments how he always does this when Frank Cheeryble visits. She fears his habit of moping will turn him into a ghost.
Frank and Tim arrive. Kate is flustered and quiet around Frank Cheeryble. She seems to lose her appetite.
During the party, the Nickleby’s neighbor comes down the chimney. Kate tells the company that the neighbor is a madman. Mrs. Nickleby reprimands her daughter for saying such an untrue thing. The man is labled mad by those who desire his property.
The neighbor kisses Miss La Creevy. Mrs. Nickleby believes he has mistaken La Creevy for her. He then rushes up to Mrs. Nickleby, doing a strange dance. She faints. Kate begs the men to take the neighbor away. Mrs. Nickleby feels bad that disappointment in not having her has caused the neighbor to lose his mind.
Frank and Tim leave. Nicholas comes home. He asks Smike why he removes himself from the company. Smike promises to tell him one day.