- Betteredge and Franklin sit down by the ocean to talk.
- Betteredge is surprised by Franklin's appearance: he's good-looking, but kind of short, and has a kind of foreign look to him.
- But that's probably because he was educated in Europe and has been living there.
- He tells Betteredge that he came early because he was trying to shake off an Indian man who has been following him for the last few days.
- Betteredge wonders if this might somehow be connected to the three Indian jugglers, or entertainers, who were at the house earlier.
- He tells Franklin all about it, including what Penelope overheard.
- Franklin takes it more seriously than Betteredge did, because he knows that "It" meant the Indian diamond – the Moonstone.
- John Herncastle died recently, and left the diamond to his niece, Rachel, in his will.
- Franklin's father, Mr. Blake, was supposed to pass the diamond on to Rachel since he was the executor of the will, and he asked his son Franklin to do it.
- Betteredge is surprised by this – he's heard plenty about Colonel Herncastle, his employer's no-good brother, and he's suspicious of the diamond.
- He tells Franklin about the bad blood between Lady Verinder and her brother, John Herncastle.
- After Herncastle got back from India, he had a bad reputation, and Lady Verinder refused to see him or talk to him.
- Herncastle tried a few times to get her to acknowledge him, but she always refused to see him.
- Even when Herncastle showed up once during Rachel's birthday party, Lady Verinder refused to let him join the family.
- Herncastle wasn't happy about it, and said that he "would remember his niece's birthday."
- So now Betteredge is afraid that somehow, the gift of the diamond to Rachel is Herncastle's way of getting revenge on his sister, Lady Verinder, for refusing to see him.
- After all, maybe a group of Indians was working to get the diamond back, and maybe Herncastle knew about it.