Through a hole in the wall, Jim can see Long John Silver and another pirate holding a white flag, which signals a truce.
Captain Smollett thinks it's a trick, so he asks the two men what they want.
The second man says that "Cap'n Silver" wants to make terms for a truce.
Captain Smollett refuses to acknowledge Long John Silver under the title "Captain" – he's just a pirate and a ship's cook.
Long John Silver struggles up the hill to the fort, where he meets Captain Smollett standing out front.
Long John Silver explains that he's there to discuss the terms of surrender once and only once. He admits that Captain Smollett and his group got the drop on the pirates the night before, but it won't happen again.
Even though Captain Smollett doesn't show it, he has no idea what Long John Silver is talking about.
But Jim does – he realizes that Ben Gunn must have snuck down to the beach when all the pirates were drunk and killed one of them. So there are only 14 pirates left.
What Long John Silver wants is the treasure. He knows they have the map.
Long John Silver says he never intended to hurt them, anyway.
Captain Smollett replies, "We know exactly what you meant to do" (20.30), and now you can't do it.
Long John Silver thinks Abraham Gray has told them about the pirates' plans.
Captain Smollett says no, and that he (Captain Smollett) would never ask a man to rat anyone out like that – it's not honest.
Long John Silver seems impressed by Captain Smollett's moral code. So they both settle down and smoke their pipes.
Long John Silver offers these terms: if they give the pirates the map and stop shooting at them, the pirates will offer them a choice.
Either Captain Smollett and his friends can sail off on the Hispaniola, to be put somewhere safe ashore, or the pirates will agree to divide their supplies and leave them safely on the island.
Long John Silver also specifies that this offer is open to any of the men in the fort.
Captain Smollett asks if that's all Long John Silver has to say.
Long John Silver replies that, if Captain Smollett doesn't agree to this offer, then it's open season between the pirates and Captain Smollett's group.
Captain Smollett makes this counter-offer: if the pirates come one by one, unarmed, to surrender, Captain Smollett will chain them up in the ship and take them back to England for a trial. Otherwise, the pirates are screwed: they don't have the treasure map, and none of them have the skill to sail the ship without help.
Long John Silver looks absolutely furious.
He clambers up with difficulty and spits in the sand.
He says that, before the hour is up, the pirates will destroy their little fort, and then they'll see who's laughing.
Long John Silver goes back to the bottom of the hill where his comrade is waiting and they disappear into the trees.