We find Merton back at Lancaster Gate (in London) talking to Kate. It sounds like it's been two weeks since he tried to make any kind of contact with Milly. Merton says he's doing it in order not to look too desperate to see Milly, now that there's a suspicion of him wanting her money.
We find out that Merton was invited to Lancaster Gate upon his return to London. But Kate had sent him a separate note from Mrs. Lowder asking him to come fifteen minutes early so they'd get some alone time.
Merton hasn't been getting any letters, but Kate and Aunt Maud have. Merton asks if Milly is still alive, to which Kate answers, "Don't you know?" (18.104.22.168). It turns out that Milly is now dying and that Sir Luke Strett has gone to see her through to the end.
Merton then wants to know what the deal was with Lord Mark's visit and why in the world Lord Mark would have known about Merton's engagement to Kate. He more or less accuses Kate of telling Lord Mark. He adds that Lord Mark's visit is what has put Milly on her deathbed. Kate is shocked and devastated to hear this.
Kate wants to know why Merton didn't deny their relationship to Milly. He argues that he should have never been put in that position to begin with. It's not his job to lie. Good point, Mert.
Kate wants to know why Merton can't tell one innocent little lie to save a girl's life. The rest of us might be starting to wonder the same thing. Merton says he would never lie about something so important to him. Besides, he's pretty sure it wouldn't do any good. A terminal illness is still a terminal illness.
Merton mentions that he went to see Milly only one more time after Lord Mark's visit. In other words, he had the chance to deny Lord Mark's story and didn't. Merton says that if he had ever denied his love for Kate, he would have stuck to it. In other words, he won't make a liar of himself.
Kate then accuses him of truly falling in love with Milly. Merton argues that she's a dying woman, so why should it matter?
Kate goes on to say that all Milly wanted from Merton was a lie. She never would have believed his story about not loving Kate. All she wanted to know was that Merton loved her enough to lie to her. This spin on things really makes Merton feel bad.
At this point, Aunt Maud announces she'll come in with some tea. Merton wonders if he should back away from Kate, but Kate says it's fine.
One thing that Kate wants to know is why, after rejecting Merton for days, Milly decided to bring him back to her. Merton replies that it was the presence of Sir Luke Strett.
They decide at this point that all is well, since Milly will die having known love and having felt loved, even if it was by a guy who loved someone else, too.
In this sense, Kate says, their plan hasn't failed. Milly, she insists, won't have loved Merton for nothing. We're not clear on what this means, but then again, we're reading a Henry James novel. Not knowing things is what reading Mr. James is all about.