Miss Betsey still seems to be mulling over David's fate the next morning at breakfast, and David finds her attention alarming. Eventually, she tells David that she has written to Mr. Murdstone, but that she has not yet decided whether she will send him back to his stepfather. This depresses David, and when Miss Betsey suggests that he go and give her "compliments" to Mr. Dick, he jumps at the chance to please her. Before he can leave, however, his aunt explains that Mr. Dick's real name is Richard Babley, but that David must not use it, because Mr. Dick associates the name with "ill-use" he has endured.
Since David isn't yet familiar with his aunt's gruffness, he's understandably concerned by her demeanor and words in this scene. Even beyond that, his desperation to please her—and his hope that doing so will improve his chances of staying with her—stem from his cruel treatment at the Murdstones' hands. David has grown accustomed to the idea that he has to earn not only his keep but also his family's love.
David goes upstairs to Mr. Dick, whom he finds at work on what Miss Betsey has called "his Memorial." When he sees David, Mr. Dick remarks that "it's a mad world,' and then asks him whether he knows when Charles I was executed. David responds that it was in 1649, which leads Mr. Dick to wonder confusedly how "if it was so long ago," Charles I's "troubles" have been transferred from his head to Mr. Dick's. David is unsure how to respond, but Mr. Dick soon changes the subject and directs David's attention toward a kite in the room, which he promises they will fly together some time. He then explains that flying the kite is his way of "diffusing" facts that distract him (like those surrounding Charles I's death).
Although it's mostly played for laughs, Mr. Dick's "Memorial" functions as a shadow or parody of David's own memoir. David's memoir is at heart an attempt to uncover a coherent path from his childhood self to the man he is today. Mr. Dick's memoir, however, hints that David is attempting to impose order on something that is basically random and illogical. In particular, the fact that Mr. Dick can't keep Charles I out of his own memoir suggests that personal identity is not as rational and unified as a narrative like David's would tend to imply.
Returning downstairs, David relays Mr. Dick's compliments to Miss Betsey, who asks David what he thinks of him and—when David hesitates—says that David's "sister Betsey Trotwood" would speak directly. David tentatively asks whether Mr. Dick is insane, but Miss Betsey vehemently denies this, and explains that Mr. Dick's brother tried to shut him up permanently in an asylum for being "a little eccentric." This, she says, is how Mr. Dick came to live with her: she offered to care for him, and regards him as both a friendly and wise man. She acknowledges, however, that Mr. Dick's ill-treatment at his brother's hands, along with the ill-fated marriage of his favorite sister, caused him to develop a "fever" that he has not fully recovered from emotionally. According to Miss Betsey, Mr. Dick's obsession with Charles I is his "allegorical way" of talking about this.
Mr. Dick's background is another challenge to the idea that the Victorian home was always a place of refuge: Mr. Dick’s family not only mistreated him but ultimately abandoned him. Fortunately, he and Miss Betsey have formed a makeshift family of their own, but Mr. Dick's memories of his past abuse clearly continue to haunt him (regardless of whether Miss Betsey's theory about his "allegorical" use of Charles I are correct). In this way too, Mr. Dick serves as a kind of warning of what David could become if he allows his memories of the past to overtake him.
Miss Betsey then begins to discuss Mr. Dick's Memorial, which she says Charles I must be kept out of in case people misunderstood Mr. Dick's state of mind. As it turns out, Mr. Dick has been working on this memoir for ten years, because he cannot manage to write it without referring to Charles I. David suspects that his aunt is recounting all of this more for her own benefit than for David's. Nevertheless, the knowledge of Miss Betsey's fondness for Mr. Dick relieves some of his anxieties about his own future and makes him to feel kindly toward his aunt.
Mr. Dick's inability to finish the Memorial further emphasizes the "dangers" David needs to avoid in writing his own memoir: Mr. Dick is so bogged down in memories, and so unable to separate his own experiences from others' (specifically, Charles I's), that he never makes any progress on his narrative. Meanwhile, Miss Betsey's protectiveness of Mr. Dick reveals more of her softer and warmer side.
Over the next few days, David waits nervously for a response from Mr. Murdstone and tries to make himself "agreeable." Finally, Miss Betsey tells David that she has received a letter from Mr. Murdstone, and that he will be visiting them the next day, which throws David into a state of terror.
David's desperation to prove himself deserving of his aunt's help is understandable, given his experiences with the Murdstones: for the past few years, David hasn't had a guaranteed home or family to fall back on.
Late the next afternoon, Miss Murdstone arrives in front of the cottage on a donkey, and Miss Betsey tries to shoo her away even after David tells her who she is. Mr. Murdstone then arrives, and he, his sister, Miss Betsey, Janet, and the donkey's owner begin to struggle with one another. The owner eventually runs off, and Miss Betsey reenters the cottage without speaking to the Murdstones.
The altercation over the donkeys mostly serves as comic relief, but it also clearly hints that Miss Betsey and the Murdstones aren't going to get along. Miss Betsey's actions are also perhaps a reminder of how hard she has had to work, as a single woman, to be respected; her obsession with donkeys is comical, but her desire to protect her home and property, at a time when it was unusual for a woman to own either, is understandable.
When the Murdstones enter the room, David attempts to leave, but Miss Betsey insists that he stay. She and Miss Murdstone trade jabs over her policy on trespassing donkeys until Mr. Murdstone intervenes. Having confirmed his identity, Miss Betsey criticizes his decision to marry Clara, whom she describes as a "poor child." Miss Murdstone is visibly annoyed, but agrees with Miss Betsey's characterization of Clara, and agrees that the marriage should not have taken place.
Despite her outward disdain for women who marry (and women who are childish or weak), Miss Betsey clearly feels sympathy for Clara. Besides hinting at Miss Betsey's basic decency (Miss Murdstone, significantly, agrees that Clara was childish but feels no sympathy for her), this compassion presumably also reflects Miss Betsey's similarly disastrous marriage. In that sense, it's worth noting that despite being a considerably tougher woman than Clara, Miss Betsey was also a victim of her husband's abuse. The lack of legal protections for nineteenth-century women made virtually all wives vulnerable to mistreatment.
Miss Betsey sends for Mr. Dick, whom she introduces to the Murdstones. Mr. Murdstone then begins to describe the many problems David has caused him, as well as all the flaws in his character. He further explains that he feels obliged to warn Miss Betsey of this, and of what will happen if she "abets" David's attempts to evade Mr. Murdstone's plans for his improvement. In response, Miss Betsey wonders first whether Mr. Murdstone would have treated his own child similarly, and then whether he would treat David this way if Clara were alive. This prompts a discussion of Clara: although Miss Betsey irritably agrees with Mr. Murdstone that Clara would have supported him in anything, she expresses outrage over the fact that no provisions were made for David's inheritance before his mother's remarriage.
Although Mr. Murdstone clearly doesn't care about David's well-being or future prospects, the speech he gives about hoping that hard work will improve David is plausible from a Victorian point of view. Fortunately for David, Miss Betsey recognizes Murdstone's hypocrisy. This doesn’t mean, however, that Miss Betsey disagrees with the basic principles Mr. Murdstone is espousing. When asking about David's inheritance, for instance, she criticizes David's father for passing through life without ever giving any thought to his or his son's future. On the other hand, her displeasure with Clara's meekness is an implicit critique of Victorian norms (specifically, surrounding wifely submissiveness).
Mr. Murdstone says that he intends to take David back, and warns Miss Betsey that if she helps David now, he will not offer David any assistance going forward. Miss Betsey then asks Miss Murdstone and David whether they have anything to say: Miss Murdstone agrees with her brother, while David begs her not send him back to people who had treated both him and Clara so badly. Finally, Miss Betsey asks Mr. Dick what she ought to do with David, and Mr. Dick suggests having him measured for clothes (since David is, at this point, still wearing Mr. Dick's oversized things). Miss Betsey congratulates Mr. Dick for his "common sense" and then tells the Murdstones that they can leave, and that she doesn't believe anything they have said.
Although she seems to have already made up her mind about the Murdstones, Miss Betsey nevertheless consults and then appears to defer to Mr. Dick's opinion. This is one of the instances in which Miss Betsey and Mr. Dick's relationship functions like a kind of mock marriage.
The Murdstones, insulted, begin to object to what Miss Betsey has said, but she cuts them off, explaining that she can easily imagine how Mr. Murdstone must have seduced Clara only to "begin to break her, like a poor caged bird" after they married. This, she suggests, is what killed Clara, and it is partly Mr. Murdstone's guilt that causes him to dislike David so intensely. She then repeats that the Murdstones should leave, and threatens to "knock [Miss Murdstone's] bonnet off" if she ever rides by on a donkey again.
In suggesting that Mr. Murdstone's hatred of David stems in part from his "disagreeable remembrance" of how he used David to torment Clara, Miss Betsey draws attention to the ways in which memories can distort current relationships. This idea is central to the subplot surrounding Mr. Wickfield and his daughter, Agnes, which Dickens introduces in the very next chapter.
The Murdstones leave, and David embraces Miss Betsey, thanking her profusely. Miss Betsey announces to Mr. Dick that they will both act as guardians to David, whom she intends to call "Trotwood" from now on. They buy David a new set of clothes, so that by the end of the day he has a "new life, in a new name, and with everything new about [him]." His past at the counting-house already seems to lie behind a "curtain," and David writes that it is only with a "reluctant hand" that he has "raised that curtain" in this account of his life.
David's new nickname is the same as Miss Betsey's surname, and consequently marks him as her adoptive child (it's also another sign of Miss Betsey's unconventionality, since a child traditionally takes the father's last name). In fact, David is so immediately at home with his new family that his memories of the counting-house are already becoming indistinct. This is likely a good thing, given how traumatic David implies the memories are: even briefly reliving them through writing has been an upsetting experience.