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As the other guests go to dinner, Sir Robert and Mrs. Cheveley return to the Octagon room. Shifting their conversation to more practical subjects, Mrs. Cheveley raises the issue of an Argentine Canal scheme, a development fiasco in which she has heavily invested on the advice of their mutual friend: the recently deceased Baron Arnheim. Sir Robert is about to deliver the report of his special investigative commission to the House of Commons unmasking the affair; Mrs. Cheveley insists that he must not only withdraw the report but lend his support to the scheme as well or suffer the consequences. Mrs. Cheveley is blackmailing him.
Mrs. Cheveley's power over Sir Robert is her knowledge of the secret of his fortune's origins. As a young secretary, Sir Robert sold a Cabinet secret to Arnheim that enabled him to invest in the Suez Canal before the government announced its own purchase; Mrs. Cheveley holds the incriminating letter in her possession. Thus, after a few hopeless attempts at resistance, Sir Robert agrees to exchange his support for the piece of evidence.
Sir Robert then exits, and the guests return. Mrs. Cheveley triumphantly announces to Lady Chiltern that she has succeeded in winning her husband's support for the canal scheme; moreover, she and Sir Robert share a secret together. Sir Robert arrives and announces Mrs. Cheveley's carriage, and the latter then sails out on his arm.
In the following exchange, Mabel Chiltern, bantering with Lord Goring, comes upon a diamond brooch—shaped like a snake with a ruby on its head—on the sofa. Enigmatically, Goring insists that it is also a bracelet. Coolly he takes the brooch, puts it in a green letter case, and replaces the case in his breast pocket. He then asks Mabel to keep his possession of the brooch secret and inform him if anyone comes to claim it. Apparently, he gave it to someone many years ago.
Once all the guests have exited, Lady Chiltern confronts Sir Robert on the topic of the canal scheme. Though Sir Robert ambiguously protests he has only made a politically necessary compromise, Lady Chiltern demands that he write to Mrs. Cheveley, withdraw his support, and never see her again. She implores him to remain her ideal husband or else confess any secret disgraces from his past so that they may begin to drift apart. Unable to confess his crime, Sir Robert complies, and the two declare their love for each other. Lady Chiltern exits; Sir Robert commands Mason to put out the lights, leaving the chandelier illuminating the "Triumph of Love" in the background.
The second half of Act I introduces the play's primary theme—that of marriage—distributing a number of commentaries on married life among its various characters. We will begin with its heroes: the Chilterns.
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