Fearing a reverse at Lima, on the approach of the Spanish troops under General Cantarac, the treasures belonging to the government, as well as the property of many individuals, had been sent down to Ancon and embarked, not on board the Chilean frigate Lautaro, then at anchor in that port, but in several merchant vessels, to prevent them falling into the hands of the enemy. On the fifteenth of September Lord Cochrane received a letter from Captain Delano, who commanded the Lautaro, informing him that the state of insubordination in the remains of the crew of the Lautaro had risen to a very high pitch; for they observed the daily embarkation of money in the different merchant vessels, and this indicated, as they supposed, the jeopardy in which San Martin was placed with the army; that they saw no probability their arrears would ever be paid; that should the enemy be successful they would be constrained to continue in the service, under a prolongation of the sufferings they had already experienced; and that on this account he dreaded a mutiny, and consequent plunder of the vessels in the bay.
On hearing this Lord Cochrane went down to Ancon in the O'Higgins, and personally, before witnesses, sent on board the flag ship all the treasures found on board the different vessels, belonging apparently to the state of Peru, leaving all such as had been embarked by individuals, having the customary documents, and for which his lordship took the necessary certificates to prove that such sums had remained untouched. His lordship at the same time informed such persons as claimed any property, and many others at Ancon, that his only object was to possess himself of such money or treasures as belonged to the government of Peru; and that whatever belonged to private individuals should be restored, on application being made by the owners; as was the case with Dr. Unanue, Don Juan Aguero, Don Manuel Silva, Don Manuel Primo, and several others. After having given up all the claimed money, two hundred and eighty-five thousand dollars remained on board the flag ship. They were immediately applied to the payment of one year's arrears to every individual excepting the Admiral, who declined receiving any part of what was due to him; the surplus was reserved for the repairs of the squadron, and its equipment, and the most rigid account was kept of the several disbursements, and given in to the Chilean government.
After the return of his lordship to Callao, a long correspondence took place with San Martin respecting the property taken at Ancon. The General requested, and entreated in the most urgent terms the restoration of the treasure, promised the faithful fulfilment of all his former engagements, and that the return of this money was merely insisted on to save the credit of the government. The Admiral answered, that the means for the fulfilment of his engagements were now ready, and that by sending a commissioned officer on board to be a witness to the proper distribution; that this being public would certainly save the credit of the government with those individuals to whom it was most indebted, and that the landing of the money would only be an increase of labour, because the persons to whom it was due were not on shore.
San Martin then asserted, that the money taken at Ancon was all that the government was in possession of, for the most indispensable daily expenses; but to this his lordship replied, that had he known that the treasure placed on board the schooner Sacramento, for the admission of which, in silver, the captain asserted that he had to throw overboard part of his ballast, besides seven surrones (bags made of hide) of doubloons, and a quantity of brute gold, was not the property of the government but of his excellency, he should certainly have seized it, and retained it until properly claimed. San Martin, after availing himself of every possible argument with the Admiral, addressed a proclamation to the seamen and marines, which by his lordship's order was distributed on board the vessels of war; but producing no favourable effect, the Protector, knowing that the payments had begun, wrote to the Admiral, saying that "he might employ the money as he thought most proper."
After the departure of Cantarac from Callao on the seventeenth, Lord Cochrane was informed of the state of the batteries, and proposed to the Governor General La Mar terms of capitulation; they were, that the fortifications of Callao should be surrendered to the Chilean flag; that one third of the private property in the batteries should be given up, for the purpose of paying the arrears of the crews of the Chilean vessels of war; that the owners should be allowed to leave the batteries with the remainder, and that at their own expense vessels should be procured to carry them either to Europe or to any other place.
When these terms were on the point of being acceded to, the Protector (who had also been negociating with the governor) was informed of the terms offered by the Admiral; and on the morning of the twentieth Colonel Guido was commissioned to accede to such as General La Mar should propose, which were naturally the most honourable and most profitable to the Spaniards. At ten o'clock on the morning of the twenty-first the American troops entered the castles, and the Peruvian flag was hoisted. On the same day the name of the Real Felipe was changed into that of Castilla de la Independencia; that of San Miguel, into Castillo del Sol; and that of San Rafael into Castillo de Santa Rosa.
Although the tribunals of purification, established by General Carátalá in Upper Peru, and in Chile by the President Marco, had been so oppressive, and had been so reprobated as unjust and tyrannical by the Americans, one was established in Lima by San Martin on the twenty-seventh of September, for the purpose of examining the past conduct of the Spaniards, who relying on the promises repeatedly made by San Martin, had remained in Peru, and taken the oath of independence. This proceeding was aggravated on the twenty-seventh by a proclamation, stating that "no Spaniard should leave his house, under any pretence whatever, after sunset (oraciones) under the penalty of confiscation of his property, and exile from the country:" some few exceptions however were added to this protectoral decree.
The foreign seamen who were all paid at Callao, except the crew of the Valdivia, who deserted their ship at Ancon, preferring a reliance on the promises of San Martin to the certainty of being paid out of the money taken for this purpose, were allowed to go on shore, and after waiting for a few days his lordship sent Lieutenant Wynter to engage such as were willing to continue in the service of Chile, when, to the utter astonishment of every one, he was arrested by the order of San Martin, and sent to the castle, but owing to the energetic official communication of the Admiral he was liberated on the following day.
The same persevering spirit to destroy the Chilean squadron was still visible in the conduct of the Protector of Peru. Every officer who abandoned the vessels of war was received under the flag of Peru, and many were promoted, amounting in the whole to sixteen, being four captains, three lieutenants, two masters, three pursers, two officers of marines, and two surgeons; besides the captains of the Valdivia and Galvarino, with five officers belonging to the former. The seamen who had been paid were allured to remain on shore, in hopes of the year's pay as a premium; and when an officer from the very vessels of war whose co-operation had placed San Martin at the head of the Peruvian government went ashore for the purpose of recruiting foreign seamen for the future operations of the squadron, against the two Spanish frigates still in the Pacific, he was incarcerated. But the most infamous transaction that can possibly blacken the character of a ruler took place on the night of the twenty-sixth.
At midnight Lord Cochrane was informed that Colonel Paroissien and Captain Spry had been on board the brig of war, Galvarino, and shortly afterwards Captain Simpson of the Araucano came on board the flag ship, and delivered to his lordship the paper which he had received from these two honourable gentlemen; stating, that the squadron of Chile was under the command of the General in chief, and not under that of the Admiral, who was an inferior officer in the service; and that, consequently, it was the duty of the captains and commanders to obey the orders they might receive from San Martin. After leaving the Araucano, the two edecanes, military and naval, went on board the Valdivia, where they found Captain Crosbie of the flag ship, on a visit to Captain Cobbett of the Valdivia.