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Lord Montbarry breaks off his engagement to Agnes Lockwood to marry the Countess Narona. The couple ends a continental tour in Venice where they live reclusively in a large, decaying palace. They are accompanied by Baron Rivar, brother of the Countess, and by Ferrari, their courier. 

Agnes learns from Montbarry's brother, Henry Westwick, that Mountbarry, whose life was insured for £10,000 in favor of his wife, has died of bronchitis. The courier has disappeared without trace although Ferrari's wife receives an anonymous note containing £1,000. The insurance companies carefully investigate but find no evidence that Mountbarry died other than by natural causes. 

The palace is refurbished as a fashionable hotel, and the Westwick family arranges to meet there. Without realizing that they are sleeping in the room where Montbarry died, three of his family separately experience insomnia, nightmares or nauseous smells. Agnes awakes in the night to see a disembodied head descending from the ceiling. A real head is discovered the next day decomposing in a secret compartment in the room above. Henry finds a set of gold false teeth which are later confirmed as Montbarry's by his dentist. 

The Countess has also come to Venice, compelled by Destiny. She writes a ghost story in the form of a play which is in effect a confession of Montbarry's murder by herself and the Baron. Ferrari, dying of bronchitis, had agreed to assume the identity of Montbarry to perpetrate an insurance fraud in exchange for the £1,000 sent to his wife. Montbarry's body was disposed of by acid but the head hidden in the secret compartment. Agnes and Henry return to England and are married privately. They never discuss details of the confession.

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