Billy Budd loves his job as foretopman, working with the other young men, but with plenty of free time to relax high up on the masts and look down on the decks below. He is keen to do his duty: when he first arrived, he saw a sailor get whipped for a minor offense, and the sight made him eager to avoid even tiny infractions of ship rules. But despite his eagerness, nothing he does seems perfect. He is often receiving harsh rebukes for minor infractions from Claggart's corporals.
Billy befriends one of the older sailors, known as the Dansker. This older sailor previously served under Nelson aboard the H.M.S. Agamemnon, and during previous service he has acquired some impressive scars. The Dansker is the one who bestows Billy's nickname upon him: "Baby Budd." The Dansker and Billy have a great deal of affection for each other, and Billy shares his concerns with the old veteran. The Dansker warns Billy that old "Jemmy Legs" (Claggart) is "down on" Billy. Billy is perplexed; Claggart always has a kind word for him when he passes. The Dansker insists that these kind words come also because Claggart is down on him.
Billy is incredulous, and he believes his disbelief is vindicated when he spills his soup in Claggart's presence. Claggart laughs off the incident, using his rattan to tap Billy from behind, and moves on. But Billy does not see Claggart's expression as the master-at-arms walks away. Claggart's face becomes terrifying, closer to his true feelings, and the expression frightens a drummer boy who bumps into him in the hall.
The Dansker takes to Billy for reasons not altogether made clear by the author. In part, he seems worried about what will befall a man as innocent as Billy: his face is marked by "a speculative query as to what might eventually befall a nature like that" (319). Billy, because of his wholesomeness, appeals to the old man. Any worry on the Dansker's part, however, is abstract. We will see later that he does not interfere in any events, or even give advice. For Billy's part, he looks up to the Dansker as a grizzled old veteran, with stories and experience to share.
Melville makes their friendship one of opposites: Billy's wholesome, innocent nature is juxtaposed to the more cynical and world-wise character of the Dansker. The juxtaposition is physical, also: the Dansker is marked by experience, literally, in the scars on his face, which make a sharp contrast to the unmarked and perfect skin of Billy Budd.
The Dansker is a somewhat mysterious character. Melville does not make clear why he likes Billy so much, or why exactly he bestows on Billy the nickname of "Baby." But he seems to know instinctively why Billy has become a target of Claggart's officers. Claggart is "down on" Billy. Arguably, the Dansker diagnoses Claggart's feelings for Billy as sexual, although the old sailor keeps his opinions hidden. He says that the officers harass Billy because Claggart is "down on" him:
"Jemmy Legs!" ejaculated Billy, his welkin eyes expanding. "What for? Why, he calls me the sweet and pleasant young fellow,' they tell me."
"Does he so?" grinned the grizzled one; then said, "Ay, Baby lad, a sweet voice has Jemmy Legs."
"No, not always. But to me he has. I seldom pass him but there comes a pleasant word."
"And that's because he's down upon you, Baby Budd." (321)
The passage implies a sexual attraction by Claggart for Billy. The Dansker is nearly teasing Billy with what he doesn't understand: Jemmy Legs has a "sweet voice," to Billy at least. The cause of the antagonism and the cause of the sweet voice, according to the Dansker, are one and the same. The Dansker rolls the whole situation into one ambiguous phrase: Claggart is "down on" Billy. And we see more of Billy's innocence: he just doesn't have any idea what the Dansker is talking about.
Chapter 10 is the infamous "spilled soup" chapter, which further establishes the sexual nature of Claggart's feelings for Billy. As Claggart passes by the mess room, the "greasy liquid streamed just across his path" (321). Claggart, instead of reprimanding Billy, turns the situation into a kind of grim joke that Baby Budd doesn't seem to understand. He taps Billy from behind with his rattan, pointing down to the "streaming" soup, and says "Handsomely done, my lad! And handsome is as handsome did it, too!" (322). Melville is none-too-subtly suggesting ejaculation. In case we didn't get it, the narrator tells us that Claggart was about to "ejaculate something hasty at the sailor" (319), the key word appropriate for the suggestive image Melville has just placed before us. Handsome Billy spills his soup, described as "greasy" and "streaming," across the path of Claggart, who taps Billy from behind with a stick and then compliments the boy's looks. His words to Billy are "equivocal," and only Claggart seems to understand the hidden implication of what he has said to Billy. The young sailor simply takes this light-heartedness as proof that the Dansker is mistaken.