Phoney and the townspeople reach the Dragon's Stair, a pass high in the mountains. Phoney gets the townsfolk to set up a dragon trap as he prepares to flee with his ill-gotten gains, but the plan becomes more complicated when the Great Red Dragon deliberately walks into the trap, courtesy of Ted. The townspeople urge Phoney to kill the trussed-up dragon, but just as he is about to reluctantly bring the knife down, Thorn arrives and stops him. She points out the columns of smoke rising from the valley; in their absence, the town has been attacked and burned by Rat Creatures. Suddenly another pack of Rat Creatures encounters the party, so Phoney frees the dragon. Thorn, with the four Veni Yan monks fighting alongside her, drives the Rat Creatures away. She instructs the townsfolk to arm themselves and head back to the town; war against the Rat army and their allies has begun.