You need to stand on the blue flame with Galeoth, just as you need to stand on the fire with Phodom and on the lightning with Fradz.
Where can I find the Black Merchant on ch. 7? I found it in my previous playthrough, but I've been patrolling the big market and the small market with my heroes for a long time now and no sign of him. I'ts the last thing I need for the chapter and, yes, it's night time.