The next morning, itinerant quack Dr. Terminus and his assistant Hoagy arrive and win over the gullible townspeople, who were initially angered by their return (“Passamaquoddy”). Lampie and Hoagy go to prove whether or not Elliot is real or not, but despite interacting with him for some time, they still cannot get anyone to believe he exists. The next day the local fishermen complain about the scarcity of fish and believe it's Pete's fault. Nora tells them the fishing grounds shift from time to time and Pete should be welcomed into town. She takes him to start school, where the teacher, Miss Taylor, punishes him unfairly for Elliott's antics. An enraged Elliott smashes into the schoolhouse, leaving his shape in the wall, as Pete runs off. Pete turns down Dr. Terminus' offer for Elliott but accepts Nora and Lampie's invitation to live with them permanently. When the Gogans come to town to demand him back, Nora refuses to hand him over. As the Gogans attempt to chase them in a small boat, Elliott "torpedoes" it, saving Pete ("Bill of Sale"). Dr. Terminus teams up with the Gogans to capture both Pete and Elliott. He also convinces the superstitious locals that helping him capture Elliott will solve their problems.