Instructions
Heal your party before you speak to the teacher. Ignore his request to have a seat and talk to the children first. Turn back to Mr. Swinedimple and converse with him. He finds your disobedience to be quite upsetting, and you can now watch in horror as he transforms into the Dreadmaster.
Weaken Dreadmaster's defenses with the "Sap" spell. Follow up by smashing him with your weapons while using offensive black magic to supplement the attack. Let your healers divide their focus between attacking the Dreadmaster and restoring party health.
Continue with your strategy, attacking with weapons and offensive spells while your healer maintains your hit point levels. Recast "Sap" if need be to keep Dreadmaster weakened. Once he is defeated he regresses to his original form. Sir Sternivus Swinedimple is remorseful, and realizes that turning into a giant monster and terrorizing children is truly inappropriate behavior.