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"Foul Blood" is a special ability of the boss Azkaal, which can be used at the end of the second mission (similar to "Berserk" from previous installments in the series).
There are several options for upgrades: to reduce losses, take "Reinforcement," as well as "Restoration" from Earth magic or "Drain" from Dark magic (or you can take both – or even study Fire magic to enhance the attacking potential of creatures).