I've had characters fall and then restarted the chapter they fall in, but I noticed that when you beat the first part of the game (getting Lyn to her grandfather) that they have like a ranking or something and they actually tally how many times you've lost a certain character, even when you've reset to start that chapter over. Does this mean that all my efforts in keeping all my team alive are wasted?
Also, with Merlinus, you can trade all of your weopons & items to him by selecting I think "give all" or "trade all" with each character from the roster screen. Then I select the character's I choose to take into battle that chapter and then go to trade with merlinus and get each character's gear together for the battle...that way characters that aren't in battle that chapter can have their weopons/items available to characters who ARE in battle...in case you're low on supplies that is.
Once your merchant is deployed you don't have as much freedom in trading items with him before a chapter starts. You have to be standing next to his tent and forfit a turn to trade with him. But it's conveiniant to have him on the feild 'cos if you have a character who's got alot of items already they allow you to somehow give extra ones that you win, find, trade or buy along the way to Merlinus. So let's say your paladin (who should be loaded with weopons as he can use all sorts of them) doesn't have any spaces left for items/weopons defeats someone who leaves behind a rare weopon...it can be transfered to your merchant right on the spot without losing it.