Saiko,
Thanks, I completely missed the cage. It could have done with a quest objective circle around it at least
.
Secondly, I've just confirmed your first observations - that an Officer's Patent is required for the turn in to Arian. He then "defiles" it and what you're left with is one that can be used with all the trophies you currently have, as always, but without the ability to earn more.
My opinion that last is a bug Katauri should fix since they are advertising this as another quest, and it does in a way break what you're intended to do afterward - save up more trophies for Demon upgrades.
It should either be that you are limited to demon upgrades only after signing it but can still earn trophies, or just provide the added bonus of demons when completing the quest as a reward, perhaps as Arian the only one who can upgrade them (if you really feel the need to be restrictive - people likely aren't going to use it if you are).
I'll update the OP now.