Other mistake: The kids need sunglasses to be in daylight, since they have been segregated into the darkness of the sewers for so long. For the happy ending though, only the first one has a moment (very brief, considering that Frog still needed them at Bruce's) of squinting, eye-rubbing and discomfort. The others are instantly fine already the moment they are pulled out of the manhole. (00:21:35)
Other mistake: Batman sees the robbery happen, but he has yet to start his chase when the rotund old lady is deep into discussion with the policeman. (00:03:00)
Answer: Because he stole a chemical from his lab.
But Batman knew that with it, Clayface could permanently retain his shape and Clayface desperately wanted to be Matt Hagen again. In a sense, Batman stopped Clayface from becoming human.