Near the fountain in Driftwood, you'll meet a beggar.
He's trying to panhandle using his "sick" dog. If you ask about what's actually wrong with the dog, the man will start acting erratically.
Examine the dog. You don't need the Pet Pal trait for that, but it will make things easier. It will turn out that the dog's collar is too tight and hurts the animal. As soon as the dog fathoms the gravity of its situation, it will run away.
Confront the beggar and tell him that you'll let on his cruelty to everyone. He will propose you take the money in exchange for keeping your mouth shut. You can choose how much money to take from him.
You can meet the dog again in Stonegarden.
Reward: 7000 experience points + gold