At the beginning of day 2, go to the Library. Save before you go in so that you can reload if you fail.
Jacob is reading a book, and asks you to play along. I can't remember the exact choices, but I stayed away from "axing" anything. I used magic across the chasm, I joked with the minotaur, and I talked with the goblins. When I reached the boss, I pulled a hamster out of my pocket (which you find out about from the goblins).
If you win the story, this pops.