Answer: I would contend that the right answer is actually the E) Ungrammatical.
Explanation: Just to elaborate a little on the answer, it can be added that this is an example of a dangling modifier—specifically the phrase "while talking on the phone"—and it needs to be revised. Who was talking on the phone? A modifier is meant to clarify or to give more detail about an idea or an action, but it becomes a dangling modifier when, as it has happened here, the doer of the action that it expresses has not been clearly stated. As a result, it seems that the dog, the subject in the main phrase that follows, was the one talking on the phone. A possible revision could be: "While he was talking on the phone, Peter's dog spilled his water dish."
In 1906 Gandhi introduced the term "satyagraha," which means "insistence in the truth," "soul force" or "truth force." He used the word to refer to the systematic and strategic civil struggle, resistance and disobedience, with moral and political purposes, and with a spiritual aspect.