You can trust them and they you. Their honour is the best surety of their behaviour even in misunderstandings... You cannot treat with the ruined, for they have no hostages for rectitude. With them there is no true friendship, and their agreements are not binding... since honour is the throne of rectitude.
Baltasar Gracián, 1647 (tr. Joseph Jacobs, 1892)
Contracts bind only people who can be damaged by breaking them. The term for that stake is honour: a reputation, a self-respect, a standing whose loss would hurt, hostages, in the sharp phrase of the original, for rectitude. Where the hostages exist, even disputes stay safe: an honourable counterparty in a genuine misunderstanding still acts with regard to what he is. Where they do not, no paper helps, because enforcement assumes something to seize, and the shameless have pre-emptively lost it. Hence the preference, startling at first: better a dispute with the honourable than a victory over the ruined, since the first resolves and the second merely begins.
Practice
- Before any significant dealing, locate the counterparty's hostages: what reputation, relationship, or standing do they visibly maintain and fear losing? No answer, no deal, at any offered price.
- Weight track record over paperwork: the lawyer perfects the contract, but the counterparty's history is the actual security.
- Maintain your own hostages deliberately; being known to have a name you protect is what makes the honourable willing to deal with you (maxim 97's founded reputation, working as collateral).
Use this when
- Use this on the unenforceable dealings above all, partnerships, informal loans, shared ventures, where the contract is a formality and the character is the contract.
- Use it when a deal's terms are suspiciously sweet; the discount often prices the counterparty's missing hostages.
Ignore this when
- Don't confuse ruined with poor or unlucky; the test is shame intact, not balance sheet intact, and some of the most hostage-rich people own least (maxim 40's contractor).
- Don't apply it to writing off persons entirely; it governs whom you bind your interests to, not whom you treat decently.
A picture of it
The transport contract had two bidders. One quoted higher and came with twenty years of the same clients, a name his father had started protecting before him, and a known horror of unpaid dues in his trade circle. The other quoted a fifth less and came with a history of dissolved firms and re-registered names, each collapse leaving creditors and no forwarding address. The factory's old purchase head chose the expensive bid with a sentence the new management later framed: we are not buying trucks, we are buying what he stands to lose. Three monsoons later, when routes flooded and every carrier in the region invoked force majeure, one contractor's lorries still ran. The hostages drove them.
Price the counterparty's downside, not just their quote. You are safest with people who can be ruined by ruining you.