[RPG] The PC claims to know an NPC they just met, how should I react as the DM

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My friends and I are new to RP and we've only had one session of dnd-5e trying out the starter set. As we are quite into fantasy in general, we thought we could make our own PCs. So instead of playing the premade characters, they all created their own, complete with traits, quirks and rich background stories.

One of the players has created a rogue with an exciting and very rich background, in which the rogue is a smuggler on board a ship, owned and tied in with a larger smuggling ring of sorts. Plenty of room for me as the DM to explore and include in the setting later on. Obviously, such a person has a large network, and knows a guy in every large town or city.

In Phandalin (as described in the starter set campaign) there are quite a few NPCs. When the group of PCs stands outside Lionshield Coster managed by Linene Graywind, the player with the rogue PC convinces his party that he should do the bartering, and claims outright "I know that woman through my smuggling ring". He did, at first, haggle on behalf of the group – they had some loot they wanted to sell – but he had an ulterior motive: He asked Linene (the NPC) when he would receive some diamond from their mutual smuggler superior. I went along with it and the PC and NPC had a quick conversation about it. It is not really an issue at this point, though some of the other players though it strange that he suddently could decide such things. It did, however, get me thinking:

Who should decide who knows who? What if players claim that their PCs are familiar or friends with an NPC that I, as the DM, planned to be a major antagonist to them? I know I could just let them know each other and create tension that way, but sometimes I figure it will difficult to justify such sudden friendships. The vampire who has been asleep for centuries.. "Hey, I know that guy!"
How can I say "No, you don't know that NPC", without saying no directly?

Best Answer

It's up to you

There are two play styles (with regard to this question at least), with their own drawbacks and advantages.

The first is to keep the realms of the world (DM) and the player characters strictly separate. I use the term "Golden Box" to describe this. In Golden Box gameplay, the players cannot define anything about the world, including who an NPC does or does not know - that is in the purview of the DM. Similarly, the DM cannot define background for the player character.

The advantages to this method include not having to deal with this sort of question. The player only knows the NPC if you, the DM, say they do. The player can argue for it, usually backed up with a background, but in the end it's up to you.

The disadvantage to this is that there is very little flexibility, and the players can feel like they have very little agency over the game.

The second playstyle, which I will not name since the only name I know it by lacks general context, allows anyone to define anything, and it is only addressed if there is an issue or will be an issue if left unchecked.

The advantage to this kind of play is that the players usually have a lot more buy-in - they have created parts of the world. In situations where this is taken to its logical end, the players define the world, the npcs, and to an extent the antagonists. This can be a very satisfying way to play.

The disadvantage of this is primarily it gives 'that guy' a free pass for a long time (to wreck your plot), and it can make a game feel directionless.

These are extremes. You usually mix them when playing a game.

I would recommend, in your situation, that you tend towards the first. When the player declares something about the setting that gives them an advantage, have them justify it, or if the situation allows, to roll for it. Don't be afraid to say No, especially if the declaration the player makes is problematic.