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I ran into this sentence in a movie:

I knew we shouldn't trust him.

But I don't know if it's correct. I'm assuming it is, for the movie is american. But I'm used to seeing something like this rather than the sentence above:

I knew we shouldn't have trusted him.

Could someone please explain why the first sentence is correct?

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    If we shouldn't've trusted him in the past, it's likely true that we still shouldn't trust him. If you knew (or are willing to say you knew) at the time that he was untrustworthy, you can refer to that fact with I knew (then that) we shouldn't trust him (ever). Sep 20 '13 at 16:34
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They are both correct, and may be appropriate in slightly different contexts.

For example, if you thought he's not trustworthy, but made a deal with him anyway and got ripped off, it would make most sense to say, "I knew we shouldn't have trusted him", because you did trust him.

On the other hand, if you thought he's not trustworthy and then got confirmation of that before deciding whether to make the deal or not, then "I knew we shouldn't trust him" may make more sense, because you haven't trusted him yet--whether or not to trust him is still something you need to decide (presumably, you'll decide not to).

"I knew we shouldn't have trusted him" is definitely more common.

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