As governor of a mock island, Sancho Panza faces a series of challenges, including a dispute over poorly made hats and a debate between a borrower and lender.
Though lacking formal education, Sancho demonstrates wisdom and fairness. He orders the tailor to lose his wages, the countryman to lose his cloth, and the caps to be donated to prisoners.
In the case of the loan, he chooses mercy and allows the man to pass freely, echoing Don Quixote's teachings about leaning towards mercy when justice is unclear. These decisions, informed by both pragmatism and Don Quixote's ideals, surprise everyone and reveal Sancho's hidden potential as a leader.