Quote from: JoelKatz on October 23, 2012, 04:16:40 AM

Quote from: memvola on October 19, 2012, 11:00:35 AM

I would need to see an analogous case and then agree with it, I can't imagine one myself. Anything can be a common mistake. For instance, I don't believe that there is a "common mistake" in my example, the borrower is just being an asshole. A lender is not a partner. You're not at fault if I tricked you.

If both sides have a mutual misunderstanding that causes the contract to misallocate costs or risks, fairness requires that the misallocation be corrected unless the contract shows an intent to allocate the risk. Not all legal systems recognize a concept of "equitable mistake", but I don't think there's any serious disagreement that it's equitable.

A classic example would be two parties who each believe that a ship sunk in a particular place and negotiate a fixed-cost contract to retrieve the ship for a specified fee. If it turns out the ship was elsewhere and is therefore much more expensive to recover, fairness requires the fee be adjusted appropriately. This, of course, only applies if the party seeking the re-adjustment is not comparatively more at fault for the incorrect information. It also only applies if the contract doesn't show an intent to allocate the risk that the information was incorrect to the party being paid to recover the ship.

This situation is analogous. Both parties incorrectly (arguably, equally negligently) believed Starfish's high-interest loan model was sound. There's no evidence in the contract that the risk that the business model was fundamentally unsound was intended to be allocated to Patrick. So the contract cannot equitably be enforced as drafted because a situation not foreseen by the contract came to be. The risk of the unsound business model has to be allocated among the parties somehow, the contract doesn't specify how to allocate it, equity demands it be split.

Again, not all legal systems recognize a doctrine of equitable mistake. Some will insist a contract be enforced as written even if a risk that contract fails to allocate (due to a common mistake of fact shared by both partied to the contract and forming part of the basis of the actual "mental" agreement) materializes unless that makes complying with the contract impossible. But there are very few people who think this is actually fair.

I do not quite agree with the contract being risk neutral. The contract implicitly allocates the risk on Patrick's side by promising only a fixed and capped rate. In the opposite event of this business going better than expected there'd be no doubt the excess goes to Patrick for the risk taken.

Now for Kraken, this argument might hold better.