I still completely disagree with you Joel. It doesn't matter what Patrick's plans with the money was - he agreed to pay back at a certain rate for a certain period of time. He failed to do so. He broke the contract. That's all that matters.
It absolutely does matter when both parties to a contract assume a particular state of affairs and that neither party would have entered into the contract had they known that their common belief was incorrect. This principle is a very narrow one, but one required by equity. Quoting Lord Acton, "A mistake will not affect assent unless it is a mistake of both parties, and is as to the existence of some quality which makes the thing without the quality essentially different from the thing as it was believed to be." This is exactly what we have here, a mistake that affects assent because it is a mistake of both parties and it is as to the existence of some quality that makes the thing different from what it was believed to be.
His agreement to pay back the loan at a certain rate for a certain period of time was clearly dependent on the shared belief that his loans were independent of Pirate exposure. Both parties discussed this common belief and relied on it when they entered into the agreement. It is absolutely inequitable to make one party to an agreement bear the full cost of a shared mistake made equally by both parties.
The simple predictable rule here is that the debtor is always responsible for his debt (at least before bankruptcy law)
That's not helpful. The challenge is figuring out what "his debt" is. See my example of the payment for partial interest in a car. Sure, the buyer is responsible for "his debt", but the question is whether he in fact owes the payment. That's the same problem we have here. When a promise to pay is predicated on a belief shared by both parties and without which neither party would have entered into the agreement, figuring out how much is owed is not simple. You can't just look to the contract.
Here's a trivial example: Both parties to an agreement believe a truck contains 5,000 pounds of cherries and both believe that $2/pound is a fair price. They agree to sell the cherries for $10,000, based on their common correct belief that cherries are worth $2/pound and their common mistake belief that the truck contains 5,000 pounds of cherries. If it turns out the scale was broken and the cherries actually weigh 4,500 pounds, how much is "his debt"?
The argument would be that you can't look to the contract because the contract doesn't say what happens if the cherries weigh 4,500 pounds. Everything written in the contract is based on the assumption that the cherries weigh 5,000 pounds. (Unless it contains some clause about the weight, of course.) Here, it is clearly unjust to enforce the contract as agreed because the agreement was predicated on the shared belief.
The problem with simple rules is that sometimes you don't have simple cases.