Quote from: Namworld on November 14, 2012, 04:58:21 AM

No. It might not have been on the contract but if he claimed there was 1500 pounds verbally and there is not 1500 pounds, one could contest the contract for misrepresentation, regardless if the seller knew he was wrong or not, he made a claim and that claim should be honored. If the seller cannot honor the contract which requires 1500 pounds, he cannot either refund it partially either and share loss. Since he cannot deliver, he cannot keep/void any part of the $3000 which cannot be either given to seller as part of the contract.

The contract doesn't "require" 1,500 pounds, it *assumes* 1,500 pounds. There are not 1,500 pounds. Similarly, this agreement didn't require Patrick's loan portfolio to be free of significant indirect Pirate exposure, it assumed that it was.

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Let me rephrase your example:
A company creates a product which they claim to be packaging and selling in packs of 4. Someone buys the packaging also believing there is 4 items per pack and it's shipped to them. The buyers and the company realize there was an error and only 3 items are inside each pack.

Company to buyers: "Sorry, common mistake, we both believed there was 4 products included but we couldn't deliver what we claimed and you believed it. We're just as much at fault for that now that it's shipped and we paid for packaging and delivery. Since we both made that mistake on assumption of the package's content and we can't undo those shipments, it would be fair to share the loss."

That's correct. If there is equal fault on both sides, then the losses have to be split somehow. To make your example perfectly analogous, say it's 1,500 pounds of cherries that are purchased. By mistake, the seller only loads 1,200 pounds of cherries on the truck and also by mistake, the buyer erroneously confirms there are 1,500 pounds of cherries on the truck even though there aren't. In that case, they have to fairly split the damage from their common mistake. It's inequitable to make the buyer pay for 1,500 pounds of cherries and take 1,200 just because he mismeasured given that the seller mismeasured too. But it's also inequitable to make the seller cover 100% of the damages from the incorrect loading given that the buyer made the same mistake. You have to come up with some fair way to split whatever damages flow from the common mistake in measuring the loading of the cherries.

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Your proposal would not hold in any jurisdiction that I know of. If they made a claim to deliver 1500 pounds for 3000$, they would have to deliver what was claimed or otherwise refund the money which was given based on the claim they would receive 1500 pounds which didn't occur. If someone doesn't deliver upon his claims, he's always at fault for making claims he could not deliver on, not the ones believing their claims. Although maybe you simply do not agree with the common practices. Which would be fair enough, everyone is free to have their opinion.

They didn't "make a claim to deliver 1,500 pounds for $3,000". Please read it over again. They agreed to deliver "the 1,500 pounds of cherries we agree are in the truck", something that does not exist.

And common mistake has to hold in pretty much every jurisdiction. There is no other choice in cases where the contract is premised on a common mistake. In the example of the common mistake about the quantity of cherries being sold., you can't make the seller deliver and the buyer accept the 1,500 pounds of cherries in the truck because there are no 1,500 pounds of cherries in the truck. "Enforce the contract as agreed" is ambiguous because it could equally well mean the buyer has to take whatever is in the truck even if it's not 1,500 pounds or the seller has to put more cherries in the truck -- and neither is what they agreed on. And even if you did enforce the contract as agreed, if that doesn't split the harm equitably, one party would have a cross-claim against the other that you'd have to resolve anyway.

Generally, common mistake applies if the contract is about something that doesn't actually exist or doesn't exist as contemplated in the contract whereas cross-claim is used when it's possible to enforce the contract as agreed yet that leaves one side harmed by the other's mistake even where the mistake is common. To an extent, common mistake is redundant. If execution of the contract as agreed is impossible, you don't need common mistake to invalidate it. If execution of the contract is possible despite the mistake, the common mistake would constitute a cross claim anyway.

This case is on the border somewhere -- it's hard to tell whether it's possible to enforce the contract "as agreed" because the terms are insufficiently precise. This is one of the huge advantages of written contracts over verbal ones. If something unexpected happens, the written contract usually gives you a resolution. However, it often also tends not to be a fair resolution. (For example, in the case of the misweighed cherries, the contract likely would say that the seller's written acceptance of the load waives claims that cherries were insufficient. Though this is a precise resolution, it's hardly fair to let the seller 100% benefit from his mistake while the buyer bears the full costs.)

Here's an interesting thought experiment: Say in that discussion, Patrick was asked this question: "Say it turns out that despite your best efforts, lots of people are borrowing from you to invest in Pirate. And say Pirate stops making payments and many of your loans go bad all at the same time. You probably can't enforce them in any court of law, so your chances of collecting on many of those loans would be low to non-existent. If that happens, are you and your wife going to make personal financial sacrifices to pay back all your investors 100%? This is a serious question and if this happens, I plan to hold you to what you say now and make it a term of our agreement. What will you do?"

What do you honestly think his answer would have been?