Scammer tag: PatrickHarnett

[JoelKatz]

You didn't acknowledge or argue against this logic. That unlike your example, deposits did not constitute an investment in Patrick business, but a deposit just as a bank.

I did. I argued that this case is different because both Patrick and those who invested with him made precisely the same mistake.

You agreed that depositors at a bank are rarely at common fault for the bank's bad investments and everything seems to point that the situation is very similar to deposits at a bank. You know just as much when depositing at a bank yet you do not accept any risk other than the bank declaring bankruptcy. In this case the bank is Patrick Harnett himself and he did not declare bankruptcy. He just voided partially the deposit amounts and said he'd pay deposits if he manage to get something back.

This is not a case of a bank making bad investments while its depositors had a reasonable expectation that it would make good investments. This is a case where both Patrick and those who invested with him made precisely the same mistake -- given his business model, there's nothing Patrick did wrong (until the Kraken fiasco). He just picked a lousy business model to invest in, just as his investors did. I don't know what else I can say other than to keep repeating myself because these are points I've already responded to. (You are, of course, welcome to respond to my responses.)

Patrick and those who lent money to him belived that Patrick would have sufficient funds in his loan portfolio to cover deposits in the event of a Pirate default. But he did not. This was not through any particular fault of Patrick's that wasn't shared with those who loaned him money.

Aug 10 08:06:31 <mircea_popescu>   listen i actually wanted to talk to you.
Aug 10 08:06:38 <patrickharnett>   hi
Aug 10 08:06:54 <mircea_popescu>   hey. your deposits still bs&t free ?
Aug 10 08:07:21 <patrickharnett>   I run a slightly complicated business, but most of the deposit accounts I run are BS&T free
Aug 10 08:07:39 <patrickharnett>   that's what the market wanted
Aug 10 08:07:58 <mircea_popescu>   you deem yourself able to repay your depositors in the event bs&t goes bankrupt, and nothing is recovered ?
Aug 10 08:08:00 <patrickharnett>   back in a couple of minutes - grabbing a glass of wine - friday evening here
Aug 10 08:09:57 <patrickharnett>   back
Aug 10 08:10:17 <patrickharnett>   in the event BS&T goes bust, I have more than enough assets to cover that
Aug 10 08:10:41 <patrickharnett>   mainly because the 15,500 coins I hold on deposit are not invest in BS&T
Aug 10 08:10:56 <mircea_popescu>   well that works. i'd like to put 500 bitcoins with you

Patrick is arguing that because of his business model, he would have sufficient assets to cover his borrowed funds even if Pirate defaults. Those who loaned him money agreed with this assessment. Whether it was inevitable given his business model or Patrick just suffered bad luck or what have you, Patrick and those who loaned him money agreed on a set of circumstances which formed the basis for the loan, a key one of which happened to be incorrect, without which neither party would have entered into the agreement.

I don't know how it could be clearer: "well that works. i'd like to put 500 bitcoins with you".

[Namworld]

This is not a case of a bank making bad investments while its depositors had a reasonable expectation that it would make good investments. This is a case where both Patrick and those who invested with him made precisely the same mistake -- given his business model, there's nothing Patrick did wrong (until the Kraken fiasco). He just picked a lousy business model to invest in, just as his investors did. I don't know what else I can say other than to keep repeating myself because these are points I've already responded to. (You are, of course, welcome to respond to my responses.)

Patrick and those who lent money to him belived that Patrick would have sufficient funds in his loan portfolio to cover deposits in the event of a Pirate default. But he did not. This was not through any particular fault of Patrick's that wasn't shared with those who loaned him money.

Aug 10 08:06:31 <mircea_popescu>   listen i actually wanted to talk to you.
Aug 10 08:06:38 <patrickharnett>   hi
Aug 10 08:06:54 <mircea_popescu>   hey. your deposits still bs&t free ?
Aug 10 08:07:21 <patrickharnett>   I run a slightly complicated business, but most of the deposit accounts I run are BS&T free
Aug 10 08:07:39 <patrickharnett>   that's what the market wanted
Aug 10 08:07:58 <mircea_popescu>   you deem yourself able to repay your depositors in the event bs&t goes bankrupt, and nothing is recovered ?
Aug 10 08:08:00 <patrickharnett>   back in a couple of minutes - grabbing a glass of wine - friday evening here
Aug 10 08:09:57 <patrickharnett>   back
Aug 10 08:10:17 <patrickharnett>   in the event BS&T goes bust, I have more than enough assets to cover that
Aug 10 08:10:41 <patrickharnett>   mainly because the 15,500 coins I hold on deposit are not invest in BS&T
Aug 10 08:10:56 <mircea_popescu>   well that works. i'd like to put 500 bitcoins with you

Patrick is arguing that because of his business model, he would have sufficient assets to cover his borrowed funds even if Pirate defaults. Those who loaned him money agreed with this assessment. Whether it was inevitable given his business model or Patrick just suffered bad luck or what have you, Patrick and those who loaned him money agreed on a set of circumstances which formed the basis for the loan, a key one of which happened to be incorrect, without which neither party would have entered into the agreement.

I don't know how it could be clearer: "well that works. i'd like to put 500 bitcoins with you".

And I'm challenging that it could be seen as an investment based on how it was defined and promoted. It was deposits and Patrick acted as a bank. Depositors were not investing in the business, just agreeing to use patrick's financial service who's offer was basically working the same way as a bank.

You've now added that people loaned him money and Patrick was the borrower which also points to a depositor/bank situation. That the fact he was wrong when he said he had sufficient funds to cover deposits in the case of a Pirate default is somehow just as much the depositors' fault because they heard that statement and then proceeded to extend funds to Patrick?

In that case, if someone tells you to loan him money for expanding his mining farm and claims to have enough current mining power already to pay it back later, if he ends up being wrong, someone the lender is at fault and should accept that risk was somehow shared because it was some joint venture? It was a loan. Extended money, not an investment in a company. If it was an investment with shared risk, Patrick would not be offering a fixed rate on deposits. The rate would be proportional to profit or loss because you own part of the business. His offer was to take deposits and pay interest on it, just like a bank. The business was his own only and all profit from the deposits/lending difference in rate went to him. Not "investors". The bank now voided deposits without going bankrupt.

You repeat that risks are shared among co-investors with example situations demonstrating it and that profit is shared just as much as loss is. But you bring no argument why it should be considered as a co-venture. I claim that it cannot be considered an investment in Patrick's operation because there's no ownership of Patrick's operation for depositors and profit is not shared either, neither should loss. Patrick acted as a bank, as a financial service provider, offering a fixed rate on funds entrusted to him and requiring an higher rate when then lending said money, keeping 100% of the bank's profit. Had it been a co-venture/investment like in your examples, the margin between deposits rates and loans rates would be shared among the investors.

I agree that profit and loss is shared when we're dealing with an investment. I want to know how you arrive at the conclusion that it was an investment when the operation's profits (the difference between deposits rates vs loans rates) is not shared among the investors. But somehow, losses should? Depositors were not investing in Patrick's operation. They were depositing funds in exchange of interests. Deposit accounts are similar to loaning money to a bank, which has the responsibility to keep the deposits safe and also offers a small percentage interest in exchange for the loan.

[JoelKatz]

You've now added that people loaned him money and Patrick was the borrower which also points to a depositor/bank situation. That the fact he was wrong when he said he had sufficient funds to cover deposits in the case of a Pirate default is somehow just as much the depositors' fault because they heard that statement and then proceeded to extend funds to Patrick?

Not precisely. It's just as much the depositor's fault because they drew substantially the same conclusion with substantially the same information.

In that case, if someone tells you to loan him money for expanding his mining farm and claims to have enough current mining power already to pay it back later, if he ends up being wrong, someone the lender is at fault and should accept that risk was somehow shared because it was some joint venture? It was a loan. Extended money, not an investment in a company. If it was an investment with shared risk, Patrick would not be offering a fixed rate on deposits. The rate would be proportional to profit or loss because you own part of the business. His offer was to take deposits and pay interest on it, just like a bank. The business was his own only and all profit from the deposits/lending difference in rate went to him. Not "investors". The bank now voided deposits without going bankrupt.

If the circumstances were analogous, the result would be analogous. If the circumstances were not analogous, the result would not be analogous. To make this more analogous, those loaning the money would have to agree that the mining farm would produce enough revenue to pay back the loan and agree to the loan only because they agree with that assessment. And you'd need the fault in the erroneous assessment to be evenly split between the parties. In that case, as in this case, the lender's incorrect assessment harmed the borrower just as much as the borrower's incorrect assessment harmed the lender.

You repeat that risks are shared among co-investors with example situations demonstrating it and that profit is shared just as much as loss is. But you bring no argument why it should be considered as a co-venture.

It wasn't a co-venture. It should not be considered as a co-venture. It was, however, a contract based on a common mistake.

I claim that it cannot be considered an investment in Patrick's operation because there's no ownership of Patrick's operation for depositors and profit is not shared either, neither should loss.

I agree that that's the first step. But then the next step is to look at whose fault the loss was. To be ridiculous, if the investors loaned money to build a factory and then burned down that factory, clearly the damages from burning down the factory would offset the repayment of the loan. In this case, there is some fault on the part of the investors that offsets the repayment because it harmed the borrower. (These are actually two slightly different ways to look at the same thing. You can view common mistake as akin to shared fault, but conceptually it's a bit different.)

Patrick acted as a bank, as a financial service provider, offering a fixed rate on funds entrusted to him and requiring an higher rate when then lending said money, keeping 100% of the bank's profit. Had it been a co-venture/investment like in your examples, the margin between deposits rates and loans rates would be shared among the investors.

I agree, but that's irrelevant. I'm not arguing that the contract was a co-venture or investment. I'm arguing that the contract was premised on a common mistake.

Depositors were not investing in Patrick's operation. They were depositing funds in exchange of interests. Deposit accounts are similar to loaning money to a bank, which has the responsibility to keep the deposits safe and also offers a small percentage interest in exchange for the loan.

I am not arguing that the terms of the contract specified a share of the losses. I'm arguing that the losses occurred because of a mistake and the harm from that mistake should be born by those who made the mistake and caused the harm.

[Stephen Gornick]

It's just as much the depositor's fault because they drew substantially the same conclusion with substantially the same information.

Where do you come up with this?

If I am speeding down the freeway, behind another car that is speeding down the freeway, I am not at fault if that driver gets in an accident due to driving at an excessive speed.  And at the same time that driver is not at fault if I get in an accident due to driving at an excessive speed.

[Namworld]

I see. However:

If the circumstances were analogous, the result would be analogous. If the circumstances were not analogous, the result would not be analogous. To make this more analogous, those loaning the money would have to agree that the mining farm would produce enough revenue to pay back the loan and agree to the loan only because they agree with that assessment. And you'd need the fault in the erroneous assessment to be evenly split between the parties. In that case, as in this case, the lender's incorrect assessment harmed the borrower just as much as the borrower's incorrect assessment harmed the lender.

He made claims, depositors accepted them. It does not make the depositor partially responsible if the claims were wrong. Patrick was the only one making the verification and was being extended money not as investment but as a loan.

Isn't the premise of granting any business loan based on the belief that the borrower's assessment/business plan is sound and sufficient to guarantee the loan? (Unless you're lending based on trust of someone you know.)

Your proposition would come to the conclusion that unless you don't make any investigation before loaning the money to someone, the lender is always as much at fault as the debtor and should share the loss, because as soon as you know any claim by the borrower upon which you accept to extend them the funds, you're at fault as much as the borrower for being mistaken on the borrower's claims?

As such, to not share losses when loaning with the borrower, never investigate the borrower's need for the fund and current financial situation?

Patrick made a claim and was mistaken. The lenders were mistaken in that Patrick could execute and ran his business as he claimed he would. I'm in no way claiming he did it on purpose. But the fact his business plan did not work as expected does not put the lenders at fault for acknowledging his business plan appeared to be sufficient. This is the whole difference between buying equity in a company and extending fund based on claimed business plan. Equity is shared profit/loss, extending fund, losses are wholly on the shoulders of the borrower.

[JoelKatz]

It's just as much the depositor's fault because they drew substantially the same conclusion with substantially the same information.

Where do you come up with this?

If I am speeding down the freeway, behind another car that is speeding down the freeway, I am not at fault if that driver gets in an accident due to driving at an excessive speed.  That driver is not at fault if I get in an accident due to driving at an excessive speed.

Of course, but that's not even remotely analogous because there's no agreement between the two drivers.

Let me try it one more time: Say two people each, through equal fault, believe there's 1,500 pounds of cherries in a truck. They each have no doubt this is true, even though there is actually 1,200 pounds of cherries in the truck. In this context, there is no difference to them between "the cherries in the truck" and "the 1,500 pounds of cherries in the truck", because they both believe there are 1,500 pounds of cherries in the truck. Now, say one agrees to sell the [1,500 pounds of] cherries in the truck to the other for $3,000. Then, they discover there isn't really 1,500 pounds of cherries in the truck. What do you do?

One can argue that the contract said $3,000 for the cherries in the truck, so he's still owed $3,000. The other can argue that there should be 1,500 pounds of cherries in the truck, as agreed, as the other guy should add cherries to the truck.

This is a case of common mistake -- a contract premised on a shared mistaken belief without which neither party would have entered into the agreement and which is central to the agreement. In this case, you can't enforce the contract as agreed because the contract "as agreed" requires there to be 1,500 pounds of cherries in the truck.

This contract was about Patrick's loan portfolio and the characteristics of that portfolio were central to the contract. We now know that this portfolio did not exist in the form the parties believed it did. It's just like the truck not having 1,500 pounds of cherries in it.

Both parties believed Patrick's loan portfolio was largely free of Pirate exposure and free of correlated risk. The parties entered into an agreement premised on that mistaken belief without which neither of them would have entered into the agreement. The contract simply could not have said what should happen if it turns out there's significant correlated risk because neither party believed that was possible.

Here it is as plain as day, mistaken assessment and agreement with that mistaken assessment:

Aug 10 08:10:17 <patrickharnett>   in the event BS&T goes bust, I have more than enough assets to cover that
Aug 10 08:10:41 <patrickharnett>   mainly because the 15,500 coins I hold on deposit are not invest in BS&T
Aug 10 08:10:56 <mircea_popescu>   well that works. i'd like to put 500 bitcoins with you

This is, of course, invalid reasoning. There's indirect Pirate risk even if funds are not invested in BS&T. This is a mistake both parties equally made. Note that they never went on to discuss what would happen in case they were both incorrect and that somehow a Pirate default did cause his equity to drop too low to cover the loans. They wouldn't have because neither thought this would happen. And this wasn't due to fraud or deceit, both parties were simply mistaken.

[Namworld]

Let me try it one more time: Say two people each, through equal fault, believe there's 1,500 pounds of cherries in a truck. They each have no doubt this is true, even though there is actually 1,200 pounds of cherries in the truck. In this context, there is no difference to them between "the cherries in the truck" and "the 1,500 pounds of cherries in the truck", because they both believe there are 1,500 pounds of cherries in the truck. Now, say one agrees to sell the [1,500 pounds of] cherries in the truck to the other for $3,000. Then, they discover there isn't really 1,500 pounds of cherries in the truck. What do you do?

One can argue that the contract said $3,000 for the cherries in the truck, so he's still owed $3,000. The other can argue that there should be 1,500 pounds of cherries in the truck, as agreed, as the other guy should add cherries to the truck.

This is a case of common mistake -- a contract premised on a shared mistaken belief without which neither party would have entered into the agreement and which is central to the agreement. In this case, you can't enforce the contract as agreed because the contract "as agreed" requires there to be 1,500 pounds of cherries in the truck.

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.

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."

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.

[nrd525]

I think Patrick is responsible for repaying everyone who invested in his bank.  It doesn't matter what the cause of the bank's problems were so long as he guaranteed the deposits.

So long as he didn't setup an official corporation with limited liability, morally and legally he is responsible.

[Namworld]

And if you were on the football team AND had a car, you lost your virginity that year, guaranteed. High School is where the social experiment develops, where you're put on a life track. It's a wonder so many survive it into adulthood. Why didn't my parents explain all this to me? Why were there boys better prepared to be men, and others just left to flounder?

Is this you?

Thanks for finding this, it made me laugh.

I guess the root of Croppo's weird bitterness and inadequacy is his sad high school years being beat up by Brazilian jocks and being rejected by women.

That part is a quote of a previous comment and do not appear to be Augusto's words. I also fail to see how it is relevant to the current issue at hand: How should the situation be dealt with?

[JoelKatz]

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.

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.

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?

[CharlieContent]

And if you were on the football team AND had a car, you lost your virginity that year, guaranteed. High School is where the social experiment develops, where you're put on a life track. It's a wonder so many survive it into adulthood. Why didn't my parents explain all this to me? Why were there boys better prepared to be men, and others just left to flounder?

Is this you?

Thanks for finding this, it made me laugh.

I guess the root of Croppo's weird bitterness and inadequacy is his sad high school years being beat up by Brazilian jocks and being rejected by women.

That part is a quote of a previous comment and do not appear to be Augusto's words. I also fail to see how it is relevant to the current issue at hand: How should the situation be dealt with?

The part MPOE-PR quoted isn't AugustoCroppo's words, but it was AugustoCroppo's words that my comments were referring to. They can be read behind the link.

[Namworld]

And if you were on the football team AND had a car, you lost your virginity that year, guaranteed. High School is where the social experiment develops, where you're put on a life track. It's a wonder so many survive it into adulthood. Why didn't my parents explain all this to me? Why were there boys better prepared to be men, and others just left to flounder?

Is this you?

Thanks for finding this, it made me laugh.

I guess the root of Croppo's weird bitterness and inadequacy is his sad high school years being beat up by Brazilian jocks and being rejected by women.

That part is a quote of a previous comment and do not appear to be Augusto's words. I also fail to see how it is relevant to the current issue at hand: How should the situation be dealt with?

The part MPOE-PR quoted isn't AugustoCroppo's words, but it was AugustoCroppo's words that my comments were referring to. They can be read behind the link.

My bad.

[Namworld]

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.

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. 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.

It would definitely not hold in most jurisdiction. The buyer never made the common mistake of not delivering or causing the incorrect delivery. They did not cause the loss either. They made the error of believing the seller would deliver on his claims.

You now insist that to be analogous to Patrick's situation, we must add it's a common mistake because they accepted upon delivery that it was correct, but when people agreed to Patrick's statement, no delivery was made yet, Patrick was simply making claims as to what he'd deliver and people paid afterward, expecting later delivery as claimed. They couldn't acknowledge it was properly delivered before Patrick returned funds/covered the loss/his debtors paid him/proved where they used funds. They acknowledged the terms of delivery trusting the "seller" (Patrick) to deliver on those claims. They never checked the delivery content and acknowledged to have received what was expected yet. They could only make such a mistake on returned funds.

Nevertheless, even if they did confirm the delivery was properly done when it wasn't and then realized it was not, the seller would still have to provide the goods paid for in full. In the example, even if the buyer acknowledged correct delivery, this acknowledgement did not create any damage/loss. Assuming they would have realized right away there was a mistake, the seller would have to provide the missing goods. If they make a mistake on being delivered properly and realize it wasn't, it only delays the seller providing the goods in full to correct his mistake. The bad report that goods were correctly delivered NEVER caused the seller to not send the goods in full and/or lose part of them. The seller is fully responsible for that. The buyer assuming the full goods would be delivered as claimed by the seller which assumes the same thing neither makes the buyer responsible for the error.

-------------------------

A common mistake would be if the buyer was for example in Washington (D.C.) and the seller was in Washington (state) and was equipped to deliver in Washington (state) only. On call, both assumed they were in the same Washington when making their contract which ends up being impossible to be delivered before the cherries spoil. Since the buyer also caused the loss through his mistake because both parties did not correctly specify their exact delivery location / delivery zone, he could be judged at fault too and expected to share the loss's cost because the supplier acquired the cherries and they're spoiling. Yet seller could be considered just as much at fault for claiming he was delivering in Washington but not specifying if it was the state or the city. The common mistake of not specifying the exact location directly rendered the contract impossible to execute and caused the loss.

If the seller claims to have something he can deliver an he could execute the delivery if he's right, it does not constitute common mistake. The contract is solely impossible because the sellers fact were wrong and the buyer expected them to be right. It is akin to the seller claiming he delivers in Washington D.C. when he never could. Or someone claiming he could repair something when he does not have the knowledge to. Someone claims he'll deliver X and delivers Y. Patrick claimed to not be exposed when he was. The fact the buyer assumes the seller's statement to be right does not cause the loss or invalidates the contract because the seller could execute it but did not actually have what he claimed, then the seller is fully at tort for not delivering. If someone claims to deliver something in a contract, he's the only one to blame if he did not have the means to. Still, pirate exposure is not even included in the contract to start with which further invalidates that as a potential common mistake. (See further below.)

Common mistake applies when the mistake cause the loss. Not when the mistake is that both believe their would be delivery without a loss while the seller and deliverer was in charge of delivery and the means to do so, and ended up failing to his promises.

(I am no lawyer and unless mistaken, you probably are not either, so feel free to object to these statements/provide further input. They are based solely on my general knowledge and my understandings of the concept.)

-------------------------

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?

Aye, but we're going back to the fact depositors were not investing in Patrick's business or receiving a share of the profits. They were loaning him funds against interest and for safekeeping (financial services) and were led to believe Patrick operated as a bank (Offering said services and Patrick making a profit for himself with the business (the difference between the deposit rates and lending rates.)

The non-exposure to pirate was never part of the contract or included in it and cannot be invoked as a common mistake. Patrick offered a straight "- Deposit money -Receive x% interest" (The actual contract) accounts and operated as bank. The fact people informed themselves about the service provider's practices and declared they liked what they were told does not put any responsibility on them.

As for your thoughts experiment, I personally believe the answer would be "No", which doesn't mean others would assume the same thing or ever received this answer which would make that clause valid.

[Bitcoin Oz]

https://bitcointalk.org/index.php?topic=124152.0  I started a scam accusation concerning Kraken fund. If anything is a slam dunk case of fraud that would be it.

[greyhawk]

@Joel. Here's a question. Please take a look at this thread (it's really short): https://bitcointalk.org/index.php?topic=124195.0

Would you argue that the alleged scammer in that case should not be scammer tagged, because the affected victim knew of the risk of this happening with Paypal transactions?

[JoelKatz]

@Joel. Here's a question. Please take a look at this thread (it's really short): https://bitcointalk.org/index.php?topic=124195.0

Would you argue that the alleged scammer in that case should not be scammer tagged, because the affected victim knew of the risk of this happening with Paypal transactions?

Of course not. Someone who commits fraud can't blame those who believed him! In this case there is no common mistake, there are two different mistakes. Also, one party is committing fraud on the other party and the other isn't, so there's no equality of blame between the parties. So these aren't even remotely analogous. (However, both parties in this case did more or less equally defraud PayPal, for what that's worth. This is more like the classic 419 scam. It's fine to blame the victim for falling for a 419 scam, but it's important not to let that in any way excuse the fraudsters.)

The big difference is that in the case of Patrick and those who loaned him money, they *didn't* both know the risk. They *both* believed the risk that actually harmed them didn't exist. If you read the transcript, they agree that Patrick's business model provides him sufficient equity in his loan portfolio to cover losses associated with a Pirate default. They either didn't understand or didn't appreciate the significant *indirect* Pirate exposure the portfolio had. If either of them had realized this, the agreement would never have taken place. The critical difference is that they both have the same culpability for making the very same mistake in the very same way.

[ab8989]

The cherrytruck case is not a good analogy because in that both the buyer and the seller and indicated to have equal sighting of the truck. A better analogy would be if only the seller has seen the truck and he tells the buyer that "I have seen a truck that holds 1500 pounds of cherries. Would you buy the 1500 pounds of cherries from me? The contract is only written to mention 1500 pounds of cherries in this analogy and not to mention the truck at all as the pirate exposure was not written into the contract in real world situation either. I assume this truck is supposed to be an analogy to the pirate risk?

Actually the cherrytruck analogy could be made even better analogy by saying that the seller says "I have seen a truck with 1500 pounds of cherries and I know because I am an expert of cherrytrucks and I also publicize ratings of how much cherries each truck carries". This is of course analogy to the credit ratings that Patrick was also making and so claiming to be an expert of risk assessment.

Would it be reasonable for some normal people to assume that somebody who runs a business has more intimate knowledge of risks associated with the business than some external party especially when the person running the business is also claiming to be a specific expert on risk assessment?

They either didn't understand or didn't appreciate the significant *indirect* Pirate exposure the portfolio had ... making the very same mistake in the very same way

This is critical difference. They did not make the same mistake and especially not in the same way. Patrick should have been in a position to much better understand what is happening in his business. It makes no sense to say the lenders should have understood Patricks business enough and in same detail avaliable to Patrick to be able to make the judgement. Patrick on the other hand should have understood these issues and in the case he does not he should not have made claims about them or pay if they are false. It is much more sensible to say that some lenders should be able to take what they are being told at face value and rely on that.

Each of the lenders have their own set of assumptions. I would not even claim that two different lenders did the very same mistake the very same way.

[cunicula]

This is critical difference. They did not make the same mistake and especially not in the same way. Patrick should have been in a position to much better understand what is happening in his business. It makes no sense to say the lenders should have understood Patricks business enough and in same detail avaliable to Patrick to be able to make the judgement. Patrick on the other hand should have understood these issues and in the case he does not he should not have made claims about them or pay if they are false. It is much more sensible to say that some lenders should be able to take what they are being told at face value and rely on that.

Yeah, Joel you should read up on the economics of liability law. This is very clear cut and for some unknown reason you are trying to confuse the issue.

[JoelKatz]

This is critical difference. They did not make the same mistake and especially not in the same way. Patrick should have been in a position to much better understand what is happening in his business.

In an ideal world, maybe that should have been the case. But in this world, it simply wasn't.

It makes no sense to say the lenders should have understood Patricks business enough and in same detail avaliable to Patrick to be able to make the judgement.

Perhaps it makes no sense, but it was in fact true. Patrick's business model and methods weren't a secret. They in fact *did* understand Patrick's business model well enough to make the judgment. If you look, you'll find some of Patrick's lenders arguing about this very issue in this very forum.

Patrick on the other hand should have understood these issues and in the case he does not he should not have made claims about them or pay if they are false. It is much more sensible to say that some lenders should be able to take what they are being told at face value and rely on that.

If so, why can't Patrick take what his borrowers told him at face value and rely on that? Patrick made precisely the same mistake those who loaned him money did. You're excusing his lenders but not excusing him.

Each of the lenders have their own set of assumptions. I would not even claim that two different lenders did the very same mistake the very same way.

I'm not sure I know what you mean by "assumptions". But the mistake was fundamental and inherent in the business model and lending environment. The mistake was failing to realize two things:

1) There's no way to enforce these loans in any court of law. That means if people have any reason not to repay, they won't repay. Many people won't sacrifice their real-world lifestyle and bank accounts to repay a bitcoin loan that can't be enforced anyway.

2) Borrowing from Patrick to invest in Pirate just seemed like too good a deal, especially since people knew they could just default on Patrick without consequences. No method would prevent this, short of actually tracking what each person did with the bitcoins, which nobody would agree to.

This is why Patrick's business failed. And there is no argument you can make why Patrick should have known this that doesn't equally apply to those who loaned him money.

(And, again, this doesn't apply to Kraken, which I think was likely an outright scam.)

[JoelKatz]

Would it be reasonable for some normal people to assume that somebody who runs a business has more intimate knowledge of risks associated with the business than some external party especially when the person running the business is also claiming to be a specific expert on risk assessment?

In general, yes, but that didn't actually happen in this case. At least, I very much doubt it did. If anyone wants to come forward and say they considered Patrick an expert on risk assessment and took his ratings seriously, I'll reconsider.

If someone did rely on that and can make a case that there reliance was reasonable under the circumstances, that would certainly weigh towards assigning more liability for losses to Patrick. To divide the loss, you have to look at the facts and circumstances of each individual loan. I doubt that was a factor in the loan that started this thread, but who knows.