McRae v Commonwealth Disposals Commission [1951]

Court: High Court of Australia

Facts: The Commonwealth Disposals Commission (CDC) sold a shipwreck on the Jourmand Reef to the McRae brothers, with the claim that the wreck contained oil. When the McRae brothers arrived at Samarai to salvage the wreck, they found no shipwreck and discovered that Jourmand Reef did not exist. The CDC officer had based the sale on erroneous information and unreliable gossip. The McRae brothers incurred significant expenses preparing for the salvage operation and sued the CDC for breach of contract, fraudulent misrepresentation, and negligent failure to disclose.

Issue: Can a contract be deemed void due to a common mistake about the existence of the subject matter when only one party knows the subject matter’s non-existence?

Held: The High Court of Australia ruled in favor of the McRae brothers, awarding damages for breach of contract. The court determined that the contract was not void despite the non-existence of the subject matter. The CDC had made a specific promise about the existence of the shipwreck and assumed the risk that it did not exist. The McRae brothers were entitled to damages for the expenses incurred based on CDC’s representation.

Key Judicial Statement: The court established that if one party guarantees the existence of the subject matter, the contract is enforceable against them if the subject matter does not exist. The court also affirmed that damages could be claimed for expenses incurred due to reliance on the promised existence.

💡Leveluplaw: A contract may be enforceable even if the subject matter does not exist if one party has guaranteed its existence. The affected party can claim damages for expenses incurred in reliance on that guarantee. This case underscores the principle that a promise about the existence of subject matter in a contract binds the promisor even if the subject matter turns out to be non-existent.