Re Casey’s Patents [1892] is a pivotal authority establishing a major exception to the rule that past consideration is insufficient to form a binding contract. It clarifies that where services are rendered in a commercial context with an implied understanding of reward, a subsequent promise merely crystallises that expectation into an enforceable legal obligation.
Facts of the Case
The defendants, who owned certain patents, asked the claimant, Casey, to manage them. Casey performed the requested management services. After this work was completed, the defendants sent a letter promising Casey a one-third share of the patents in return for his past services. When the defendants later sought to avoid this arrangement, they argued that the promise was unenforceable because Casey’s consideration was past — the work had already been done before the promise to pay was made.
Legal Issues
The central issue was whether Casey had provided valid consideration for the defendants’ promise. Under the general rule established in cases like Roscorla v Thomas, an act performed before a promise is made is “past” and cannot support a new contract. The court had to determine if the commercial nature of the relationship created an exception where the past service could be linked to the subsequent promise.
Judgement
The Court of Appeal ruled in favour of Casey, holding that the promise was legally binding. Bowen LJ reasoned that:
- The nature of the service was such that it “raises an implication that at the time it was rendered it was to be paid for”.
- In a business setting, it is assumed that professional services are not intended to be gratuitous.
- The subsequent written promise was either evidence of that original implied bargain or a positive bargain fixing the specific amount of the remuneration.
- Consequently, the work was not a “mere voluntary courtesy” but an act done at the promisor’s request with a mutual understanding of payment.
Authority and Significance
- Exception to past consideration: this case provides the modern restatement of the exception to the past-consideration rule.
- Three conditions for enforceability: it helps define the three-part test (later refined in Pao On v Lau Yiu Long) for when a past act counts as good consideration:
- The act must have been done at the promisor’s request.
- There must have been a mutual understanding from the outset that the act would be rewarded.
- The reward must have been legally enforceable had it been promised in advance.
Commercial reality: the ruling reflects the “practicalities of business life”, ensuring that parties cannot exploit the technicality of “past consideration” to avoid paying for professional services they requested and intended to reward.