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Chappell v Nestlé [1960] AC 87

By Oxbridge Law TeamUpdated 04/01/2024 06:59

Judgement for the case Chappell v Nestlé

KEY POINTS

  • Consideration need not be limited to monetary value but should be something that holds value to the parties involved. As the wrappers had value in the context of the promotional offer and were collected by customers to obtain the records, they were deemed to constitute valid consideration for the contract between Nestle and its customers.

FACTS

  • Plaintiff Chappell & Co Ltd is a music publisher in the business of producing records and selling them to the public. Defendant Nestle Co Ltd launched a marketing promotion where they offered a discounted music record to their customers in exchange for three wrappers of their chocolate bars. Said wrappers are of no monetary value as they are eventually thrown away by Nestle.

  • Chappell & Co Ltd, as the copyright owner of the music records, argued that the chocolate wrappers did not constitute valid consideration. They contended that the Copyright Act 1956, section 8, required a 6.25% royalty payment to be paid on the "ordinary retail selling price" of the records. Since the chocolate wrappers were not monetary payment, Chappell & Co claimed that Nestle's distribution of the records violated their copyright, as the wrappers could not be considered as valid consideration under the statute.

  • On the other hand, Nestle asserted that the chocolate wrappers formed part of the consideration for the distribution of the records. They argued that the wrappers had value as they were collected by customers and submitted in exchange for the records.

JUDGMENT

  • The Court ruled in favour of Nestle Co Ltd, stating that the wrappers form part of the consideration making it outside of the ambit of section 8 of the Copyright Act 1956.

COMMENTARY

  • This case clarified that non-monetary items can be recognized as valid consideration if they have value and are agreed upon by the parties as such. It provided a broader interpretation of consideration beyond just monetary payment, ensuring that contracts involving non-monetary exchanges could still be legally enforceable.

ORIGINAL ANALYSIS

  • Plaintiff had the copyright over a song which Defendant manufactured and sold to anyone who paid some money (well below ordinary cost of the record) and sent in three of Defendant’s chocolate wrappers.

  • The relevant statute demanded that a manufacturer selling a record to which another had intellectual property rights had to notify that party and pay a royalty of 6% of “ordinary retail price”.

  • Defendant paid Plaintiff 6% of the sum of money charged, while Plaintiff said that they should be given more since the ordinary retail price at which Defendant would be selling included the 3 wrappers as part of their “ordinary price” i.e. that the (worthless) wrappers were part of the consideration.

  • HL allowed Plaintiff’s claim. 

Lord Reid

  • Defendant aimed to induce the sale of their chocolate by the deal and NOT to trade in records. Therefore it was v. important to Defendant that the wrappers were sent in (since it meant that chocolate had been bought).

  • It is valid for the offeree to give consideration that consists partly of money and partly of doing an activity of value to the offeror.

  • In this case, therefore, the retail price had to include both the sum sent in AND the wrappers sent in (which are valuable because of the necessary purchase from Defendant in acquiring them).

    • The “collateral” contract approach of Lord Simon in Esso Petroleum i.e. that the contract to buy the record at a cheap price had consideration from both the sum paid AND the engagement in another contract, evidence for which was the sending in of wrappers. Therefore it makes sense to construe the consideration for the record as the value of the money sent in + the value of the other contract (i.e. the cost of 3 chocolate bars). 

Lord Somervell

  • The wrappers are consideration, NOT a condition of making the purchase as in the case of a card to shop at a supermarket.

  • He says it doesn’t matter that the wrappers have negligible objective value, since parties can ask for whatever consideration they like e.g. If I sell you a house for a peppercorn, it is still a valid contract even if the seller dislikes pepper and will throw it away.

  • Since Defendant would gain in sales from demanding the wrappers it would be wrong to treat them as not consideration.

    • It seems odd to say that an object of no value can constitute consideration since this undermines the whole point of consideration: that each side should gain something from the deal, lest the agreement become one of a gift. 

Viscount Simonds (dissenting)

  • The wrappers themselves are worthless and thrown away, while they are merely a “condition” of the purchase, not part of the purchase itself.

  • He also tries to argue that the wrappers didn’t necessarily represent something of value to Defendant in terms of increasing sales, since they might have been sent by someone other than the purchaser, or might have been purchased before the deal started.

    • In those few exceptional cases this is true, but in most cases this is an unimportant objection. 

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NB it was key to the majority reasoning that the wrappers were of commercial value to Defendant since they could only be acquired through purchase from the company. However, if in a case an individual sold a work of art for something worthless like wrappers, with no commercial importance, then there would be no consideration - McKendrick. Not necessarily: what about Somervell’s peppercorn example. 

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Contract Law Notes
1,511 total pages
744 purchased

Contract law notes fully updated for recent exams at Oxford and Cambrid...