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Chappell v Nestlé

[1960] AC 87

Case summary last updated at 02/01/2020 11:18 by the Oxbridge Notes in-house law team.

Judgement for the case Chappell v Nestlé

 P had the copyright over a song which D manufactured and sold to anyone who paid some money (well below ordinary cost of the record) and sent in three of D’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”. D paid P 6% of the sum of money charged, while P said that they should be given more since the ordinary retail price at which D 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 P’s claim. 
Lord Reid: D aimed to induce the sale of their chocolate by the deal and NOT to trade in records. Therefore it was v. important to D 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 D 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 D 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 D 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. 
NB it was key to the majority reasoning that the wrappers were of commercial value to D 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 Somerell’s peppercorn example. 

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