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Chappell And Co Ltd vs. Nestle Co Ltd [1960] - Case Analysis

Facts of the case:
  • Winneton Music Corporation was in the year 1959 the sole owners of the copyright of a musical record named 'Rockin' Shoes'.
  • The sole licensees of this musical record were the Chappell & Co. Ltd.
  • The Hardy Record Manufacturing Co. Ltd were responsible for making gramophone records and sold them to Nestle for about four pence for an advertisement campaign to boost their sales.
  • Nestle started to display these records on the cardboard which contained the advertising matter for the chocolate they produced.
  • Nestle made a general offer to sell the musical record of 'Rockin' Shoes' to every person who bring three wrappers of their six penny milk chocolate bars along with a postal order of 1s 6d.

The advertisement in the newspaper daily mirror was read as follows:
To get one of the NEW STARS records collect three wrappers of 6d bars of Nestl� chocolate, fill a coupon and send a postal order for 1s 6d with those three wrappers.
  • But as per the Copyright Act of 1956, the manufacturer had the duty to notify the owner of the copyright of their intention of reproducing the records of their work for retail.
  • This duty was duly fulfilled by the Hardy Manufacturing Company.
  • Moreover, the copyright owners were also entitled to 6.25% of the cost of the 'ordinary selling price' of the record under the act.
  • The price of the records was not considered by the appellant (Chappell and Co. Ltd) to be adequate enough. Since the consideration was not completely monetary as it also included wrappers of chocolates along with the money. Moreover, the copyright owners were only entitled of receiving royalty on 1s 6d which was being sent along with the post which was also considered to be inadequate.
  • The appellants filed for an injunction and sued for damages, contending that the respondents has infringed the copyright act and were also providing inadequate consideration.

Issues raised in the case:
  • Were the three wrappers of Nestle six penny milk chocolate bar part of the consideration or merely qualification to buy the record?
  • What was as per the case the ordinary selling price?

The House of Lords of the United Kingdom read this case with reference to few other cases which are as follows:
According to the case of Currie vs. Misa (1875) it was held that 'consideration for a specific promise occurs where some right interest, profit or benefit accumulates (or will accumulate) to the promisor as a direct result of some detriment, loss or responsibility that has been given, suffered or undertaken by the promise.'

Moreover, in the case of Bolton vs. Madden (1873), Blackburn J stated some words which made the entire concept of consideration to become a bit clearer. He said 'The general rule is that an executory agreement, by which the plaintiff agrees to do something on the terms that the defendant agrees to do something else, may be enforced, if what the plaintiff has agreed to do is either for the benefit of the defendant or to the trouble or prejudice of the plaintiff.'

On this very reasoning which was resonated in the above two cases the House Lords gave their judgment which later on proved to be landmark on the aspect of adequacy of consideration. The observation of the House of Lords also made it clear that the consideration for a promise can be any right interest, profit, benefit, loss, detriment for the promise. Therefore, it need not necessarily have a monetary value.

The judgment was delivered by the House of Lords with the majorities of 3:2[i], and it was held that the wrappers were a valid part of the consideration even though they were valueless and were more often thrown away by Nestle themselves.

The judgment made it crystal clear that a consideration to a contract should be sufficient and need not be adequate. This case shed light on the sufficiency of consideration and also re-affirmed the stance of the English law the consideration can be anything and that 'anything' needs not be restricted to something having a monetary value only.

The Nestle Company had the intention of increasing the sale of their chocolate by providing such an offer and the musical records were not meant for trade. Therefore, it was significant to Nestle that the wrappers were sent in as it implied that the chocolates were being bought. Thus, it was stated that the wrappers constituted as consideration and not as a mere qualification of making a purchase. Although it may seem unusual that an object which has a value of its own and is assumed to be completely worthless can be a consideration for a promise itself since they meant something to the company.

As a result of such observation the judges concluded their judgment by saying a few lines which has become a classic, 'A contracting party can stipulate for what consideration it chooses. A peppercorn doesn't cease to be good consideration if it is established that the promise doesn't like pepper and will throw away the corn.'[ii]

Therefore, Nestl�'s contention that acquiring and delivering the wrapper was merely a condition which gave the qualification to purchase and was not part of the consideration was not found to be valid.

Relevant laws:
There were a few relevant laws which hold quite importance in this case which are as follows:
Copyright Act, 1956 (United Kingdom) [iii]:
Section 8:
  1. The copyright in a musical work is not infringed by a person (in this section referred to as 'the manufacturer') who makes a record of the work or of an adaptation thereof in the United Kingdom, if :
    1. records of the work, or, as the case may be, of a similar adaptation of the work, have previously been made in, or imported into, the United Kingdom for the purposes of retail sale, and were so made or imported by, or with the license of, the owner of the copyright in the work;
    2. Before making the record, the manufacturer gave to the owner of the copyright the prescribed notice of his intention to make it;
    3. The manufacturer intends to sell the record by retail, or to supply it for the purpose of its being sold by retail by another person, or intends to use it for making other records which are to be sold or supplied.

      In the case of a record which is sold by retail, the manufacturer pays to the owner of the copyright, in the prescribed manner and at the prescribed time, a royalty of an amount ascertained in accordance with the following provisions of this section.
  2. Subject to the following provisions of this section, the royalty mentioned in paragraph of the preceding subsection shall be of an amount equal to 6.14 percent of the ordinary retail selling price of the record, calculated in the prescribed manner:
Provided that, if the amount so calculated includes a fraction of a farthing, that fraction shall be reckoned as one farthing, and if, apart from this proviso, the amount of the royalty would be less than three-farthings, the amount thereof shall be three-farthings.

Monetary value of consideration:
It is a kind of a general principle that whenever a dispute arises the court does not inquire into the matter whether the deal between the two parties had the involvement of some monetary value or was it monetarily fair or not. But the mere fact that each party passed a legal obligation or duty to the other party is always relevant. The main concern is that there must be presence of consideration not the adequacy of consideration. The value of consideration passed down between the two parties must not be understood as comparable.

Inadequacy of consideration:
Inadequacy of consideration as a term means that the consideration being not adequate or equal in value to the thing conveyed in return for it. The existence of consideration for a contract is different from its value and there is a significant difference between the inadequacy of consideration and the failure to provide consideration. The former may not have any effect on the contract where as the latter may leave a detrimental effect on the validity of the contract.

A short analysis:
This case of Chappell Co Ltd vs. Nestle is a landmark case which made the concept of consideration quite clear. This case revolved around the dispute regarding whether chocolate wrappers were valid consideration or not. The observation in this case made this clear that anything can be consideration and that 'anything' needs not have monetary value. Instead it can be any gain, advantage, loss etc which is incurred on the performance of the promise as a consideration. The fact that the chocolate wrappers were worthless and did not prove to be an adequate consideration does not make it ineligible to serve as consideration.

The case makes the fact clear that the presence of consideration is a fact which has quite a significant value whereas the presence of consideration which has no monetary value or insufficient values does not forms a reason to make it invalid as a consideration. As a result the claim of the respondent which stated that the wrappers were mere qualification in order to get the musical record was proved to be wrong. Therefore, it was declared that the wrappers possessed some value to the company Nestle as it would increase its sales which boost up the profit levels as well; hence it must be considered as an additional consideration along with the 1s 6d being provided which would render some permanence to the deal.

As a result the price of the record was found to be 1s 6d plus an indeterminate price of wrapper 'x'.
Therefore, by observing the case in detail we can understand the fact that consideration may not have a monetary value but can still form a part of valid consideration. As well described by Lord Somervell as, 'A peppercorn does not cease to be a good consideration if it is established that the promise does not like pepper and will throw away the corn'. [iv]

Moreover, the respondents also contended the fact that the royalty which they received which was inadequate and it was later declared in the judgment that the mere fact of insufficiency may not be a ground for making the contract the one which might be invalid. Therefore, the presence of consideration is important not the value attached to that consideration.

Hence, the judgment declared by the House of Lords in this case is quite vital in order to clear the concept of consideration and also shed light on the different aspects of consideration which could have been a source of dispute in various situations.


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