Chappell & Co Ltd v Nestle Co Ltd
|Chappell & Co Ltd v Nestle Co Ltd|
|Court||House of Lords|
|Citation(s)|| AC 87|
|Consideration, adequacy, copyright|
Chappell & Co Ltd v Nestle Co Ltd  AC 87 is an important English contract law case, where the House of Lords confirmed the traditional doctrine that consideration must be sufficient but need not be adequate.
Chappell & Co. owned the copyright to ‘Rockin’ shoes’ (by The King Brothers). Nestle was giving away records of it to people who sent in three wrappers from 6d chocolate bars, as well as 1s 6d. The Copyright Act 1956 s 8 said a 6.25% royalty needed to be paid on the ‘ordinary retail selling price’ to the owners of copyrights. Nestle said 1s 6d was the ordinary retail selling price, but Chappell & Co argued that it should be more and sought an injunction for breach of CA 1956 s 8. In this way the question arose as to whether the wrappers were consideration for the records. Upjohn granted an injunction. The Court of Appeal reversed the decision and Chappell & Co appealed.
The majority of the House of Lords (Lord Reid, Lord Tucker and Lord Somervell) held that the wrappers were part of the consideration, and so Nestle was in breach of the Copyright Act 1956, by failing to pay royalties reflecting the extra cost of the wrappers.
Lord Somervell said the following.
|“||My Lords, section 8 of the Copyright Act 1956, provides for a royalty of an amount, subject to a minimum, equal to 6¼ per cent. of the ordinary retail selling price of the record. This necessarily implies, in my opinion, that a sale to be within the section must not only be retail, but one in which there is no other consideration for the transfer of property in the record but the money price. Parliament would never have based the royalty on a percentage of a money price if the section was to cover cases in which part, possibly the main part, of the consideration was to be other than money. This is in no sense a remarkable conclusion, as in most sales money is the sole consideration. It was not argued that the transaction was not a sale.
The question, then, is whether the three wrappers were part of the consideration or, as Jenkins LJ held, a condition of making the purchase, like a ticket entitling a member to buy at a co-operative store.
I think they are part of the consideration. They are so described in the offer. "They," the wrappers, "will help you to get smash hit recordings." They are so described in the record itself - "all you have to do to get such new record is to send three wrappers from Nestlé's 6d. milk chocolate bars, together with postal order for 1s. 6d." This is not conclusive but, however described, they are, in my view, in law part of the consideration. It is said that when received the wrappers are of no value to Nestlé's. This I would have thought irrelevant. A contracting party can stipulate for what consideration he chooses. A peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away the corn. As the whole object of selling the record, if it was a sale, was to increase the sales of chocolate, it seems to me wrong-not to treat the stipulated evidence of such sales as part of the consideration. For these reasons I would allow the appeal.
Viscount Simonds and Lord Keith delivered dissenting judgments.
- Bret v JS (1600) Cro Eliz 756, love and affection not good consideration
- Evans v Llewellin (1787) 1 Cox CC 333, share of estate sale set aside on grounds of very low price
- Thomas v Thomas (1842) 2 QB 851, there must be sufficient consideration "in the eyes of the law"
- Shadwell v Shadwell  EWHC CP J88, performing a pre-existing duty to a third party still good consideration, or that a request to perform an act already undertaken can be implied
- Fry v Lane (1888) 40 ChD 312, suggested that inadequate consideration not relevant
- In re Wragg Ltd  1 Ch 796, company law case, where Court of Appeal refused to impeach a share sale transaction alleged to have been at an undervalue
- Batsakis v. Demotsis, 226 S.W.2d 673 (1949), an American case in which the court held that a few drachma was good consideration
- PS Atiyah, 'Contract and Fair Exchange' in Essays on Contract (1986)