Facts
- Nestlé ran a promotional campaign offering gramophone records of the song "Rockin' Shoes," for which Chappell & Co held the copyright.
- To obtain a record, customers were required to send in three wrappers from Nestlé chocolate bars along with a payment of 1 shilling and 6 pence.
- Chappell & Co claimed the sales method infringed their copyright, as the Copyright Act 1956 required royalty payments calculated on the 'ordinary retail selling price', and questioned if the wrappers formed part of the consideration for the sale.
- The dispute focused on whether the inclusion of the wrappers as a requirement for purchasing the record altered the nature of the transaction under the relevant statutory provision.
Issues
- Whether the requirement to submit chocolate wrappers, alongside monetary payment, constituted part of the consideration for the contract.
- Whether the sale of records under this scheme complied with the Copyright Act 1956, specifically section 8, regarding royalty calculation.
- Whether a qualifying condition (such as submitting wrappers) could be distinguished from consideration in contract law.
Decision
- The House of Lords held that the chocolate wrappers were part of the consideration for the sale of the records.
- It was determined that the wrappers directly benefited Nestlé by increasing sales of their chocolate bars, making them more than a mere qualifying condition.
- The sale of the records with the wrapper requirement did not fall within the statutory framework of sales requiring only monetary consideration under the Copyright Act 1956.
- Nestlé was therefore not entitled to rely on section 8 for the statutory copyright exemption.
- A minority dissent argued that the wrappers were only a qualifying condition, not consideration, but this view did not prevail.
Legal Principles
- Consideration in contract law can consist of nominal items or actions, and need not be economically adequate; a benefit to the offeror suffices.
- The courts do not evaluate the adequacy of consideration but require that it has some recognized value.
- There is a legal distinction between a condition of an offer and consideration supporting a contract.
- The case reaffirms the ‘peppercorn’ principle: even trivial items may suffice as good consideration if intended as part of the exchange.
Conclusion
Chappell & Co Ltd v Nestle Co Ltd established that items of minimal nominal value, such as chocolate wrappers, can constitute valid consideration in contract law, so long as they have recognized value in the eyes of the law. This decision affirmed that contractual consideration need not be economically equivalent to what is received and clarified the separation between qualifying conditions and substantive consideration, with significant implications for both contract and copyright law.
