Chappell and Co. v. Nestle Co. Ltd 1960 (Case Summary)

This case is a landmark decision in contract law that clarified the definition of consideration, affirming that even items of nominal or trivial value can constitute valid consideration if they are part of the agreed terms between the contracting parties.

Facts of Chappell and Co. v Nestle Co. Ltd.

1. Nestlé launched a sales promotion offering gramophone records at a discounted price to customers who sent in three chocolate bar wrappers along with a payment of 1 shilling and 6 pence.
2. Chappell & Co Ltd, the copyright holders of the music on the records, argued that the chocolate wrappers did not constitute valid consideration. They contended that under the Copyright Act 1956, section 8, a 6.25% royalty was required on the “ordinary retail selling price” of the records.
3. Since the wrappers were not monetary payment, Chappell & Co. contended that the chocolate wrappers formed part of the consideration for the sale of the records. Therefore, the “ordinary retail selling price” should reflect both the monetary payment and the value of the wrappers.
4. Nestle’s failure to account for the wrappers’ value meant they did not comply with Section 8, resulting in copyright infringement.

Issues framed

1. Whether the  items of nominal or no inherent monetary value, like chocolate wrappers, constitute valid consideration in a contract?
2. Whether the inclusion of such items affect the payment of royalties under copyright law?

Judgment of Chappell and Co. v Nestle Co. Ltd.

The House of Lords examined the principle of consideration under English contract law and its application in royalty agreements under the Copyright Act.

 The Court held that the chocolate wrappers formed part of the consideration as they were explicitly required by the terms of the promotion. It emphasized that consideration need not have inherent value; what matters is that it is part of the contractual bargain. The Court noted that the act of sending the wrappers created additional sales for Nestlé, giving them economic value.

The Court ruled in favor of Chappell & Co., holding that the wrappers constituted consideration, and royalties were payable on the full terms of the promotion. Lord Somervell remarked, “A contracting party can stipulate for what consideration it chooses, no matter how trivial or nominal.”