By:- Pragya Shukla
|NAME OF THE CASE
|CHAPPEL AND COMPANY LIMITED & OTHERS vs. THE NESTLE COMPANY LIMITED
|HOUSE OF LORDS
| AC 87
|LORD VISCOUNT SIMONDS, LORD REID, LORD TUCKER, LORD KEITH OF AVONHOLM, LORD SOMERVELL OF HARROW
|DATE OF THE CASE
|18th June 1959
|CHAPPEL AND COMPANY LIMITED & OTHERS
|THE NESTLE COMPANY LIMITED
|STATUTE/ SECTION INVOLVED
|COPYRIGHT ACT, 1956, SECTIONS 8(a),8(b),8(c)& 8(d) OF THE COPYRIGHT ACT, 1956
|CONSIDERATION, ADEQUACY, COPYRIGHT
This is a landmark case which cleared the concept of consideration from its roots and girth. Chappell Company Ltd. & others vs Nestle Company Ltd. basically circumscribes the dispute over the validity of consideration of the chocolate wrappers. In other words this case highlights the importance of consideration , its sufficiency and adequacy.
In this case it was asserted that anything can be taken as consideration even though it does not have any monetary value. The fact that the chocolate wrappers were worthless and did not prove to be a sufficient by-product does not make it ineligible to serve as consideration.
Chappell Company Ltd. & others vs Nestle Company Ltd. clarifies the fact that the presence of a consideration which has no monetary value or insufficient value does not cause it to be invalidated. As a result the defendant’s claim that the wrappers were the only qualifications to receive the music record turned out to be false. Therefore, it was declared that the wrappers had some value to the Nestle company as they had the potential to increase its sales along with the level of profit. Hence, they should be considered as an additional consideration along with 1s 6d provided by Nestle to give some stability to the deal.
BACKGROUND OF THE CASE-
Consideration is considered an essential element of a valid contract, largely for historical reasons. Contract law was created to protect the rights and interests of the parties for the purpose of commercial transactions. Commercial transactions always involve some exchange, so it’s often assumed that all contracts will involve an exchange, called a consideration. The major issue raised in this case revolves around the adequacy of consideration.
Nestle ran a sales promotion whereby individuals were sent a record of 3 chocolate bar wrappers in a postal order for 1 shilling 6d. Chappell owned copyright in one of the records offered by Nestle and disputed Nestle’s right to offer the records and sought an injunction to prevent sales of the record, which usually retailed at 6 shillings 8d.
They further claimed that under Section 8 of the Copyright Act 1956, retailers were protected from copyright infringement if they served notice to copyright holders of the original retail sale price and were entitled to be paid 6.25% of it. Nestle later noticed that the typical selling price was 1 shilling 6d and three chocolate bar wrappers.
The question for the court was whether the wrappers of the chocolate bar could be considered as consideration or not. If they could be, it would be impossible to ascertain the value they represented and therefore Nestle would not be able to accomplish its obligation to report the original retail selling price. If wrappers were merely a token or condition of the sale rather than a consideration, the notice would prevail and Nestle could sell the record.
FACTS OF THE CASE-
- Winneton Corporation was the sole owner of the copyright of a musical work called “Rockin’ Shoes“. The sole licensee was Chappell & Company Limited.
- The Hardy Record Manufacturing Company Limited made gramophone records for an advertising campaign and sold them to Nestle for four pence.
- Nestle placed these records on cardboard that contained the advertising case for their chocolates.
- They sold each record as 1s 6d and three wrappers of their six Penny Milk Chocolate bars.
- Under the Copyright Act, 1956, the creators were entitled to inform the copyright owner of their intention to reproduce a record of the work for retail; which was made by Hardy Record Manufacturing Company.
- The copyright owners were also bound to get to six and a quarter percent of the cost of the ‘ordinary retail sale price’ of the record under the Copyright Act, 1956.
- The cost of the records was not considered purely monetary by the appellants as they were not in compliance with the Copyright Act, 1956. This was because they were receiving royalties only on 1st and 6d which were not taken into account when calculating royalties.
- The appellants filed for an injunction and sued the defendants for infringing and violating their copyrights.
ISSUES RAISED BEFORE THE COURT-
- The major issue raised before the Court was whether the three wrappers for the Nestle’s Six Penny Milk Chocolate bar could be considered as a part of consideration or just a record for the buy-ability of the contract}?
- The second major issue raised before the Court was regarding the definition and meaning of Ordinary Retail Selling Price?
ARGUMENTS RAISED BY THE PETITIONER-
- It was contended by the petitioner that the wrappers were valuable to Nestle despite of having any monetary value.
- It was further contended that the petitioner was receiving only the royalty calculated on the monetary value of the consideration which basically implies that the Copyright Act, 1956 was not complied with it.
- It was objected that if the wrappers serve as ‘qualification’ to buy a record, they must have some permanence. The fact that the buyer is devalued from being eligible to purchase the record after only one transaction shows that the wrappers do not represent merit, but an additional consideration.
- Ultimately it was stated by the petitioner that the term ‘original retail selling price’ implies a monetary value attached to any sale of goods to the consumer.
- Thus it was asserted that-“the record price is 1s 6d plus an indeterminate ‘x’.”
ARGUMENTS RAISED BY THE RESPONDENT-
- It was contended that the term ‘ordinary retail selling price’ refers to the selling price of the product under normal circumstances, when the item is to be sold at cut prices. Thus, the copyright owner should not receive blow by the reduction of royalties, due to lack of demand. This was done in order to protect the royalties of the copyright owner.
- It was claimed by the respondent that if two people are interested in buying Nestle’s chocolates, the one who wants the record has to pay 1s 6d more to the company than the other while the other need not bother with the mentioned price.
- It was contended by the respondent that the chocolate wrapper only makes them eligible to buy the record and is not part of the price.
- It was stated that the chocolate was purchased outside of the contract made to buy a record and thus would be considered for inclusion in a contract of record – which is not a consideration.
- It was objected that the extent of sales for a certain eligible class of people does not mean that it is not retailing.
- Thus, it was finally contended that there was no infringement of copyright, as there was compliance with the Copyright Act, 1956.
Some relevant provisions which hold great importance in this case are as follows:
Copyright Act, 1956 (United Kingdom):-
The Copyright Act 1956 is an Act of the Parliament of United Kingdom that came into effect on 5 November 1956. The basic aim of the Copyright Act was to harmonize the copyright law with the international law and technological advancements.
- Section 8-
Copyright in a musical work is not infringed upon by a person who records the work or its adaptation in the United Kingdom, if—
- records of the work or of a similar adaptation of the work has been previously made or imported into the United Kingdom for the purpose of retail sale or is in consideration with the copyright of the work by the owner or a person having his consent and license;
(b) prior to the making of the record, the producer/ manufacturer has given the copyright owner prescribed notice of his intention to make it;
(c)the manufacturer intends to sell the record by retail, or intends to supply it to any other person for the purpose of being sold by retail or intends to use it to make other record which may be sold or to be supplied;
(d) in the case of records sold by retail, the manufacturer pays to the owner of the copyright in the prescribed manner and at such time, royalty of the prescribed amount in accordance with the following provisions of this section.
- Monetary Value of Consideration: –
It is a variant of the general principle that whenever a dispute arises the court does not examine the matter whether there was some monetary value involved in the deal between the two parties or whether it was financially justified. But only the fact that each party has passed on a legal obligation or duty to the other party is always relevant. The main concern should be the presence of consideration and not the adequacy of consideration. The value of the consideration passed between the two parties should not be treated as comparable.
- Inadequacy of Consideration:-
Inadequacy of consideration as a term means not being sufficient or equal in value to the commodity given in return for the consideration. The essence of a consideration for a contract is distinct from its value and is an important distinction between inadequacy of consideration and failure to provide a consideration. The former may have no effect on the contract, while the latter may have a harmful and disastrous effect on the validity of the contract.
The decision was given by the House of Lords with a majority of 3:2 and it was held that the wrappers were a legitimate part of consideration, even though they were worthless and were often thrown out by Nestle itself. The judgment made it quite clear that consideration of a contract must be sufficient instead of being adequate. The case highlights the adequacy of consideration and reaffirms the stance of English law that consideration in its literal sense can be anything and that ‘anything’ should not be confined to a thing having a monetary value only.
The Nestle company intended to increase sales of its chocolates by providing the offer in which the music was not for the purpose of trade. Therefore, it was observed that the wrappers were shipped implying that chocolates were being bought. Thus, it was said that wrappers were formed as a reward and not merely for the purpose of buying although it may seem unusual that an item that has negligible value and is considered completely worthless may be considered as a consideration for the promise. Therefore, Nestle’s contention that receiving and distributing the wrappers was only a condition providing eligibility for purchase and not a part of consideration was found invalid.
Therefore, by analysing the case and looking at the gravity of the matter in detail, we can understand the fact that even though something may not have monetary value, it can still form a part of valid consideration. The judgment declared by the House of Lords in this case is extremely essential to clarify the concept of the consideration and also throws light on the various aspects of consideration which could serve as a source of contention in different situations. Thus, we can say that consideration is the compensation that one party promises to reward other.