Peppercorn (law)

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Contract law
Formation
Capacity Offer and acceptance Meeting of the minds2 Abstraction principle4,5 Posting rule1 Mirror image rule Invitation to treat Firm offer Consideration1,4 Implication-in-fact Collateral contract
Defences
Misrepresentation Mistake Threats and unequal bargaining power Illegality and public policy Unconscionability Culpa in contrahendo2 Force majeure Frustration of purpose Impossibility Impracticability Hardship Set-off Illusory promise1 Statute of frauds1 Non est factum1 Unclean hands1 Accord and satisfaction1 Exculpatory clause
Interpretation
Parol evidence3 Contract of adhesion Integration clause Contra proferentem UNIDROIT Principles
Dispute resolution
Choice of law clause Forum selection clause Hague Choice of Court Convention Arbitration New York Convention UNCITRAL Model Law Mediation Singapore Mediation Convention Enforcement of foreign judgments Hague Judgments Convention
Rights of third parties
Privity of contract1 Assignment Delegation Novation Third-party beneficiary
Breach of contract
Anticipatory repudiation Cover Exclusion clause Efficient breach Deviation Fundamental breach
Remedies
Specific performance3 Money damages Liquidated, stipulated, or penal damages3 Rescission
Quasi-contractual obligations
Promissory estoppel1 Quantum meruit1 Unjust enrichment Restitution Negotiorum gestio2
Duties of parties
Duty of honest contractual performance (or doctrine of abuse of rights)6 Duty of good faith (also implied covenant of good faith and fair dealing or duty to negotiate in good faith)7 Contract A and Contract B in Canadian contract law6
Related areas of law
Conflict of laws Commercial law
By jurisdiction
Australia Canada China (mainland) Ireland India Saudi Arabia United Kingdom England and Wales Scotland United States
Other law areas
Tort law Property law Wills, trusts, and estates Criminal law Evidence
Notes
1 Specific to common law jurisdictions 2 Specific to civil and mixed law jurisdictions 3 Historically restricted in common law jurisdictions but generally accepted elsewhere; availability varies between contemporary common law jurisdictions 4 Specific to the German Bürgerliches Gesetzbuch and other civil codes based on the pandectist tradition 5 Explicitly rejected by the UNIDROIT Principles of International Commercial Contracts 6 Specific to Canadian contract law both in Québec and in the country's common law provinces 7 Specific to civil law jurisdictions, the American Uniform Commercial Code, and Canadian jurisprudence in both Québec and the common law provinces pertaining to contractual and pre-contractual negotiation
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In legal parlance, a peppercorn is a metaphor for a very small cash payment or other nominal consideration, used to satisfy the requirements for the creation of a legal contract. It is featured in Chappell & Co Ltd v Nestle Co Ltd ([1960] AC 87), an important English contract law case where the House of Lords stated that "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".^[1][2] However, the cited passage is mere dicta, and not the basis for the decision.

In English law, and other countries with similar common law systems, a binding legal contract requires that each party must provide consideration. In other words, each party will give something of value to the other party for the contract to be considered binding.^[3] The situation is different under contracts within civil law jurisdictions because such nominal consideration can be categorised as a disguised gift.^[4] The remainder of this section is a U.S. perception, not English.

However, courts will not generally inquire into the adequacy or relative value of the consideration provided by each party.^[5] So, if a contract calls for one party to give up something of great value, while the other party gives up something of much lesser value, then it will generally still be considered a valid contract, even though the exchange of value greatly favors one side. Courts, however, will reject "consideration" that was not truly bargained for. For example, in the 1904 case Fischer v. Union Trust Co., the Michigan Supreme Court held that the one dollar paid for the sale of real property did not constitute valuable consideration since the transaction had not been bargained for—a dollar was handed to a mentally incompetent "buyer" who then dutifully handed it to the "seller". The dollar was not considered real consideration, not because the dollar was too small an amount, but because it did not induce the seller to part with the property. Such promises that are motivated by love and affection are insufficient to constitute consideration.^[6]

So, in order for an essentially one-sided contract (such as a gift) to still be valid and binding, the contract will generally be written so that one side gives up something of value, while the other side gives a token sum—one pound, dollar, or literally one peppercorn. Peppercorn payments are sometimes used when selling a struggling company whose net worth may be negative. If some party agrees to take it over and assume its liabilities as well as its assets, the seller may actually agree to make a large payment to the buyer. But the buyer must still make some payment, however small, for the company in order to establish that both sides have given consideration.^[7]

A peppercorn is also used in more balanced contracts, where one side wishes to conceal the nature of their payment. For example, since real estate contracts are generally matters of public record, the purchaser of a house may not wish to list the exact amount of the payment on the contract. But there must be some specific payment listed in the contract, or the contract will be considered void for lack of consideration. So the contract may be written to reflect that the house is being sold in return for "ten dollars and other good and valuable consideration". The ten dollars is the "peppercorn" that provides concrete consideration and ensures that the contract is valid, while the actual amount paid for the house is hidden and referred to only as the "other good and valuable consideration".^[8]

Another common example is the English practice of "peppercorn rent", the nominal rental sum for property, land or buildings. Where a rental contract is put in place and the owner of the property wishes it to be rent-free, it is normal to charge a small sum as "peppercorn rent", because if the owner wants to lease the property, he must charge some rent so that consideration exists for both parties. Furthermore, a peppercorn rent is often used as a form of nominal ground rent where a (potentially substantial) premium has also been paid on commencement of a long lease of, say, 99 or 125 years (a "virtual freehold").^[9] The notional collection of the annual peppercorn rent helps to maintain a formal landlord–tenant relationship between the two parties, precluding the risk of a claim for adverse possession from the tenant arising, were no consideration to be paid for an extended period.^[10]

A peppercorn rent is sometimes denominated in whimsical physical goods rather than currency. For example, many of the buildings in London's Covent Garden are leased at a rent of "one red apple and a posy of flowers",^[11] the National Coastwatch station at St Albans Head occupies buildings owned by the Encombe Estate in exchange for "one crab per annum if demanded"^[12] while the Isles of Scilly Wildlife Trust leases untenanted land on the Isles of Scilly from the Duchy of Cornwall for one daffodil per year.^[13]

In response to the ground rent scandal of the 2010s, the Leasehold Reform (Ground Rent) Act 2022 defines a peppercorn rent for the first time in English law as an annual rent of one actual peppercorn and limits ground rent on most new residential long leases to that amount. Besides there being no obligation for a landlord to actually levy the rent, the law also bans landlords from charging any administrative fee for collecting a peppercorn rent.^[14]

The Masonic Lodge of St. George's, Bermuda, rents the Old State House as its lodge for the annual sum of a single peppercorn, presented to the Governor of Bermuda on a velvet cushion atop a silver platter, in an annual ceremony performed since 1816 on or about 23 April.^[15]

The Sevenoaks Vine Cricket Club in Sevenoaks, England, rents the Vine Cricket Ground from Sevenoaks Town Council at a yearly rent of one peppercorn. It is many years since the club paid only one peppercorn for the rent of the pavilion. The council, in return, gives a new cricket ball to Baron Sackville every year if requested.^[16][17]

The University of Bath's main campus is on a 999-year lease from the then Bath City Council. Each year a peppercorn is presented by the Treasurer of the University to the Chairman of the Bath and North East Somerset Council as rent (but also to further the relationships between "town and gown").^[18]

The Australian National University Law Students' Society (ANU LSS) has a magazine called Peppercorn Magazine, which was founded in the 1969. In August 2023, the ANU LSS launched the 'Peppercorn Pedestal', featuring a dried black peppercorn on a small velvet pillow in celebration of the various student traditions involving peppercorns at the ANU College of Law. ^[19][20]

• One-dollar salary