REFERRAL SALES CONTRACT
referral sales contract.A dual agreement consisting of an agreement by the consumer to
purchase goods or services (usu. at an inflated price) and an agreement by the seller to compensate
the consumer for each customer (or potential customer) referred to the seller. — Also termed
referral sales agreement. Cf. PYRAMID SCHEME. [Cases: Consumer Protection 12. C.J.S.
Credit Reporting Agencies; Consumer Protection §§ 56–58.]
“The problem inherent in a referral sales contract is the problem inherent in a chain letter —
the success of the arrangement depends on an inexhaustible supply of customers. For example, if
each buyer submits 25 names and each of these ‘referrals’ becomes a buyer under a similar
agreement, the completion of the seventh round of referrals requires 6.1 trillion persons…. Both
courts and legislatures have acted against referral sales…. The Uniform Consumer Credit Code
prohibits the use of referral sales schemes in which the rebate is conditioned on ‘the occurrence of
an event after the time the consumer agrees to buy or lease.’ In other words, a referral scheme
keyed to the consumer merely furnishing names is not affected; a referral scheme keyed to the
consumer furnishing names of people who actually become customers is prohibited.” David G.
Epstein & Steve H. Nickles, Consumer Law in a Nutshell 39 (2d ed. 1981). [Blacks Law 8th]