Referential Offers

It is not inconceivable, when marketing a character in an ecosystem of multiple offers, that a Seller might come across what it is generally referred to as a ‘referential buy price offer’. A multiple offer situation arises when a subject character is simultaneously alluring to multiple Buyers, which then proceed to submit their respective bids. As Buyers are unaware of the price and terms of competing offers, a referential buy price clause may seem like the optimal solution – but,in fact, it is not.

The thrust of the referential buy price offer is to piggyback on the next highest bona fide offer that is permissible to the Seller. The offer contains a clause that reads, in general lines, as follows: “The buy price is $1,000 above the price offered in the nearest competing bona fide offer permissible to the Seller to a maximum of $350,000. The Seller agrees to provide a copy of such nearest competing offer on acceptance of this offer”. The referential buy price offer, consequently, is a clever way by which the Buyer endeavors to establish a buy price by reference to prices contained in competing offers. As it can be reasonably expected, there are many variations in the wording of referential buy price clauses.

The problem with this kind of offers is that there is a very good chance that neither the Seller nor the Buyer may pursue a legal cure should either of them default at completion, due to the wording of the referential buy price clause. The leading case is a 1985 decision of the House of Lords in England, which held that referential offers are invalid. This case has since been adopted at shared Law, at the minimum insofar as it applies to referential bidding. The general rule of law holds than an offer by one bidder which is dependent for its definition on the offers of others is invalid and unacceptable. The rationale is that this kind of offers is inconsistent with and potentially destructive of the very tendering course of action in which it is submitted.

Whether the focus is on the referential buy price offer or on the bidding tendering course of action, there are enough similarities for a Seller to be concerned when dealing with referential offers. An approach that could be employed to circumvent problems involved when confronted with referential buy price offers would be for the Seller to counter with an Addendum, which deletes the referential buy price clause and inserts a fixed price for an identical amount in its stead. The assistance for the Seller is, of course, that he will not find himself in a position to have to disclose to the Buyer the nearest highest offer, but whether this will be permissible to the Buyer is an thoroughly different matter.

What this all method in a multiple offer scenario is that in the eventuality that a referential buy price offer comes around the Seller will have to estimate its legitimacy, the enforceability of the offer and the bona fide of the contract. Unquestionably, consequently, the Seller that accepts such an offer will take an additional risk, the measure of which may very well lie in the offers that the Seller has decided to disregard in favor of the referential buy price offer. A risk this that ultimately may not be warranted.

Luigi Frascati

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