Counteroffers in Contract Law: Rules, Examples, and UCC 2-20...

Introduction

A counteroffer is a reply to an offer that changes terms like price, quantity, or timing. Under US common law, a counteroffer rejects the original offer and replaces it with a new one. No contract forms unless the other side accepts the counteroffer. For sales of goods, the Uniform Commercial Code (UCC) allows contracts to form even when forms don’t match, which matters in business-to-business deals.

This guide explains how counteroffers work in real estate, employment, and commercial sales, and shows how to avoid common mistakes that delay or derail agreements.

What You’ll Learn

• What a counteroffer is and how it affects the original offer
• How the common law mirror rule differs from UCC Section 2-207
• The difference between a counteroffer, a simple inquiry, and a conditional acceptance
• How the mailbox rule affects timing of acceptances and rejections
• When a counteroffer does not end the power to accept (options and firm offers)
• Real-world examples in real estate, hiring, and goods transactions
• Practical steps and sample wording you can use in emails and forms
• Common pitfalls in the “battle of the forms” between merchants

Core Concepts

What Is a Counteroffer and What Does It Do?

• Definition: A counteroffer is a new offer made in response to an earlier offer that changes terms in a material way (price, quantity, delivery, warranties, start date, etc.). See Restatement (Second) of Contracts §39.
• Effect: Under common law, a counteroffer rejects the original offer. The original offeree loses the power to accept the original offer unless an exception applies.
• Formation: A contract forms only if the recipient of the counteroffer accepts it.
• Exceptions:
  • Option contracts: If the offeree holds a paid option, a counteroffer does not terminate the option holder’s power to accept within the option period (Restatement §37).
  • UCC firm offers: A signed merchant’s firm offer (UCC §2-205) remains open for the stated time (up to 3 months) even if the offeree makes a counteroffer.

Counteroffer vs. Inquiry vs. Conditional Acceptance

Not every reply that mentions different terms is a counteroffer.

• Mere inquiry (not a counteroffer):
  • “Would you take $320,000?”
  • “Could you ship a week earlier?”
  • These questions don’t reject the original offer if they don’t demand a change as a condition of acceptance.
• Acceptance with a request (still an acceptance under common law if not made conditional):
  • “I accept at $300,000. I’d appreciate a 30-day closing if possible.”
  • Contract forms at the original terms; the request can be granted or declined.
• Conditional acceptance (is a counteroffer under common law):
  • “I accept if you include all appliances.”
  • “I accept provided delivery is within 3 days.”
  • The added condition means no contract forms unless the other party agrees to the new term.
• UCC twist (Section 2-207):
  • A reply that adds terms can still be an acceptance unless it is “expressly made conditional” on assent to the added or different terms. If it is expressly conditional, it’s a counteroffer.

Common Law Mirror Rule vs. UCC 2-207 (Battle of the Forms)

• Common law (services, real estate, non-goods):
  • Mirror rule: Acceptance must match the offer. Any change or new term is a counteroffer.
• UCC 2-207 (sale of goods):
  • A definite and timely expression of acceptance can form a contract even if it states additional or different terms, unless the acceptance is expressly conditional on assent to those terms.
  • Between merchants, additional terms usually become part of the contract unless:
    • The original offer limits acceptance to its terms;
    • The new term materially alters the deal; or
    • The offeror objects within a reasonable time.
  • Different terms: Many states use the “knockout rule,” removing conflicting terms and filling gaps with UCC default rules.
  • If the parties act like they have a contract (ship/pay) but their forms clash, UCC 2-207(3) supplies the contract with terms they agree on plus UCC gap-fillers.

Timing Rules: Mailbox Rule, Receipt, and Options

• Mailbox rule (common law): An acceptance is effective when sent (dispatched). Rejections and counteroffers are effective when received by the offeror.
• Mixed messages:
  • If the offeree sends an acceptance first and a rejection second, the acceptance usually controls unless the rejection arrives first and the offeror relies on it.
  • If a rejection or counteroffer is sent first and an acceptance second, whichever arrives first controls.
• Option contracts: Acceptance is effective upon receipt, not dispatch, for options. A counteroffer does not end the option unless the option terms say otherwise.
• UCC firm offers: A signed merchant’s firm offer is irrevocable for the stated period (up to 3 months). A counteroffer by the offeree does not end the firm offer.

Key Examples or Case Studies

• Real estate offer and counteroffer:

  • John offers $300,000 for Jane’s house with a 45-day closing.
  • Jane replies: “$320,000 and 30 days.” That reply rejects John’s original offer and proposes a new one.
  • If John says “I accept $320,000, 30 days,” a contract forms. If John instead says, “$320,000 is fine but 60 days,” that’s another counteroffer—still no contract.
  • Tip: Real estate contracts usually must be in writing to satisfy the statute of frauds.

• Employment negotiation:

  • Employer offers $60,000, standard benefits, start in 3 weeks.
  • Candidate replies: “I accept at $60,000 if you add a $5,000 signing bonus.” That is a counteroffer.
  • If the candidate writes, “I accept $60,000. Would you consider a $5,000 signing bonus?” that is an acceptance with a request. The job is accepted; the bonus is negotiable.

• Goods sale with battle of the forms:

  • Company A sends a purchase order for widgets at $10,000, delivery in 14 days.
  • Company B sends an acknowledgment accepting the order and adds an arbitration clause.
    • If B’s acceptance is not expressly conditional on the arbitration clause, a contract forms. The arbitration clause may or may not become part of the contract depending on merchant status and whether it materially alters the deal.
    • If B’s document says, “Acceptance is expressly conditional on your assent to the arbitration clause,” then B’s reply is a counteroffer. If shipment and payment occur anyway, UCC 2-207(3) likely applies, and conflicting terms may be knocked out.

• Case: Normile v. Miller (N.C. 1985)

  • Facts: Buyer made an offer on a house. Seller made a counteroffer. Buyer tried to accept the original offer after learning the property was sold to someone else.
  • Holding: The counteroffer rejected the original offer, so the buyer could not accept it later.
  • Lesson: A counteroffer ends the original offer; act quickly on the terms that are currently on the table.

• Case: Ardente v. Horan (R.I. 1976)

  • Facts: Buyer sent back a signed purchase agreement along with a letter that made acceptance depend on sellers leaving certain furnishings.
  • Holding: The “acceptance” was conditional and therefore a counteroffer. No contract formed.
  • Lesson: If your acceptance depends on extra terms, it’s a counteroffer unless the other side agrees.

• Case: Brown Machine, Inc. v. Hercules, Inc. (Mo. App. 1989)

  • Facts: Buyer’s purchase order omitted an indemnity term. Seller’s acknowledgment added one. Seller did not make acceptance expressly conditional. Goods were delivered and accepted.
  • Holding: A contract formed, but the indemnity term did not become part of it.
  • Lesson: Under UCC 2-207, added terms don’t always enter the deal; check whether the term materially alters the agreement or the offer limits acceptance.

Practical Applications

• Decide what you want your reply to do:

  • To accept while keeping goodwill: “I accept your offer. Would you be open to [request]?” Avoid phrasing that makes the request a condition.
  • To make a counteroffer: State clear new terms and a response deadline.
  • To keep the original offer alive while asking questions: Use non-committal language like “This is an inquiry, not an acceptance or rejection.”

• For sales of goods (UCC):

  • If you want your added terms to be binding before performance, use clear “expressly conditional” language and wait for assent.
  • If you are the offeror, add “This offer expressly limits acceptance to its terms.” Object promptly to any added terms.
  • Track merchant status: Additional terms between merchants may become part of the contract unless they materially alter the deal or you object in time.

• For real estate:

  • Put counteroffers in writing and track version numbers or use standardized addenda.
  • Be specific about price, closing date, contingencies, and deadlines to accept.

• For employment:

  • Mark conditional replies clearly (“I accept if…”), or send an acceptance plus a separate request if you don’t want to risk losing the offer.
  • Confirm start dates, compensation, and any bonuses in writing.

• Manage timing risks:

  • Remember: acceptances are generally effective when sent; counteroffers and rejections are effective when received.
  • If you send mixed messages (acceptance and rejection), call or email to confirm what should control.
  • With options or firm offers, acceptance is effective on receipt; plan accordingly.

• Preserve bargaining power:

  • Use options (or UCC firm offers) to hold terms open while you evaluate.
  • In high-stakes deals, say “no oral acceptance” and require signed writings to avoid disputes.

• Check related rules:

  • Statute of frauds: real estate and many goods deals ($500 or more) often need a signed writing.
  • Method of acceptance: if the offer specifies a method or deadline, follow it exactly.

Summary Checklist

• Know the rule: A counteroffer rejects the original offer (common law).
• Distinguish:
  • Inquiry vs. counteroffer
  • Acceptance with a request vs. conditional acceptance
• For goods:
  • UCC 2-207 can form a contract despite different terms unless acceptance is expressly conditional.
  • Between merchants, added terms may become part of the contract unless they materially alter the deal, the offer limits acceptance, or you object.
• Timing:
  • Acceptances are effective when sent; rejections and counteroffers are effective when received.
  • Option contracts and UCC firm offers stay open despite counteroffers; acceptance is effective on receipt for options.
• Document everything:
  • Use clear language, deadlines, and signatures where required.
  • Keep copies of offers, counteroffers, acceptances, and objections.

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