Counteroffer

A counteroffer is a response to an offer that changes one or more material terms, thereby rejecting the original offer and proposing new terms. It shifts the negotiation by introducing different terms or conditions than those stated in the initial offer.

Under common law, a counteroffer terminates the original offer. An offeree who makes a counteroffer cannot later claim that they accepted the original terms; a contract only forms if the offeror subsequently accepts the new terms. A mere inquiry or request for clarification about terms does not create a counteroffer.

The mirror image rule governs acceptance in many contracts: for an acceptance to be valid, it must mirror the terms of the offer. Any deviation typically creates a counteroffer. The Uniform Commercial Code, which governs many contracts for the sale of goods, relaxes this rule in some cases, allowing certain additions or changes to be treated as part of an acceptance, depending on the circumstances and performance.

Revocation and timing are also important. An offer may be revoked before acceptance unless protected by an option contract or a firm offer under applicable law. Acceptance is generally effective when communicated to the offeror, though the method of communication and the specifics of the contract can affect when a contract is formed.

Practical effects include ongoing negotiations and potential liability if terms become unclear. Clear wording helps prevent disputes, and a counteroffer creates a new basis for binding agreement only if the offeror accepts it.

Example: A offers to sell a car for 5,000. B replies, “I will pay 4,500 in cash.” That reply is a counteroffer; only if A accepts those terms is a contract formed.