Counteroffers in Contract Law: What They Are and How They Affect Your Agreements
Negotiating a contract is rarely a single-step process. Offers are made, terms discussed, and sometimes one side wants changes before saying “yes.” This is where counteroffers come into play—a key concept in both California and general contract law. Understanding counteroffers helps you avoid confusion, protect your legal rights, and close deals with confidence.
What Is a Counteroffer?
A counteroffer is a response to an original offer that alters one or more of its terms. Instead of accepting the original offer as stated, the responding party proposes new or modified terms. Legally, a counteroffer acts as a rejection of the original offer and places a new offer on the table.
Example:
Seller offers to sell a car for $8,000. Buyer responds, “I accept, if you include new tires for that price.” This reply is a counteroffer—not an acceptance of the original offer.
Legal Consequences of Making a Counteroffer
Under California law (Cal. Civ. Code §§ 1585, 1586) and the general Restatement (Second) of Contracts § 39, a counteroffer terminates the original offer. The original offeror is no longer legally bound to honor their initial terms unless the counteroffer is accepted. The negotiation process restarts, and no contract is formed until one party clearly and unequivocally accepts the revised terms.
Mirror Image Rule
Traditional contract law follows the “mirror image rule”: acceptance must match the terms of the offer exactly. Any change, addition, or condition in the response constitutes a counteroffer. Only when both sides agree to the same terms does a binding contract come into existence.
UCC Article 2 and Sale of Goods in California
For contracts involving the sale of goods, California has adopted the Uniform Commercial Code (UCC) as part of its Commercial Code. Article 2 allows for more flexibility with what is known as the “battle of the forms.” Under Cal. Com. Code § 2207 (UCC § 2-207), a definite and seasonable expression of acceptance or a written confirmation may operate as an acceptance even though it states terms additional to or different from those offered or agreed upon. However, material alterations are treated as counteroffers, and only accepted terms become part of the contract.
Common Pitfalls in Contract Negotiations
Counteroffers arise frequently in real estate transactions, employment negotiations, business sales, and even routine online purchases. Parties may exchange a series of offers and counteroffers before reaching an agreement. Disputes often occur when one party believes there is already a contract after a counteroffer, or tries to accept the original offer after having made a counteroffer.
Important: Once you make a counteroffer, the original offer is typically revoked unless the offeror has expressly kept it open.
Revocation and Acceptance After Counteroffers
Under contract law, and specifically under California statutes, making a counteroffer terminates the original offer unless stipulated otherwise. If you later wish to accept the original offer, confirm that it is still open—and secure a written acceptance to avoid confusion or legal disputes.
Practical Tips When Negotiating Offers and Counteroffers
Be clear in wording for both offers and counteroffers. Avoid ambiguous or conditional language that may cause confusion.
Document all negotiations in writing.
For contracts involving goods, be aware of how the UCC and California Commercial Code may affect the outcome.
If a transaction is significant, consult a contract attorney before making or responding to counteroffers.
Confirm whether the original offer remains open if you wish to revisit it after making a counteroffer.
Conclusion
Counteroffers are a natural and necessary part of contract negotiation. They signal a willingness to do business—if terms can be adjusted. Remember: counteroffers reject and replace the original offer, and the legal landscape for goods in California follows both classic contract rules and the flexible provisions of the UCC. For clarity and protection, communicate openly, secure documentation, and consult counsel for high-value contracts.
Key Citations:
Cal. Civ. Code §§ 1585, 1586
Cal. Com. Code § 2207 (California’s version of UCC § 2-207)
Restatement (Second) of Contracts § 39
