Definition of a Counter Offer
A counter offer in the context of contract law refers to a part or whole rejection of an existing offer, with the purpose of proposing new or amended terms to form the basis of a contract. In such a context, the original offer is effectively rendered void, as the counter proposition can be seen as an offer in and of itself to rectify the agreement to which the original offeror responded. In order to achieve a meeting of the minds, both parties must envisage the same contractual terms for an agreement to materialize, which is precisely where counter offers come into play.
Counter offers are an essential tool in negotiations, as they provide a way of moving deal talks forward by replacing what was considered to constitute a viable contract offer and replace it with a new proposition. For instance, a counter offer would become relevant in the event that a seller looking to offload their property into the market had a buyer who was interested in purchasing the property. However , the buyer enters a counter offer proposition towards the seller that lowers the purchase price of the property, thus rendering any original offer to be overridden. What this does is reject the initial terms of the offer, by replacing such terms with the amended terms of the counter offer.
However, a buyer can continue to place counter offer propositions as many times as they feel necessary until they reach a desirable situation in which a deal can either be shut down, or the terms negotiated to a point of fulfillment. Once the grounds of the offer have been overturned and replaced with a set of conditions that is agreeable to both parties, a deal can be made, and the contract formed on the basis of the latest terms that have been offered and accepted. In theory, such an agreement should be legally enforceable, granted that the terms be legal and that the parties involved be above the age of 18 and of sound mind such that their ability to enter into agreement can never be called into question.
Legal Significance of a Counter Offer
The effect of a counter offer is that the original offer is extinguished. A counter offer is not an acceptance to the original offer but is a new offer changing certain terms of the original offer. The counter offer must be accepted before it can result in a binding contract.
The decision of the House of Lords in Hyde v Wrench 1840 49 ER 109 concluded that an offer is conditional on acceptance of its terms and that any change in the terms of an offer results in a counter offer which voids the original offer. In motion picture news v Universal Film Manufacturing Corporation [1925] 1KB 22 the defendant a distributor of films wanted to distribute a film entitled "Life’s a Riddle Evening Star" but did not own the copyright to the film at the time, they wrote to the plaintiff offering to purchase the film but also expressly required the supply of various letters from the plaintiff and protest conversations etc. The Plaintiff refused to supply the letters but stated that it was necessary for the defendant to provide a license to use the film in their terms of business thereafter the plaintiff sent the defendant a claim for £350. The defendant wrote back accepting the proposal of the plaintiff terms but increased the price by £770. Notice of this counter offer was not actually delivered until after the life’s a riddle evening star had been distributed. The Court of Appeal held that the second letter was a counter offer to the plaintiff’s offer and could not therefore be accepted by the defendant. Where a counter offer is accepted however "the effect of his letter was to accept the counter offer of the defendants and in these circumstances, in my judgment, a binding contract came into existence" it was held that the plaintiffs could sue for breach of the contract. It has also been held that "by accepting the plaintiff’s original offer, in which they appear to have accepted the variations proposed by the defendant towards the end of their first letter, they bound themselves to their agreement" in Manchester Diocesan Council for Education v Commercial & General Investments Ltd [1969] 1WLR 57. In Hyde v Wrench the plaintiff had written to the defendant offering to buy a farm at £1,200 but this was expressly required to be accepted within 2 months, shortly after his offer was declined by the defendant but was stated to hold for "the acceptance before 7th June". On the 7th June the defendant wrote to the plaintiff stating that he would now take £1,000 for the farm which was subsequently rejected by the plaintiff. The plaintiff later wrote to the defendant asking him to reconsider the lower proposal. Although in this instance the defendant ruled out the possibility of selling the farm to the plaintiff it was held that the defendants letter was a counter offer which extinguished the original offer. "A counter offer however is a conditional acceptance, and the condition is that the terms of the original offer shall be changed in the way which the counter offers proposes. A counter offer is in legal contemplation, inconsistent with the original offer" it is important to note that if the offeror wishes to accept a counter offer, he must accept it without any further variation of terms as implicit acceptance of any conditions could result in a new counter offer. A counter offer may prevent the original offer from becoming binding if the offeree withdraws the original offer prior to acceptance of the counter offer. A counter offer must be accepted before it is capable of a binding contract. In the event of the counter offer being accepted a binding contract will occur.
Necessary Elements of a Counter Offer
Not all contracts are so simply defined. Sometimes, the initial offer by one party may not be exactly what the other party is looking for. Rather than simply rejecting this offer and moving on, a potential customer may see value in the deal, but be motivated to change certain terms. In response, the offering party will typically provide a counter offer. A counter offer, by definition, comes as a response to an offer, and changes the terms of the original offer in some way. For this reason, in many jurisdictions, a counter offer constitutes a rejection of the prior offer.
However, even with the best laid intentions and negotiation tactics, a counter offer may fall flat. A counter offer must possess certain elements in order to constitute a legally binding contract. While different jurisdictions may vary, in general, a counter offer must be communicated to the other party and accepted by that party. The counter offer must also modify the initial offer in some way. However, the modification is not required to be material; rather, in some jurisdictions, any modification to the terms of the original offer is sufficient to rise to the level of a counter offer. Thus, very small changes (e.g., a 3% increase in price) may be enough to move a simple negotiation into the territory of a counter offer. In some cases, both parties may assume a counter offer exists, but may argue whether it was sufficiently communicated, or whether the offer came in time to be relevant to the matter at hand.
Counter Offers and Negotiations
Counter offers can have a major impact on negotiations, both in settlement meetings and with respect to contract negotiations. So critical is the subject that many states require the use of the "counter offer" in the wording a court explains to a jury about the process of coming to a decision. If a counter offer is made, that means the parties are continuing to negotiate, and have not yet reached a final agreement on all the details. It also means that contract negotiations are proceeding, even though the buyer and seller have not yet settled all of the terms. As long as communication continues back and forth, negotiations can still be successfully concluded, though the offerer must be careful to go over the new terms, and document all changes to a contract. The offerer might be able to simply submit a written record of the counter offer, with any acceptance in reply to it. A face to face meeting to address a counter offer might also be needed . Negotiations, after all, require built-in flexibility to reach the final outcome. In some cases, the original offer might stand. Both sides might come back together, re-evaluate the original proposal, and decide to forge ahead without any changes to the initial offer and acceptance (in cases of a formal contract) or the verbal agreement (in cases of settlement discussions). In a contract, a counter offer is a proposal that has been explicitly changed by the offerer, and then forwarded to the other party for their review. This is different from language or terms which might be added by the offerer to support a case when going to court. The law controlling contracts is important to the process of counter offers, and all contract negotiations. In the same vein, courts typically look at what they might perceive as an ill-conceived rejection of an offer from one party or another.
Case Law Concerning Counter Offers
Counter-offers have been a frequent subject of disputes and court cases. Notable cases can clarify the law relating to contract and counter-offer.
Hyde v. Wrench [1840]
The defendant offered to sell his estate for £1000. The plaintiff stated in a letter that he was willing to purchase the estate provided that the defendant would agree to lower it to £950. The defendant wrote back, stating that he would sell the estate for £1,000. The plaintiff’s subsequent letter stating that he accepted the defendant’s offer was held to not be a valid acceptance. The plaintiff’s letter constituted a counter-offer which rejected the original offer.
Hyde v. Wrench illustrates that when a counter-offer is made, the original offer is rejected, regardless of whether or not the counter-offer is refused.
Hyde v. Wrench also indicates that the parties may be bound by any agreement reached in negotiations. Work done by only one party prior to the acceptance of an offer by the other party will not make that party liable to an agreement. However, if one party knew about the existence of an agreement prior to entering into a contract with a third party, then the first party does not have any right to claim against the third party.
Hyde v. Wrench also illustrates the key elements of an invitation to treat, which include:
• Firstly, there must be a clear and certain offer made with specific terms that the offeree could accept to conclude a contract.
• Secondly, if the offer is accepted by the offeree, then the contract is binding upon both parties.
Hyde v. Wrench also gave rise to the ‘battle of forms’, which is the existence of two sets of contract terms and conditions which are interfered with by the actions of one of the parties.
Hyde v. Wrench shows that if the parties agreed to the terms and conditions of one party, then they were also bound by the actions of that party.
Hyde v. Wrench also shows that the counter-offer made and rejected in this case was a counter-offer that was made in a letter. However, a counter-offer made in other ways such as orally is a sufficient counter-offer.
Hyde v. Wrench shows that after a counter-offer has been rejected, the original offeror does not reply to it. If the original offeror notified the offeree to not reply to the counter-offer, then the old offeror will not be obligated to respond.
Hyde v. Wrench shows that a letter may be taken as an offer where it is clear and unambiguous, concerning the agreement proposed.
Practical Considerations for Drafting a Counter Offer
A counter offer should always be drafted as if it is the first offer because it may eventually be accepted without negotiation. Do not draft counter offers like a negotiation. A counter offer should be clear, concise, specific, and comprehensive. It is best not to include general disclaimers in a counter offer, such as "subject to negotiation of definitive agreements." If the parties intend to negotiate, they should expressly say so. Completeness of the counter offer is important, because the parties need to know exactly where they stand—and where they will stand after further negotiations. Omitting provisions or making an overly simplified proposal does not help the drafting party. It makes it unclear as to what was agreed to. Essentially, it puts the other party in a difficult position trying to figure out what else needs to be negotiated and whether there are any surprises or hidden agenda items.
A counter offer should direct that the parties work in good faith on an expeditious basis toward a definitive document. If the parties wish to negotiate changes to their existing agreement and/or the terms of a possible definitive agreement , they should expressly state their intention to renegotiate. The scope of any renegotiation can be limited to certain issues of concern, or it can involve the whole agreement. In addition to a negotiation provision, the parties might also consider including a right of first offer to show the parties’ real intention to enter into an agreement. If the counter proposal is not accepted within a specified time period, the right of first offer gives the other party the ability to walk away and even negotiate with another potential party. Sometimes, the failure to respond to the counter offer implies sufficient rejection of the counter offer to permit negotiation with other parties. Silence on the part of the offeree, however, is often not enough in itself to overcome any contractual duty to respond.
