Lecture on Counter-Offer in Contract Law

 

                                             Lecture on Counter-Offer in Contract Law

Introduction: In contract law, the concept of a counter-offer is an important aspect of how contracts are formed. A counter-offer occurs when an offeree (the person receiving the offer) responds to an offer by proposing different terms, thereby rejecting the original offer. The counter-offer itself acts as a new offer, which the original offeror (the person making the offer) may accept or reject.

In this lecture, we will explore the definition of a counter-offer, its characteristics, its legal significance, and how it affects the process of contract formation.

 

1. What is a Counter-Offer?

A counter-offer is a response to an initial offer in which the terms of the original offer are changed or modified. It is a form of rejection of the original offer because it introduces new conditions, and as a result, the original offer can no longer be accepted.

Key Points:

• A counter-offer is a rejection of the original offer.
• It becomes a new offer that can be accepted or rejected by the original offeror.
• Once a counter-offer is made, the original offer no longer exists.

 

2. Characteristics of a Counter-Offer

A counter-offer has the following key characteristics:

• Rejection of the Original Offer: When a counter-offer is made, it automatically rejects the original offer. This is a crucial point, as the original offer is no longer valid for acceptance once a counter-offer is made.

Example:
If A offers to sell his car for 1,00,000 Taka to B, and B responds with a counter-offer to buy it for 90,000 Taka, A’s original offer is no longer valid.

• New Terms: A counter-offer introduces new terms or modifications to the original offer. These could be changes in price, time, quantity, or other conditions. The counter-offer becomes a new offer in its own right.

Example:
If A offers to sell a book for 500 Taka, and B responds with a counter-offer of 450 Taka, the counter-offer changes the price, and the original offer is no longer valid.

• The Counter-Offer is a New Offer: A counter-offer is not an acceptance of the original offer. Instead, it is a new offer with new terms. The original offeror is now free to accept, reject, or make a new counter-offer in response.

 

3. Legal Implications of a Counter-Offer

1. Rejection of the Original Offer

• A counter-offer immediately terminates the original offer. The original offeror cannot accept the original offer once a counter-offer has been made. This is important because a counter-offer ends the negotiation on the original terms.

Example:
If A offers to sell a bicycle to B for 5,000 Taka, and B offers to buy the bicycle for 4,500 Taka, A’s original offer is no longer valid. If A agrees to sell the bicycle for 4,500 Taka, this becomes a new contract.

2. Counter-Offer as a New Offer

• A counter-offer is treated as a new offer, which means the original offeror can either accept, reject, or propose a counter-offer in response.

Example:
A offers to sell a mobile phone for 12,000 Taka, but B offers 10,000 Taka. This is a counter-offer, and A is free to either accept, reject, or make a new counter-offer.

3. No Acceptance without Response

• If the counter-offer is not accepted, the original offeror has no obligation to follow through on the original terms. There is no contract until the counter-offer is accepted.

 

4. Counter-Offer vs. Inquiry or Request for Information

It is important to distinguish between a counter-offer and an inquiry or request for information. An inquiry or request for information does not reject the original offer but seeks clarification or modification of terms without changing the offer's conditions.

• Example:
  If A offers to sell a house for 5 million Taka, and B asks, "Can I pay in installments?" this is an inquiry. It does not reject the offer but seeks additional information. A counter-offer would involve changing the price or terms, such as offering 4.5 million Taka.

 

5. Examples of Counter-Offers in Everyday Life

Here are some real-life examples of counter-offers:

1. Real Estate Negotiations: A offers to sell a house for 50 lakh Taka, and B offers to buy it for 45 lakh Taka. This is a counter-offer, and A can either accept, reject, or counter-offer a new price.
2. Salary Negotiation :A offers a job to B with a salary of 40,000 Taka per month. B counter-offers with a salary of 45,000 Taka. This counter-offer will be either accepted or rejected by A.
3. Online Shopping: An online retailer offers a product for 1,500 Taka, and the buyer offers to purchase it for 1,200 Taka. The seller can either accept the counter-offer, reject it, or make a counter-counter offer.
4. Rental Agreements: A landlord offers a property for rent at 30,000 Taka per month. The tenant offers to pay 28,000 Taka instead. This is a counter-offer, and the landlord is free to either accept or reject it.
5. Business Deals: Company A offers Company B a partnership for 10 lakh Taka. Company B counter-offers with a demand for 12 lakh Taka. The original offeror can either accept the counter-offer or make a new proposal.

 

6. Counter-Offer and Acceptance: When Do They Form a Contract?

A contract is only formed when the counter-offer is accepted by the original offeror, without further changes or conditions. Until both parties agree on the final terms, there is no contract.

• Example:
  If A accepts B’s counter-offer to buy the bicycle for 4,500 Taka, the contract is formed. If A rejects or does not respond to B’s counter-offer, no contract exists.

 

7. The Effect of Multiple Counter-Offers

When there are multiple counter-offers, each new offer is a rejection of the previous offer. Each time an offer is made, the previous terms are terminated.

• Example:
  A offers to sell a bicycle for 5,000 Taka. B counter-offers with 4,500 Taka. A rejects and counter-offers with 5,200 Taka. Now, B must either accept or reject A’s new offer.

Here are two famous cases related to counter-offers in contract law:

1. Hyde v. Wrench (1840)

Facts:
In this case, Wrench offered to sell his farm to Hyde for £1,000. Hyde responded with a counter-offer to purchase the farm for £950. Wrench rejected this counter-offer and later attempted to hold Hyde to the original offer of £1,000.

Decision:
The court held that Hyde’s counter-offer to purchase the farm for £950 rejected the original offer. Once a counter-offer is made, the original offer is considered terminated. Since Hyde did not accept the original offer after making the counter-offer, no contract was formed.

Key Point: A counter-offer terminates the original offer, and the original offeror is no longer bound by the original terms. For a contract to form, the counter-offer must be accepted.

 

2. Stevenson v. McLean (1880)

Facts:
McLean offered to sell a quantity of iron to Stevenson and gave him a deadline to accept the offer. Stevenson responded with a counter-offer, requesting clarification about the payment terms. Before McLean could accept the counter-offer, he withdrew his initial offer.

Decision:
The court ruled that Stevenson’s response was a counter-offer, not an acceptance. The counter-offer created a new offer, and McLean's original offer was no longer valid once the counter-offer was made. McLean's subsequent withdrawal of the offer was valid, as the original offer was terminated by the counter-offer.

Key Point: A counter-offer acts as a rejection of the original offer and replaces it with a new offer. The original offeror can withdraw the offer after a counter-offer has been made.

 

These cases are foundational in understanding the concept of counter-offers in contract law, illustrating that a counter-offer replaces the original offer and terminates it.

 

8. Conclusion:

A counter-offer is a rejection of the original offer and creates a new offer. It is a critical concept in contract law, as it determines when an agreement can be formed. Understanding the difference between an acceptance and a counter-offer helps clarify how contract negotiations work.

 

Key Takeaways:

• A counter-offer replaces the original offer and introduces new terms.
• The original offeror is free to accept, reject, or make a counter-offer in response.
• A counter-offer can only lead to a contract if it is accepted by the original offeror without further changes.