California First-Year Law Students' Exam (Baby Bar) — MCContractsEasy
A homeowner offers to sell their antique desk to a collector for $1,000. The collector responds, 'I will buy it for $900.' The homeowner rejects this. The collector then states, 'Okay, I accept your original offer of $1,000.' Is there a binding contract?
- ANo, because the collector's acceptance was not immediate.
- BNo, because the collector's initial response constituted a counteroffer.
- CYes, because the homeowner did not revoke the original offer before the collector's final acceptance.
- DYes, because the collector ultimately accepted the original offer.
Show answer & explanationAnswer & explanation
Correct answer: B. No, because the collector's initial response constituted a counteroffer.
A counteroffer acts as a rejection of the original offer and creates a new offer. Once the original offer is rejected by a counteroffer, it cannot be subsequently accepted unless the original offeror renews it.
Why the other options are wrong
- A. Timeliness of acceptance is a factor, but the primary issue here is the effect of the counteroffer on the original offer's viability.
- C. The original offer was terminated by the counteroffer, not by a separate revocation from the homeowner.
- D. Once rejected by a counteroffer, the original offer is terminated and cannot be unilaterally accepted.
Counteroffer Effect
A response to an offer that changes its terms. A counteroffer acts as both a rejection of the original offer and a new offer from the original offeree to the original offeror. The original offer is terminated by the counteroffer and cannot be accepted unless renewed.
- Rejects the original offer.
- Creates a new offer.
- Terminates the power of acceptance of the original offer.
- Must be accepted by the original offeror to form a contract.
Memory trick: Offer and acceptance are the two hands that clap to make a contract.