VII. WHEN ACCEPTANCE BECOMES EFFECTIVE

A. Mailbox rule: In most courts, the acceptance is effective upon proper dispatch. This is called the "mailbox" rule.

Example: On July 1, A offers to sell 100 widgets to B at $5 apiece. On July 2, B deposits a properly-addressed acceptance in the mail. On July 10, A finally receives the letter, several days later than would ordinarily be expected from first-class mail. A contract was formed on July 2. Any attempt at revocation by A on, say, July 5, would have been ineffective.

1. Offer provides otherwise: The "mailbox" rule does not apply if the offer provides otherwise (e.g., "This offer will be accepted when and if your letter of acceptance is personally received by me").

2. Lost in transmission: If the acceptance is lost in transmission or delayed, the applicability of the mailbox rule depends on whether the communication was properly addressed.

a. Properly addressed: If the acceptance is properly addressed, it is effective at the time of dispatch even if it is lost and never received by the offeror at all. (But a court might "discharge" the offeror in this circumstance, for instance if he had sold the goods to someone else.)

b. Not properly addressed: If the acceptance is not properly addressed, or not properly dispatched (e.g., sent by an unreasonably slow means), it will be effective upon dispatch only if it is received within the time in which a properly dispatched acceptance would normally have arrived. If it comes later than this "normal" time, it will not be effective until receipt.

B. Both acceptance and rejection sent by offeree: If the offeree sends both an acceptance and rejection, the rule depends on which is dispatched first.

1. Rejection sent first: If the rejection is sent first, then the acceptance will be effective if (and only if) the offeror receives it before he receives the rejection.

2. Acceptance dispatched first: If the acceptance is sent before the rejection, the acceptance is effective upon dispatch, and the subsequently-dispatched "rejection" (really a "revocation of acceptance") does not undo the acceptance, whether that rejection is received by the offeror before or after he receives the acceptance.

C. Option contracts: The acceptance of an option contract is effective upon receipt by the offeror, not upon dispatch.

D. Risk of mistake in transmission: The risk of a mistake in transmission of the terms of the offer is upon the offeror. That is, a contract is formed on the terms of the offer as received by the offeree. (Example: A intends to offer to sell 100 widgets at $5 each. Instead, the telegraph company transmits the offer as an offer to sell 200 widgets at $4. If B accepts without knowledge of the error, A will be stuck having to sell 200 widgets at $4.)

1. No right to "snap up" obviously wrong offer: However, if the offeree knows or should reasonably have known that the offer has undergone a mistake in transmission, he cannot "snap up" the offer.

VIII. INDEFINITENESS

A. Generally: No contract will be found if the terms of the parties' "agreement" are unduly indefinite. (Example: A and B agree that B will buy widgets from A from time to time. The parties do not decide anything about quantity, price, delivery, etc. A court would probably find that even though A and B may have meant to conclude a binding agreement, the absence of terms makes their agreement void for indefiniteness.)

1. Court supplies missing term: But if the court believes that the parties intended to contract, and the court believes that it can supply a "reasonable" value for the missing term, it will generally do so.

a. UCC: The UCC expressly allows the court to fill in terms for price, place for delivery, time for shipment, time for payment, etc., as long as the parties have intended to make a contract. See §2-204(3). The UCC also implies a term requiring good faith in every contract for the sale of goods. §1-203.

b. Non-UCC: In non-UCC cases, most modern courts follow this "supply the missing term on a reasonable basis" approach, as long as the parties have shown an intent to create a binding contract.

c. Too indefinite: But there may be situations where even though the parties intended to create a binding contract, they have fleshed out the terms of their deal so little that the court simply cannot meaningfully supply all of the missing terms. In that case, the court will find the agreement void for indefiniteness. (But this is rare.)

2. Agreement to agree: Similarly, the court will generally supply a missing term if the parties intentionally leave that term to be agreed upon later, and they then don't agree. See, e.g., UCC §2-305(1)(b), which allows the court to supply a reasonable price term if "the price is left to be agreed by the parties and they fail to agree.…"

3. Part performance: Even if an agreement is too indefinite for enforcement at the time it is made, the subsequent performance of the parties may cure this indefiniteness. (Example: A contracts to make a suit for B, without specifying the type or color of material to be used. This is probably unenforceable for indefiniteness when made. But if A begins to make the suit with gray cotton cloth, and B raises no objection, the indefiniteness will be cured by this part performance.)

IX. MISUNDERSTANDING

A. General rule: If the parties have a misunderstanding about what they are agreeing to, this may prevent them from having the required "meeting of the minds," and thus prevent a contract from existing. No contract will be formed if: (1) the parties each have a different subjective belief about a term of the contract; (2) that term is a material one; and (3) neither party knows or has reason to know of the misunderstanding.

Example: A offers to ship goods to B on the steamer "Peerless." B accepts. Unknown to both, there are in fact two steamships by this name. A intends to use the later one; B subjectively intends to get shipment on the earlier one. Because both are in subjective disagreement about the meaning of a material term, and neither has reason to know of the disagreement, there is no contract. [Raffles v. Wichelhaus]

1. Fault: Conversely, if one party knows or should know that he has a different understanding as to the meaning of an ambiguous term than the other, a contract will be formed on the term as understood by the other (innocent) party. (Example: Same facts as above example. This time, A knows or should know that there are two Peerlesses, and knows or should know that B means the earlier one. B doesn't and shouldn't know know that there are two. A contract is formed for shipment on the earlier (the one understood by B, the "innocent" party).)

B. Offeree doesn't understand offer: Where the offeree fails to understand or read the offer, a similar "fault" system applies:

1. Offeree is negligent: If the offeree's failure to read or understand the offer is due to his own negligence, he is bound by the terms of the contract as stated in the offer.

2. Misrepresentation: But if the offeree's misunderstanding is due to the offeror's misrepresentation of the terms of the offer, and the offeror knows this, there is a contract on the terms as understood by the offeree.