Cameron Miranda
A unilateral contract is a type of agreement in which one party, the offeror, makes an offer to another party, the offeree, without any obligation for the offeree to complete the task or action. Unlike bilateral contracts, which involve mutual promises and obligations, unilateral contracts are one-sided and only become legally binding once the offeree performs the requested act. The offeror is then required to fulfil their promise. Unilateral contracts are common in daily life, such as offering rewards for lost pets, and can also be used in business contexts, such as sales incentives. Understanding the distinction between unilateral and bilateral contracts is essential for navigating various legal and business scenarios effectively.
| Characteristics | Values |
|---|---|
| Type of contract | Unilateral |
| Number of parties involved | One party, the offeror |
| Nature of the contract | One-sided |
| Obligation of the offeree | None |
| Nature of the offer | May or may not be accepted |
| Acceptance of the offer | Through completion of the task |
| Legally binding | Yes |
| Revocation | Allowed before the offeree starts performing |
| Nature of revocation | Cannot revoke after the offeree has started performing |
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What You'll Learn
Unilateral vs. bilateral contracts
Unilateral and bilateral contracts are two types of contracts that are commonly encountered in business. A contract is an agreement mutually decided by two or more parties to create a legal obligation. The primary distinction between unilateral and bilateral contracts is the number of parties making promises and the amount of reciprocal obligation from each party.
A unilateral contract is formed when one party, the offeror, makes an offer to another party, the offeree, who has agreed to act pursuant to the contract. The offeree is not required to complete the task or action and has no obligation to perform that act. The offeror can revoke a unilateral contract at any time before the offeree begins performing its requirements. However, once the offeree starts physically performing the contract, the offeror can no longer revoke the contract. Rewards are a common type of unilateral contract. For example, an offeror puts up a reward sign for their lost dog. If someone sees the sign and wants the reward, they must find the dog to earn the reward money. Nobody is required to search for the dog, but whoever wants the reward must find the dog.
On the other hand, a bilateral contract involves mutual promises and obligations between two or more parties. Both parties agree to perform an action and have specific duties they must fulfil. For a bilateral contract to be valid, the offeror must make an offer that is accepted by the offeree. Both parties have a firm agreement and promise to perform their respective contractual obligations. An example of a bilateral contract is an employment agreement, where you agree to work for an employer, and they agree to pay you.
Understanding the distinction between unilateral and bilateral contracts is crucial for effective contract management and implementation. Bilateral contracts are more commonly used for basic business transactions, such as purchasing goods or services. Unilateral contracts, on the other hand, are often used for reward offers or requests for labour.
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Legally binding requirements
A unilateral contract is a legally binding agreement in which one party, the offeror, makes an offer to another party, the offeree, without any obligation for the offeree to accept or complete the terms of the contract. The contract is formed and becomes legally binding only when the offeree performs the requested act or service as per the offeror's terms.
To be legally binding, a unilateral contract must contain certain elements. Firstly, there must be an offer: a clear and definite conditional promise made by the offeror to the offeree. This offer is accepted by the offeree through their performance of the requested act or service, forming the contract.
Secondly, there must be consideration, which refers to the benefit or value that the offeree provides in exchange for the offeror's promise. In a unilateral contract, the offeree's performance of the requested act constitutes the consideration.
Thirdly, both parties must have the intention to create a legally binding contract. If either party does not intend to be legally bound, the contract is not valid.
Finally, there must be mutual agreement and certainty, with all parties understanding the contract terms. The element of legal consideration defines the form of payment agreed upon by both parties.
It is important to note that the offeror can revoke a unilateral contract at any time before the offeree begins their performance. Once the offeree has started performing the requested act, the offeror can no longer revoke the offer and must fulfill their promise, even if the offeree has not completed the task.
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Revoking a unilateral contract
A unilateral contract is a contract in which one party makes a promise to another party in return for an act or performance. The contract is not binding until the offeree completes the act or performance. In other words, the contract is formed once the offeree fully performs.
On the other hand, in the case of a reward-type unilateral contract, the contract can be revoked at any time before the offeree completes the required act. For example, if the contract involves finding a lost dog, the offeror can revoke the contract at any time before the dog is found. It is important to note that the revocation of a reward-type unilateral contract must be clearly conveyed by the offeror.
The death or incapacity of the offeror does not affect the offeree's power of acceptance once they have started performing. However, the offeree's power of acceptance may be terminated by operation of law if there are changed circumstances.
It is worth noting that some sources suggest that a unilateral contract can become binding once the offeree starts performing, and the offeror cannot revoke the offer at that point. However, the offeree is not obligated to complete the performance.
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Acceptance by performance
A unilateral contract is a contract where the offeror makes a promise in exchange for an act. The offeree is not obligated to complete the task or action. In other words, a unilateral contract does not bind the offeree to accept the offeror's request. There is no requirement to complete the task. The offeree can only accept a unilateral contract by performing the requested act.
In the case of a unilateral contract, the offeree must complete the required performance. Simply beginning the performance is not enough. Once the offeree completes the performance, the offeror must abide by the contract, usually by paying money for the completion of the act. If the offeror fails to honour their commitment after the offeree has performed, the offeror has breached the contract and may be held liable.
An example of a unilateral contract is where an offeror puts up a reward sign for their lost dog. If someone sees the sign and wants the reward, they can only get the reward if they find the dog. It is not enough for the person to promise to find or look for the dog—the person must find the dog to earn the reward money. Nobody is required to search for the dog, but whoever wants the reward must find the dog.
In some cases, the offeree may learn of the offer while they are in the process of completing the requested performance. If that happens, they can still accept the offer. For instance, Company A posts a message offering a bonus to any employee who completes six months of work. Three months after being hired, Mary learns of the offer. If she completes the required six months, she has accepted the offer by fully performing the requested act.
It is important to note that a unilateral contract requires no acceptance. The offeree only needs to perform to make the offer enforceable. However, the offeror must be notified once the performance is completed. The offeree can notify the offeror or, at the very least, make a reasonable attempt to do so.
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Common types of unilateral contracts
Unilateral contracts are a unique type of legal agreement where one party, the offeror, makes a promise in exchange for the other party, the offeree, performing a specific action. Unlike bilateral agreements, unilateral contracts are one-sided promises that are only accepted once the action is completed.
- Reward Offers: A common example is when someone offers a reward for finding their lost pet, wallet, or any other lost item. In this case, the contract is formed once the item is found, and the offeror is legally obligated to pay the reward.
- Insurance Contracts: In the insurance industry, unilateral contracts are standard. An insurance company promises to pay a certain amount of money or provide specific benefits upon the occurrence of a predefined event, such as a car accident, house fire, or health issue. Policyholders are not obligated to claim these benefits, making the contract unilateral.
- Promotional Contests and Competitions: These are classic unilateral contract structures where companies offer prizes or rewards for participants who complete certain tasks or meet specific criteria.
- Commission-Based Work: In this type of unilateral contract, a freelancer or salesperson is offered commission only if they generate a successful sale or lead.
- App Referral Programs: These programs offer incentives, such as credits or discounts, to users who refer a certain number of friends or family members to download and use the app.
- Purchase Orders, Warranties, and Licenses: These are also considered common types of unilateral contracts, where one party agrees to purchase goods or services, and the other party agrees to provide those goods or services under certain terms and conditions.
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Frequently asked questions
A unilateral contract is an agreement where one party, the offeror, makes an offer to another party, the offeree, without any obligation for the offeree to complete the task or action. The contract is formed and legally binding once the offeree performs the requested act as per the offeror's terms.
Bilateral contracts involve both parties exchanging promises and agreeing to obligations. In contrast, unilateral contracts are one-sided, with only the offeror having an obligation. The offeree is not required to accept the offer or complete the task, but if they do perform the requested act, the contract becomes legally binding, and the offeror must fulfil their promise.
An offeror can revoke a unilateral contract at any time before the offeree starts performing the requested act. Once the offeree has started performing, the offeror can no longer revoke the contract and must fulfil their promise. However, if the contract is a reward-type contract, the offeror can revoke the offer at any time, as long as they clearly convey the revocation before the task is completed.
