What is a Unilateral Contract?
A unilateral contract, which is sometimes called a "one-sided contract" for clarity, is an agreement whereby only one party has a contractual obligation while the other party may or may not have one. To put it more simply, a unilateral contract is an agreement whereby one person owes a performance to someone else after a requested action has been completed by them. The most common types of unilateral contracts are reward contracts.
With a reward contract, there is no obligation to perform the action. Only the person that can perform the action must do it. To go back to the most common example, if someone offers $100 to anyone who finds Max the Cat and returns him, just the person who finds Max must return him…and can claim the $100 in exchange. This is a very popular example because cats inevitably try to sneak out, so reward contracts for missing pets are quite common.
Unilateral contracts are a little different from bilateral, or two-sided contracts, because those involve creating contractual obligations for both parties right from the beginning . In a unilateral contract, only one side has an obligation at the outset, and the terms of the contract are left to the discretion of the person offering the contract for performance to receive a predefined result. If you don’t return Max the Cat, you are not responsible to pay the $100. But if you do, you are then owed the cat plus the money, as noted in the terms of the reward.
For you as a business, this becomes incredibly important because it avoided a situation where you are effectively paying a finder’s fee to someone for locating a missing piece of inventory. So long as the terms of the contract make it clear what performance you would like from the performing party, including the reward amount, it is up to them to decide whether or not it is worth their time. They may feel differently than you, and that’s okay, but it keeps payment of the reward contingent upon the desired outcome actually occurring.
The Elements of a Unilateral Contract
The principal legal elements of a unilateral contract are as follows:
1. Offer.
There must be a valid offer. An offer must be reasonably clear so as to allow a party to accept the offer and create a contract. A unilateral contract usually includes an offer by one party to another and is frequently in the form of a public offer which invites the other party to accept the offer by performing the contractual conditions. Consideration is not normally paid in a unilateral contract. The offering party however, usually has to perform certain actions to counter-offer acceptance of the unilateral contract. A party counter-offering against himself has negated the offer.
2. Acceptance of offer through performance.
A unilateral contract is one-sided and a party’s acceptance is accomplished by performing the act described in the offer. This may be described in various ways and may include, but is not limited to, the following:
- (1) A public announcement or advertisement and acceptance by any person who thereafter complies with the terms of the offer in public.
- (2) An offer to accept that is subject to a condition and that thereafter, upon performance of the condition, shall become an accepted offer to be bound.
- (3) A private offer and acceptance which may be accepted by conduct.
- Intention.
A party must intend to accept the unilateral offer which is usually made public. If a unilateral offer contains specific instructions for acceptance or for performance, it may constitute an invitation for acceptance or an offer that becomes an agreement when acceptance is made in the required manner. The party offering a unilateral contract need not monitor the outcome of the offer after the claimant accepts the offer by performance.
Some Examples of Unilateral Contracts
The most commonly understood type of unilateral contract is that of a reward, such as an ad or a flyer that says "Lost Cat, please call." However, lists of unilateral contracts also include advertisements for products that say "Offer good until …" or "Try before you buy;" in the fine print, the ad will say the offer is good only for the first ten purchases. As noted above, unilateral contracts typically involve an offer for a reward upon the performance of some act by another person without any obligation to perform the act. The most famous example of this type of unilateral contract is that of a reward for the return of a party’s lost property. Other common examples of unilateral contracts are:
Sports betting – Putting Casino Odds on a Sporting Event
Insurance – Paying out on a loss; premiums paid on life insurance
Participation in research studies or programs – Signing up to be a part of a research project, program or clinical trial that offers payment for participation
Creditors – Collection process for debts owed
In some international jurisdictions, a unilateral contract requires acceptance by a legal act, not by a statement to someone out-of-court.
Benefits and Shortcomings
There are advantages and disadvantages to unilateral contracts for the parties involved. For one, a unilateral contract will always be cheaper for the party making the offer. That’s because, in a unilateral contract, the promise is conditional upon performance. This means the other party has no obligation to perform unless they want to. So, if they aren’t going to pull their end of the bargain anyways, then they have nothing to lose. A unilateral contract is also generally preferable to a bilateral contract when the offeror is trying to motivate performance on the part of the offeree. For example, many consumers might be less likely to follow through in a contract if they have to pay first or take some other action before receiving anything in return. When the performance comes first, as with a unilateral contract, it may be more likely to occur.
The disadvantages of unilateral contracts are pretty straightforward. The most obvious reason to watch out for them is that a unilateral contract can be much harder to enforce . If you don’t fulfill your obligations under a bilateral contract, you’re going to be subject to liability lawsuits. But if you’re the other party to a unilateral contract, you may not be able to take legal action if the unilateral contract is breached. The exception to this is where the performance has been at least substantially performed, even if it’s not perfect. You will also want to be aware of whether the law considers the promise to be illusory. If it does, then you might be out of luck when it comes time to enforce your agreement. In addition, although it’s cheaper for the offeror to make a unilateral contract, it may be better for the offeree to use a bilateral contract if there’s any possibility that the offeror will not make the appropriate payment. Although a unilateral contract also needs consideration, it has only one obligation from the offeror (the payment). If that one obligation is not fulfilled, then nothing is going to happen.
Lawsuits and Limitations
There are specific ways that these contracts can be enforced in the legal system. Enforcement tends to come in the form of a lawsuit, generally a breach of contract action, which is designed to resolve a dispute between the parties. In order for a unilateral contract to be enforceable in court, the party making the promise must have actually completed the required act within the terms of the agreement. The offeror retains the right to rescind the offer if the offeree does not actually complete the required performance of the requested act, whether the offeree indicates that he or she is willing to do so or not. For example, lots of people alike have seen a sign that advertises "$2,000 finders fee for information leading to recovery of stolen dog!" It’s not until after the person who lost the dog receives the information about the dog that he or she will owe the $2,000 finders fee. However, the person sharing information about the dog will not become legally entitled to that money until they have provided the lost dog’s current location to its owner.
One of the main challenges in a dispute over a unilateral contract is proving that the performance was actually performed in accordance with the terms of the offer. A unilateral contract examples are best prepared with ample documentation at the outset of the agreement. This way, if there is a breach later on, the judge can review the clear, irrefutable evidence provided by the documents and make a fair ruling.
Unilateral Contracts Vs. Bilateral Contracts
A unilateral contract is an offer made by one person to another, expecting that the other will accept it without any obligation. A bilateral contract is an offer that is given to one or more parties by which all parties are legally responsible for performing acts, obligations, or paying a specific price.
If one party does not fulfill the obligations expected from them in a bi-lateral contract, the other party may take legal action against them, as it is usually considered a broken contract . With a unilateral contract, only one party is likely to experience the consequences because the other party is under no obligation to act or fulfill anything, even though an offer was made on the table.
A contract is created when all parties involved verbally agree or add their signatures allege that they received exchanged money or another element of consideration in return for goods and performance of services. A bi-lateral contract is often structured as a legally binding agreement, whereas a unilateral contract may seem less legally binding, even though they are often just as binding.