Unilateral Contract Overview (With Concrete Examples)

What is a unilateral contract?

What is the difference between a unilateral vs bilateral contract?

What are some examples of unilateral contracts?

In this article, we will break down the notion of a unilateral contract so you know all there is to know about it.

We will look at the unilateral contract legal definition, its elements, how they are formed, concrete examples of unilateral contracts in your everyday life, differences and similarities with bilateral contracts, their enforceability and more.

I’m sure you’ll learn a few interesting things along the way!

Are you ready?

Let’s get started…

What is a unilateral contract?

A unilateral contract is a contract where one person offers to perform a certain obligation in favour of another without reciprocity or something in return.

In a unilateral contract, the offering party or the offeror is the only party obligated under the contract while the offeree has no obligation.

The other party or the offeree does not have any contractual obligations towards the offeror and can elect, in its discretion, to do something.

For example, a company offers you a coupon giving you a discount of 25% off the sticker price if you use the coupon when you purchase the product.

The company, the offeror, has an obligation to give a discount of 25% if a person, the offeree, elects to buy the product and use the coupon at the same time.

The offeree does not have an obligation to buy the product or use the coupon but if he or she does so, the unilateral contract is accepted and formed binding the company to give the discount.

You can consider a unilateral contract as a one-sided agreement or an agreement where the obligations flow unilaterally from one party to the other.

According to Cornell Law School, a unilateral contract is defined as follows:

“A unilateral contract is a contract created by an offer than can only be accepted by performance.”

What’s interesting to note in this definition is that a unilateral contract is “created by an offer”.

In other words, after the offeror makes an offer to the offeree, the unilateral contract is formed when the offeree performs the intended act.

A unilateral contract can be formed based on a specific action performed by the offeree, a random event or an open request

For example, if a restaurant offers you a discount of 25% if you order chicken wings on the weekend and you do so, the company must give you a 25% discount, that’s based on a specific action.

If John promises Jack $1,000 if the black horse wins, the unilateral obligation is liked to a random event.

If the law enforcement states that they will provide a reward of $10,000 for information leading to the capture of a person, that’s an open request.

Elements of a unilateral contract

A unilateral contract is composed of certain elements.

First, you have an offeror making a clear offer to a specific person or the general public, as the offeree.

Then you have an offeree who does not have an obligation towards the offeror to do anything but can elect to do what was requested.

When the offeree’s action is performed in conformity to the offer, there is acceptance of the unilateral contract. 

The offeror becomes legally bound to the offeree to the extent of his or her promise.

What is an example of a unilateral contract?

There are many instances in our everyday lives that unilateral contracts are formed probably without us even thinking about it.

Let’s look at some examples of unilateral contracts.

Contest 

You’ll see unilateral obligation quite often in contests.

For example, if Sam hosts a party and informs his guests that he will pay $500 to the first person who can eat 5 hotdogs in less than 2 minutes, then he will be bound to pay $500 when a guest achieves that goal.

In this case, Sam became obligated towards one of his guests for $500 without getting anything in return.

Rewards 

Unilateral contracts are found in cases when a reward or a prize is given by one person to another.

For instance, the police and law enforcement authorities may offer a reward of a certain amount of dollars for information leading to the capture of a criminal.

The reward is given to the first person who gives the needed information.

The law enforcement authorities make an open offer to the public for information.

Insurance contracts

You’ll often see a unilateral contract in the insurance industry.

Essentially, an insurance company will offer to pay the policyholder in the event of specific events.

Although the policyholder does pay a premium to the insurance company (so you can consider it to be bilateral), the contract will have the characteristics of a unilateral contract.

In fact, the insurance company will have an obligation to pay an important amount in the event of a disaster or when an insurable event materializes. 

Coupons 

In your personal life, you are surely familiar with coupons.

Coupons are a common form of a unilateral contract.

A company can issue coupons to the public and promise that if a person makes a purchase using the coupon, they will be entitled to a discount on the sales prices as stated on the coupon.

At the end of the day, you are not obligated to purchase the product. 

You are not even obligated to use the coupon.

However, if you purchase the goods using the coupon, then there is acceptance of the unilateral contract and you will be entitled to the discount.

Limited-time offers

Another good example of a unilateral contract is limited-time offers. 

For example, a restaurant promises to give you a 25% discount if you eat lunch at their restaurant between 11:00 a.m. and 2:00 p.m.

You are not obligated to eat at that restaurant.

You are not obligated to have lunch there either during the stated time. 

However, if you have lunch at the restaurant between 11 a.m. and 2 p.m., then the restaurant is committed in giving you a 25% discount.

This is an offer that comes into effect and lapses with the passing of time.

How unilateral contracts are formed?

A unilateral contract is formed when a person or entity makes a unilateral offer to another party to pay or perform an obligation of some kind.

For example, an offeror can promise to pay the offeree a certain amount of money when a certain event happens.

Unilateral contract offeror 

The offeror in a unilateral contract can be any person or company.

Just like any contract, under contract law, the offer must be clear and express

The offeror must have a clear intention of making an offer.

For example, if John says “I’m thinking of paying a reward of $1,000 to someone who can find my lost dog”, that’s not a firm and clear offer and will not lead to the creation of a unilateral contract.

Instead, if John “publishes an ad stating that he will pay $1,000 to the person who can find his dog”, then that’s a clear offer made to the public.

Unilateral contract offeree 

The contract offeree could be a designated person or entity or it can even be an unknown person.

For example, if John commits to pay Jack $1,000 if the black horse wins the race, the offeree is clearly identified as Jack.

If the horse wins the race, Jack is legally entitled to $1,000.

On the other hand, if John issues an ad to the public stating that he will pay $1,000 to anyone who will find his lost dog, the offeree is unknown.

This means that the first person who performs the act of finding the dog will be entitled to receive what John promised.

Unilateral contract acceptance 

In a bilateral contract, the contract is formed when there you have a valid offer and offer and valid acceptance by the offeree. 

The acceptance occurs when there is a “meeting of the minds” or “mutual assent”.

In other words, the parties to a bilateral contract have not necessarily started executing their correlative obligations when the contract is legally formed.

On the other hand, a unilateral contract is accepted when an act is performed or action is done.

In the example of the lost dog, if John promises to pay someone $1,000 if they find his dog, the moment the dog is found and brought to John, the contract is formed and accepted and John must legally execute his obligations.

If the dog is not found, a person from the public cannot enforce the contract as it is yet to be formed.

Are unilateral contracts enforceable?

Unilateral contracts are perfectly valid contracts and in most jurisdictions are enforceable.

If a party had a clear intention to enter into a unilateral contract and perform an obligation in favour of another without expecting a reciprocal obligation in return, the court will enforce that obligation against that single party.

However, unilateral contracts are prone to be challenged in a court.

If an offeree decides to enforce a unilateral contract, the most common defence presented by the offeror is that the contract was not really a unilateral contract but a bilateral contract.

In other words, the offeror made an offer to the offeree and expected something in return.

Since the acceptance of the unilateral contract happens when the offeree performs an action and the offerer refuses to execute its obligation, it will usually be the offeree seeking the enforcement of the contract against the offeror.

Revocation of a unilateral contract 

In principle, a unilateral contract can be revoked when done expressly and before the formation of the unilateral contract.

By definition, a unilateral contract is when the offeror promises to pay or obligate himself or herself towards the offeree.

The offeror can revoke the offer before the offeree’s performance begins.

For example, image John, the offeror, committed to paying $1,000 to the first person who can find his lost collectible baseball card.

Before a person, the offeree, finds the card, if John expressly revokes his offer, then the unilateral contract will be revoked.

When the offer is revoked in accordance with the applicable contract law rules, the offeror will no longer be bound by the offer and the offer will lapse.

Unilateral vs bilateral contract

What are the differences and similarities between a unilateral contract and a bilateral contract?

Obligation of the parties 

A unilateral contract is different than a regular contract or mutual contract where one party obligates himself or herself to the other on a one-sided or unilateral basis.

For example, if John promises Jack to pay $1,000 should the black horse win the race without getting anything in return, that is a unilateral agreement.

If the black horse wins the race, John has a legal obligation to pay Jack $1,000 whereas at no point in time does Jack have any obligations towards John. 

A bilateral contract is a two-sided or two-directional contract where both parties have corresponding obligations to one another.

For example, if Brigitte agrees to pay Sandra $1,000 if she paints a room in her house, then that’s a bilateral agreement.

Brigitte has an obligation to pay $1,000 but expects her room to be painted whereas Sandra must paint the room to get the $1,000.

Contract enforcement 

Unilateral and bilateral contracts can be enforced the same way when they are legally formed. 

If a person promises to pay another if a certain action is performed or they abstain from doing something for a period of time and the other person does that, the offeror is bound to respect his or her promise.

A failure to observe the terms of the unilateral contract can lead to the offeree filing a civil lawsuit to enforce the contract through the courts.

However, if the contract is not formed, it cannot be enforced.

For example, if the law enforcement authorities offer a reward of $1,000 for information that can lead to the arrest of a person, a person cannot claim $1,000 if they have not provided information leading to the capture of the intended person.

Similarly, the authorities cannot enforce that someone from the public executes the obligation of offering information.

The unilateral contract is formed and accepted when a person performs the action of providing the police with the relevant information leading to the capture of the person in question.

If the person is captured and the reward not paid, then the contract can be enforced.

Breach of contract 

Unilateral contracts and bilateral contracts are both valid contracts under the law.

They both follow contract law formation rules and in the event of a breach, the non-breaching party can exercise a recourse against the breaching party.

For example, if Jack promised to pay John $1,000 if the black horse won the race and ultimately fails to do so, that’s a breach of the unilateral contract.

John can legally enforce the contract to get the payment.

Just like a normal contract or a bilateral agreement, the non-breaching party will need to prove the following:

  1. Existence of a contract
  2. Breach of contract
  3. Loss or injury
  4. Breaching party responsible for the loss

Unilateral offer vs unilateral agreement

A unilateral offer is not the same thing as a unilateral agreement.

In contract law, for any type of contract to be formed, an offer must be accepted.

Now, a unilateral contract will also be formed when the offer is accepted. 

This leads us to the unilateral offer.

A unilateral offer is an offer made by one party committing to bind himself or herself if another party does something.

The very nature of an offer is that it’s unilateral. 

In other words, the offer must unilaterally come from one party called the offeror.

So saying offer or unilateral offer, they will generally mean the same thing.

However, when a party makes an offer where he or she offers something to someone in exchange for something, the consideration, the offer is intended to lead to the formation of a bilateral contract.

A bilateral contract is formed when the offeree accepts the offer made by the offeror.

The same person can make a unilateral offer leading to the formation of a unilateral agreement.

This means that the person obligates himself or herself on a one-sided basis to execute certain obligations in favour of the offeree provided the offeree does something or abstains from doing something.

In a nutshell, depending on the content of the offer, which is generally unilateral in nature, a unilateral or bilateral agreement will be formed.

Takeaways 

Unilateral contracts are more common than you might think.

A unilateral agreement is when a person commits or promises to legally perform an obligation without expecting a corresponding and correlative obligation in return.

In business and commercial relationships, nearly all contracts are bilateral.

A bilateral contract is when a person or company agrees to do something and be bound by certain obligations in exchange for something of value in return.

Unilateral contracts are often used in the following scenarios:

  1. When there is a reward offered by someone for another person to do something
  2. When someone offers to pay someone in a contest based on a random event
  3. When an insurance company promises to pay when a specific event occurs
  4. When a company offers a coupon for you to purchase their product and benefit from a discount
  5. When a company offers you a discount if you purchase something from them within a specific time period

Now that you know what unilateral contracts represent, can you think of a scenario where a unilateral contract can be formed?