What Is A Unilateral Contract And When Do You Need It?

Contracts form the legal foundation of any type of agreement or business transaction. Unless and until there is a contract in place, no agreement between two or more parties can be legally enforceable. One such agreement that you need to know about is a unilateral contract. 

Imagine walking past a poster that reads: “Lost Dog. $500 reward for safe return.” No one asked you personally to find the dog. But if you do, the owner is legally bound to pay you the reward. 

This is a classic example of a unilateral contract. It is basically a promise that becomes binding only when a specific action is performed. 

Unilateral contracts are everywhere in daily life—from promotional contests and referral bonuses to insurance policies and reward notices. Yet, many people don’t fully understand how they work, how they differ from bilateral contracts, and when they should be used. 

In this article, I will talk about the following things: 

• What is a unilateral contract? 

• How does this contract work, and what are its key elements? 

• How does it differ from bilateral contacts? 

Additionally, I will also explain what the scenarios or situations are when these contracts are the most effective. So, if these are some of the things that you want to know, keep on reading this blog till the end… 

What Is A Unilateral Contract?

A unilateral contract is a legally enforceable agreement in which only one party, the offeror, makes a promise that becomes binding if the other party, the offeree, performs a specific act. The contract does not require the offeree to make a counter-promise; instead, acceptance occurs solely through performance. 

According to Investopedia, this agreement “occur when the offeror makes an offer to another party.” Additionally, for this type of contract to exist, the presence of a request from the side of the offeror is a must. 

For instance, when a company announces, “First 100 customers get a free gift,” the contract is only formed once a customer performs the act of being among the first 100 to purchase. Similarly, reward offers, promotional contests, and insurance policies are all well-known examples of unilateral contracts. 

The famous case of Carlill v Carbolic Smoke Ball Co. (1893) is a great example of this principle. The company advertised that it would pay £100 to anyone who used its product and still contracted influenza. 

When Mrs. Carlill did so and claimed the money, the court held the promise enforceable because her performance (using the product as directed) created a binding unilateral contract. 

What Are The Key Elements Of A Unilateral Contract?

Like every other form of contract, there are certain legal requirements that all unilateral contracts must have for them to be enforceable. These are as follows: 

• Offer: Firstly, the offer must be clear, definite, and communicated to the public or an individual. For example, “$500 reward for the return of my pet” specifies both the act (returning the pet) and the benefit (payment). 

• Consideration: In unilateral contracts, the offeree’s act constitutes consideration. The promise is exchanged for performance, not a return promise. 

• Intention to Create Legal Relations: The offeror must intend to be legally bound, not just make a casual statement. This was key in Carlill, where the company even deposited £1,000 in a bank to show seriousness. 

• Certainty of Terms: The act required and the reward promised must be unambiguous. Vague or uncertain terms make enforcement difficult. 

• Acceptance by Performance: Unlike bilateral contracts, no communication of acceptance is needed. The contract forms only when the offeree performs the act. 

• Revocability Until Performance Begins: Generally, an offeror may revoke a unilateral offer at any time before performance begins. However, once performance has started, many courts prevent revocation under fairness doctrines like promissory estoppel (Daulia Ltd v Four Millbank Nominees Ltd [1978] Ch 231). 

How Does A Unilateral Contract Work?

According to Cornell Law School— Legal Information Institute, “there is an express offer that payment is made only by a party’s performance” when it comes to Unilateral contracts. This, being the first step, makes the entire process very simple. 

Here’s what you need to know: 

• Offer is Made: Firstly, the offeror makes a public or private promise in exchange for performance. Example: “$100 reward for information leading to the arrest of a suspect.” 

• Offeree Acts: Secondly, the offeree is not obliged to act but may choose to perform the requested task. 

• Acceptance by Performance: Third, the contract is binding only once the act is fully performed. Until then, no enforceable obligations exist. 

• Obligation to Pay or Deliver: Finally, once the act is completed, the offeror must fulfill the promise (e.g., pay the reward). 

For instance, in insurance policies, the insurer promises to pay claims if certain events occur (like accidents or fire damage). The insured doesn’t promise that such events will happen. However, by paying premiums and meeting conditions, they “perform” their role to trigger coverage. 

What Is The Difference Between Unilateral Contract Vs Bilateral Contract?

Contracts are basically of two types: Unilateral and Bilateral. These two differ in structure as well as in enforceability. Their functions are also very different from one another. 

Here’s what you need to know about how they work: 

To give you a very small example, if a homeowner promises to pay a painter $1,000 if the house is painted by Saturday, that’s unilateral. But if both agree that the painter will paint the house and the owner will pay $1,000, it becomes bilateral. 

Should You Choose A Unilateral Contract?

Unilateral contracts may appear informal at first glance, but they are a cornerstone of modern contract law. From Mrs. Carlill’s influenza remedy to today’s insurance policies and promotional campaigns, they demonstrate how one-sided promises can create legally binding obligations. 

For instance, take a look at the advantages and disadvantages of such contracts: 

In conclusion, for individuals, understanding unilateral contracts helps in knowing their rights when responding to offers. Additionally, for businesses, they provide a flexible tool to incentivize action without requiring mutual promises.  

However, clarity of terms and an understanding of their legal limits are critical to ensure enforceability.