Unilateral Contract Definition
A unilateral contract refers to an agreement, enforceable by contract law, in which one party (promisor) promises to reward another party (acceptor) for performing a specific act. And when the offeree agrees to complete the requested task, the contract is deemed accepted.
It differs from a bilateral contract in that only one party determines the terms and conditions of the agreement and pays the reward. Based on the task, these contracts can be performance and reward types. Unilateral contract examples are common in everyday life, such as announcing a reward for finding a lost pet or a criminal on the loose.
- In a unilateral agreement, a person promises to reward someone after a specific act. The person who performs the task does not need to make any promises, and all they have to do is follow the rules laid out by the promisor.
- This kind of contract is enforceable by contract law, and the promisor must keep its promises.
- Unilateral contracts example includes offering rewards for tasks that anyone might complete with no compromise on the other side to do it.
- Unilateral contracts differ from bilateral contracts because only one side is effectively establishing conditions.
How Does Unilateral Contract Work?
Before we can understand how a unilateral offer works, we need to define what a contract is. In short, a contract is a promise. In this case, a party promises something to a second party under certain conditions. So, an individual or a company wants something, but they do not want to hire someone for it. Instead, they set up a promise. If someone follows the criteria and achieves the result, that person will get the promised reward.
The party that creates the contract has the freedom to determine all clauses. The only limit is the local law. One cannot offer a reward by asking someone to break the law, for example, and then try to enforce it in court.
If one feels that someone is tricked into doing something and then backed out on the reward without a previous warning, they can take the case to court. However, a few conditions must be met if one wants to take the matter to justice:
- The unilateral contract had to exist and one needs actual proof of that.
- The person who created it decided to break it after one has already spent their time doing the task.
- One suffered a loss (of time or money) because they believed in the promise, and there was no reward.
- The one responsible for the breach of the contract is the person one is about to sue.
Besides open requests, insurance companies also use unilateral contracts. In this case, the company only pays the insurance if specific occurrences happen. What makes it a unilateral contract is the company deciding alone all the conditions.
How To Revoke a Unilateral Contract?
Although some unilateral contracts can be revoked, not all of them. The consensus is that the party offering the reward can revoke the contract before the other party performs the task. For instance, if someone offers a reward for a lost dog, they cannot refuse to pay it when anyone finds the dog. But they can give up the contract before that and revoke that offer while nobody has found the dog yet.
In most cases, if someone wants to revoke an offer without facing issues with the law, they might want to do so publicly. This way, nobody can argue that one has acted in bad faith while they already started the task.
We can find two distinct types of unilateral contracts: open contracts and insurance.
As we explained, open contracts are unilateral agreements. In our example, the law enforcement of a city promises $200 to any citizen who has accurate information about the whereabouts of a dangerous criminal accused of murder if that information leads to his arrest.
Nobody has any obligation to contact the police and give information. However, if they do and the information is enough to help the cops to find the criminal, they will get the reward.
As soon as the police get the call, they will dispatch a unit to where the suspect is. And if the information is deemed correct, the person who called will get the promised reward. However, if the criminal is not found there, the individual would not receive the $200 because there is no evidence that they told the truth.
If a person calls the police, they use the information, catch the criminal, and then refuse to pay the reward, this person has the grounds to sue the local police department.
Insurance is a one-sided agreement because the company sets the terms, not the customer. They determine how much one would pay for insurance and under what circumstances one will be insured. Common reasons include someone’s car being stolen and accidents that do not happen because of them.
A man named Elliot decides to get insurance for his car. The company evaluates his situation and determines that he needs to pay $150 every month. This insurance works if his car gets stolen or if he enters an accident that’s proved not to be his fault.
In case the conditions set only by the insurance company are met, he gets the money. If he stops paying or an accident is his fault, for example, he will not get any insurance and will have to pay the damages himself.
Unilateral Contract vs Bilateral Contract
Unlike unilateral contracts, bilateral agreements need two (or more) parties to accept a role in a promise.
In a unilateral contract, one is not making a second party do anything. If someone wants the reward, they can do something, but that is mostly their choice. However, in a bilateral agreement, the person has a clear role, and someone who is not a part of that contract cannot enjoy the reward.
It means that if one of the parties fails to fulfill their obligations under the contract and if the other party suffers losses due to this, they can be sued for breach of contract.
Most contracts made between businesses are bilateral, including mortgages, loans, and employment contracts.