Unilateral Contract
A legally binding contract in which one party promises or makes an offer that can only be accepted by the performance of a specific act by another party.
What Is a Unilateral Contract?
A unilateral contract is a legally binding contract in which one party (offeror) promises or makes an offer that can only be accepted by the performance of a specific act by another party (offeree).
In a unilateral contract, the offeror requires the offeree to complete a task. Once the offeree has performed the requested action, the offeror is obligated to fulfill its promise to pay the reward or benefit.
Unilateral contracts have turned into an undeniably famous legitimate device lately, especially in the domain of business and commerce.
They are frequently employed in sectors like marketing, advertising, and promotions, where firms may want to provide prizes or discounts to clients for activities like making a purchase or referring a friend.
Unlike traditional bilateral contracts, where both parties are obligated to perform certain actions, these are formed when the offeree accepts the offer by performing the requested action.
Key Takeaways
- A unilateral contract is a legally binding agreement in which one party promises a reward or benefit in exchange for the performance of a specific act by another party. It is commonly used in marketing, advertising, and promotions.
- Unilateral contracts become legally enforceable when the offeree begins performing the act required by the offeror. Once the offeree completes the task, the offeror is obligated to fulfill their promise.
- The essential elements include a clear offer by the offeror, acceptance by performance from the offeree, consideration provided by the offeror in the form of a promise, and the intent to create a legal relationship.
- Advantages include flexibility, the offeree's freedom to accept or reject, no requirement for consideration from the offeree, faster completion of agreements, no need for negotiation, and limited liability for the offeror.
How Unilateral Contracts Work
Unilateral contracts are legally enforceable once the offeree begins performing the act of requiring to fulfill the promise made by the offeror. At this moment, the offeror can't revoke the offer.
Such contracts are commonly used in events like rewards and special labor requests.
Unilateral contracts are also known as "One-sided Contracts" because of their nature, and how they work. That is, the contract becomes legally binding when one party accepts the performance of a specific act.
Key elements of the Unilateral Contracts include:
- Offer: A clear offer is made by the offeror to the offeree.
- Performance Acceptance: The offeree accepts the offer by executing the specific task.
- Consideration: Once the act is performed, the performance is rewarded with any benefit that was promised by the offeror.
- Intent To Create Legal Relations: The offeror and offeree should be willing to form a legal relationship by forming a legally binding contract.
Another key characteristic is the absence of consideration from the offeree. In traditional bilateral contracts, both parties must provide consideration - something of value - for the contract to be legally enforceable.
However, the offeror typically provides consideration in the form of the promise to fulfill their obligation once the offeree performs the requested action.
By being aware of these elements, people and companies may decide when and how to utilize them and structure their contracts to reduce legal risks and guarantee enforceability.
Example Of A Unilateral Contract
A unilateral contract is a one-sided contract, meaning it is not legally enforceable until and unless one party accepts the offer to perform the required task by the offeror.
For instance, imagine the Police Department releases a circular with information about a perpetrator involved in multiple burglaries, arsons, and murders across the nation, and intends to reward the informant a handsome reward of $2,000 if they find information material.
In such an event, if Jonathan, a local convenience store manager, provides the material information regarding this perpetrator, which can lead to his arrest, Jonathan will be entitled to the reward money of $2,000.
Notice how the key elements of the offer, acceptance of performance, consideration, and intention to bind in a legal relationship are all present here.
Take a look at this case of “Carlill v Carbolic Smoke Ball Company (1892)” to know more about unilateral contract cases in real life.
Characteristics of Unilateral Contracts
These contracts have several characteristics that distinguish them from bilateral contracts and other types of agreements.
One-Sided Obligation
The most particular quality is that only one party is obligated to act. The offeror is the main party obligated to satisfy the contract's provisions. At the same time, the offeree can play out the actions expected to acknowledge or decline the offer.
No Requirement For Consideration
In this, the offeror does not receive anything in return for their promise or offer. Therefore, the offeree is not required to offer any consideration, such as money or goods, to accept the offer.
This distinguishes them from bilateral contracts, where both parties offer consideration to each other.
Acceptance By Performance
In this, the offeree accepts the offer by performing the required actions. Therefore, the act's performance is considered to be an acceptance of the offer, and the offeror is obligated to fulfill their promise or undertaking.
Revocation Of Offer
The offeror has the right to revoke the offer at any time before the offeree performs the required action. However, once the offeree performs the act, the offeror is obligated to fulfill their promise, and the offer cannot be revoked.
Communication Of Offer
The offeror must communicate their offer clearly and effectively to the offeree for it to be valid. The offer should be explicit and incorporate every relevant term and condition.
Time-bound Offers
They often have a specific period within which the offeree must accept the offer by performing the required act. If the offeree fails to perform the activities within the specified time, the offer is considered to have lapsed.
They are legal agreements characterized by a one-sided obligation, no requirement for consideration, acceptance by performance, the right of the offeror to revoke the offer, the necessity of clear communication of the offer, and the presence of a specific period for acceptance.
Understanding the characteristics of this type of contract is essential for businesses and individuals when entering into such agreements, as it helps them make informed decisions and avoid potential legal disputes.
Types of Unilateral Contracts
They can be classified based on their formation, specifically as express, implied, or conditional unilateral contracts. Each kind has exceptional characteristics and can be utilized in a range of circumstances contingent upon the nature of the agreement.
Understanding its different types is essential for individuals and businesses to enter into such agreements, as it helps them make informed decisions and avoid potential legal disputes.
Express Contracts
This contract is one where the offeror explicitly makes an offer to the offeree and specifies the exact act required to accept the offer. Then, the offeree accepts the offer by performing the specific action requested by the offeror.
They are common in situations such as rewards, where an offer is made to anyone who performs a specific action, such as returning a lost item or providing information that leads to the arrest of a criminal.
For example, a franchise contract that a franchisor and a franchisee agree to. In return for royalties and/or an initial franchise fee, the franchisor permits the franchisee to conduct business under its brand.
The franchise terms are stated clearly in the signed agreement, which is signed by both parties.
Implied Contracts
Implied contracts are those in which the offeree accepts the offer by performing an act that the offeror implicitly requested.
In this, the offeror may not explicitly state what action is required to accept the offer. Still, their conduct or circumstances indicate that they expect the offeree to perform a specific act.
For example, an individual enters a restaurant and orders food. A contract to receive the food, service, and the payment for the same is established. An implied contract is legally binding in the same manner as a written contract.
Conditional Contracts
A hypothetical contract, sometimes known as a conditional contract, is a type of agreement where execution is only required once the specified circumstances are fulfilled.
For instance, an insurance contract is a restrictive unilateral contract where the insurer vows to pay the guaranteed a predefined sum if a specific occasion, like a car accident, happens.
In this case, the offeree is not obligated to perform any action until the specified event occurs.
Advantages of Unilateral Contracts
They offer several advantages over other types of legal agreements. The following are a few benefits of it:
- Flexibility: Unilateral agreements are adaptable and can be customized to satisfy the parties' particular requirements. The offeror can specify the exact act required to accept the offer, which provides clarity and reduces the chances of misunderstandings or disputes.
- Offeree Has No Duty to Accept: The offeree has no duty to accept the offer and is free to reject it or take the necessary actions. This flexibility is advantageous for the offeree, as they can decide whether or not to accept the offer based on their preferences and circumstances.
- No Requirement for Consideration: They do not require any consideration from the offeree to accept the offer. This can be advantageous for the offeror, as they can incentivize the offeree to perform a specific action without offering any payment or other form of consideration.
- Faster Completion of Agreements: They can be completed quickly, as the offeror can specify a period within which the offeree must accept the offer by performing the required act. This can benefit businesses that require quick responses from their partners or customers.
- No Need for Negotiation: They do not require negotiation, as the offeror specifies the exact terms of the agreement. This sets aside the time and cash that would have been utilized to arrange the agreement's conditions.
- Limited Liability: The offeror has limited liability in this, as they are only obligated to fulfill their promise if the offeree performs the required action. This lessens the possibility that the offeror may be accountable for losses or damages brought on by the offeree's behavior.
Disadvantages of Unilateral Contracts
While they enjoy a few benefits, there are likewise a few limitations that people and organizations should know about before going into such agreements. Here are some disadvantages:
- Lack of Mutuality: They lack mutuality, meaning only the offeror has made a promise. The offeree is not obligated to perform any act, which creates an unequal relationship between the parties.
- Risk of Unilateral Mistake: In some cases, the offeror may make a unilateral mistake in the offer, such as specifying the wrong act required to accept the offer. In such cases, the offeror might not be able to repeal the offer, regardless of whether the mix-up was unexpected.
- Uncertainty of Acceptance: They can create uncertainty about the offer's acceptance. The offeree must perform the actions specified in the offer to accept the offer, which may not be immediately clear to the offeror. This can lead to disputes and legal challenges.
- Lack of Consideration: They do not require consideration from the offeree, which can create problems if the offeror fails to fulfill their promise. Since the offeree has not provided any consideration, they may not have any legal remedy if the offeror fails to fulfill their promise.
- Potential for Exploitation: They can create opportunities for the offeror to exploit the offeree, particularly when the offeree is vulnerable or in a weaker bargaining position, leading to unfair and unbalanced agreements that do not benefit the offeree.
- Limited Scope: These are limited in scope, as they must be utilized in circumstances where the offeror can determine a particular demonstration expected to acknowledge the offer.
- This makes it unsuitable for many types of agreements, such as those that require ongoing performance or have complex terms.
Bilateral vs. Unilateral Contract
Here is a table summarizing the main differences between unilateral and bilateral contracts and the basis for each difference:
| Basis Of Difference | Unilateral Contracts | Bilateral Contracts |
|---|---|---|
| Nature of Promises and Obligations | Only one party makes a promise or offer. | Both parties make promises to each other |
| Method of Acceptance | The other party can accept the offer only by performing a specific act. | Both parties accept the contract by making promises to each other. |
| Timing of Performance | The offeror has no obligation to perform until the offeree accepts the offer by performing the required act. | Both parties have obligations to perform their respective promises. |
| Basis of Consideration | The offeree's performance is the consideration for the offeror's promise. | The promises exchanged by both parties are the consideration for the contract. |
| Nature of Obligation | The offeror's obligation to perform is conditional upon the offeree's performance. | Both parties are obligated to perform their respective promises. |
The responsibility of the parties to fulfill the contract is the primary distinction between unilateral and bilateral transactions.
A bilateral contract binds both parties to execute, whereas a unilateral contract simply obligates one side to do so. Additionally, the offeree's execution of the desired act constitutes consideration in a unilateral contract, whereas both parties do so in a bilateral contract.
Understanding these variations can assist parties in selecting the contract form that best suits their requirements and in defining their rights and duties.
Note
When engaging in such agreements, individuals and organizations must comprehend the benefits and limitations of these contracts since it enables them to make educated judgments and select the appropriate legal arrangement for their purposes.
Bilateral Contract Example
Bilateral contracts are quite common in day-to-day aspects of our lives, including real estate deals and business transactions.
One of the most common is the agreement between a vendor to provide goods on the payment of a set fee. It is called a bilateral contract since both parties to the contract have their obligations to execute.
Another example of a bilateral contract is a contract between an employer and an employee. The employer pays the employee a set salary at the end of the month or as per the terms of the contract.
Bilateral Contract Practical Example
Assuming, Deborah offers to sell her car to Duke for $25,000. Given the offer looks favorable to Duke, he accepts it, promising to pay Deborah $25,000. The offer is made, and accepted, this forms the Bilateral Contract.
After this, both parties are now obligated to perform and fulfill their promises.
Conclusion
Unilateral contracts have benefits and drawbacks for both people and corporations. They can be especially helpful when the offeror wants to encourage or reward the offeree for carrying out a certain action without subjecting the offeree to liability or risk.
They can be especially helpful for businesses that want to give rewards or discounts to customers for specific activities like making a purchase or referring a friend in marketing, advertising, and promotions.
However, they also have their limitations and drawbacks. They lack the mutuality present in traditional bilateral contracts, which can create an imbalance in the relationship between the parties.
The offeree is not obligated to perform any act, which can create uncertainty and potential legal challenges around whether the offer has been accepted.
Additionally, they do not require consideration from the offeree, which can limit the legal remedies available to the offeree if the offeror fails to fulfill their promise.
Individuals and ventures should look for legal advice to ensure they are enforceable under the law and that the agreement's details are exact and positive, as well as guaranteeing that all gatherings know about their privileges and obligations under the agreement can help forestall any lawful struggles.
By carefully considering their advantages and disadvantages, individuals and businesses can make informed decisions about structuring their legal agreements and incentivizing specific actions.
Unilateral Contract FAQs
Here, one party—the offeror—promises to do some action in exchange for the other—the offeree—doing anything.
Unlike traditional bilateral contracts, where both parties are obligated to perform certain actions, these are formed when the offeree accepts the offer by performing the requested action.
They can be appropriate in various situations, particularly those involving marketing and promotional incentives.
They can also be useful in situations where the offeree may not have the resources to provide consideration for a traditional bilateral contract.
To prevent legal issues, it is crucial to confirm that the contract's terms are unambiguous and upholdable and, if necessary, seek legal guidance.
Generally, they cannot be revoked once the offeree has started performing the requested action. This is because the offeree has already accepted the offer by starting to perform the act, and the offeror is obligated to fulfill their part of the contract.
Nevertheless, there might be exceptions to this norm in specific circumstances, such as when the offeree commits fraud or when the offeror has a good basis to revoke the agreement.
There are several instances of it in daily life. For instance, a company may reward anyone who finds a lost item, such as a misplaced pet. In this case, the offeror promises to pay the reward if the offeree finds the missing pet.
Another example is a referral bonus offered by an employer to employees who refer qualified candidates for open job positions. In this case, the offeror promises to pay the bonus if the offeree refers to a candidate the company eventually hires.
Yes, as long as the agreement's terms are precise and unambiguous and both parties have complied with their commitments, they are typically upheld by a court.
However, unilateral agreements could be more challenging to uphold than conventional bilateral agreements, particularly if the offeree contests the terms of the agreement or the offeror defaults on their end of the bargain.
To resolve the conflict in such circumstances, legal counsel may be required.
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