What is unilateral contract? A unilateral contract or one-sided contract is one in which only one party, the offeror, agrees to reward the other party, the offeree, for performing an action. Unlike normal bilateral contracts, for unilateral contracts, the reward is not given in exchange for a promise from the other party. Although the offeror is obligated to provide the reward if the other party acts and fulfills the contract, the offeree is not obligated to act.

The Rise of Unilateral Contracts

Unlike normal contracts in which consideration is given in exchange of a promise, unilateral contracts normally have consideration but not a promise. These contracts are developed to cater for the unique interests of some service providers, advertisers, and contest managers.

Common examples of unilateral contracts are:

  • Insurance Contracts. In an insurance contract, the insurer offers to compensate people if their property is lost or damaged in a specified way. The customer makes very few legally enforceable promises, and normally his responsibility is limited to paying the premiums. Although the customer can sue for breach of contract if the insurance company refuses to compensate him in case his property is damaged, the insurance company cannot generally sue its customer. 
  • Advertisements. Advertisements are generally not contracts, but some ads may constitute a unilateral contract. For example, George places an advertisement in the local paper promising to give $1,000 as a reward to anyone who finds his missing car. The advertisement can constitute a unilateral contract. George is obligated to pay the $1,000 to any member of the public who brings the car. However, members of the public are not under any obligation to George. If someone brings the car but George refuses to give him the $1,000 reward, that person can sue George for breach of contract.

Characteristics of a Unilateral Contract

  • One-Sided. Only one party to the contract makes a promise. The other party is not obligated to fulfill the contract. For example, Jane asks Ken to take her car to the repair shop. She promises to pay Ken $200 if he follows through. Ken is not obligated to take the car to repair shop, but if he does, Jane is obligated to pay the $200.
  • Breach of Contract. Just as is the case for bilateral contracts, unilateral contracts can be breached, and the aggrieved party, usually the offeree, can sue for breach of contract. Breaching a unilateral contract normally happens when, after the offeree performs the action required, the offeror refuses to pay the promised reward. In case of a lawsuit, the aggrieved party must prove that the contract existed, the person who made the challenge is responsible, the contract was broken, and the offeree suffered loss.
  • Rewards and Contests. Many unilateral contracts are in the form of contests or rewards.

Differences Between Unilateral and Bilateral Contracts

  • In a unilateral contract, only one party makes a promise, while in a bilateral contract, both parties make mutual promises. 
  • In a unilateral contract, the offeror pays for an action, whereas in a bilateral contract, the offeror pays for a promise from the other party.

Advantages of Unilateral Contracts

  • A unilateral contract may be the most efficient way to publicize a business activity. For example, it is an efficient way of trying to recover lost items.
  • The contract type can enable the offeror to save time and money. The offeror can use the same contract template with multiple entities.

Disadvantages of Unilateral Contracts

  • The entire obligation in the contract falls on the offeror and is not reciprocated. An offeror cannot generally sue for breach of contract.
  • Difficulties may arise when the offeror decides to revoke the reward before its terms have been fulfilled. In such cases, the offeror may face lawsuits from other parties who claim that they suffered loss because of the contract. An example is when Sarah advertises over the radio that she will offer a $500 reward to anyone who finds her lost dog. She revokes the reward after a week. A member of the public who does not know about the revocation and finds the dog can sue Sarah for breach of contract. 

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