What is a unilateral contract?
Contract law can be a complicated topic due to the many different types of contracts.
One question we get asked a lot is, “What is a unilateral contract?”. That’s why we’ve created this guide to unilateral contracts and how they differ from other agreements.
What exactly is a unilateral contract?
A unilateral contract is a one-sided agreement where a promise is made for the performance of a certain action. That means two things:
- The contract is only enforceable once work has begun.
- Payment is only made on completion.
The action in question doesn’t have to be deliberate.
For example, an insurance policy has unilateral elements; the insurance company promises to pay if certain actions happen. The policyholder doesn’t have control over those actions, though.
How are unilateral contracts different from other contracts?
The differences between unilateral contracts and other contract types can be subtle.
The main thing to remember is that the promisor creates a unilateral contract, and it’s only accepted by undertaking the action set out by the promisor.
In other contracts, like bilateral agreements, the terms of the contract are agreed upon between all parties in advance. The unique features of a unilateral contract are:
- The contract is created by the offeror/promisor
- Only the offeror is legally bound
- Signed acceptance isn’t required
- Open requests can be offered to multiple offerees; no defined recipient is required
- Revocation, once the action is ongoing, can be a breach of contract
What is the difference between a bilateral and unilateral contract?
In a bilateral contract, both parties enter into an obligation.
There will normally be negotiations prior to a bilateral contract being agreed upon. All parties are legally bound to a bilateral agreement, as opposed to a unilateral contract.
That doesn’t mean that a bilateral contract is better than a unilateral one; they’re just meant for different circumstances. A freelancer might rely on unilateral agreements where clients pay on completion of a task, for example.
A contract can have both bilateral and unilateral elements.
Take a look at this exclusivity agreement template. This is an example of a bilateral contract with unilateral restrictions.
Both parties agree to the terms of the exclusivity deal, so the contract is bilateral.
The restrictions, though, are unilateral; the seller cannot sell to anyone else and the buyer can’t buy from anyone else. But the seller has no restrictions on buying and vice-versa.
Are unilateral contracts enforceable?
Unilateral contracts are just as enforceable as any other type. It’s important to remember, though, only the offeror can make a breach of contract. That’s because they’re the only party with a legal obligation.
For example, let’s say you lose your dog and post a reward notice in the local area.
You promise to pay a specific amount to whoever finds your lost dog. If someone returns the dog to you, you’d have an obligation to make the promised payment.
Of course, it’s unlikely that something like this would ever end up in court.
But if it did, the written promise to pay a reward for the lost pet would be enough to make the contract enforceable. So legal issues could be a real possibility, and it may therefore be necessary to seek legal advice.
Unilateral contract examples
Because the nature of a unilateral contract can be similar to other contract types, it’s best explained with some practical examples.
Think about how to write an NDA and look at the example in the link. There are different types of NDA, and they can be unilateral or bilateral.
In the example above, an interviewee might sign a unilateral NDA for a job interview. They agree to keep any confidential information secure, but the business has no legal responsibility.
On the other hand, a mutual NDA would be an example of a bilateral contract. Both parties make mutual promises not to disclose information, and both are legally accountable.
What is a unilateral agreement in real estate?
One interesting example of a unilateral contract is an option contract. This is a common example of a real estate contract where one party secures an option to purchase a property. The selling party has an obligation to sell if the buyer exercises the option.
Importantly, the buyer has no legal obligation to complete the purchase. That’s what makes this a type of unilateral contract, even though the buyer is paying for the option.
The purpose of this type of agreement is to give the buyer time to make a decision or raise funding. However, this can leave the seller vulnerable as there’s no comeback if the buyer doesn’t buy.
So, some sellers will add a consideration to an option contract to protect them if no purchase is made. At this point, the contract becomes bilateral, as the buyer must agree to pay the consideration if they don’t buy.
What is the definition of a unilateral contract in insurance?
Although they can have bilateral elements, insurance contracts are generally considered unilateral agreements. Insurance providers are legally obliged to indemnify the policyholder if certain conditions are met, like theft or accidental damage.
The policyholder, however, has no obligation to keep the contract running. They can choose to cancel a policy at any time. A policyholder generally has little to no contractual obligations to the insurer.
Create appealing offers with unilateral contracts
We talked above about how a reward poster could be considered a unilateral reward contract. What about loyalty rewards? This popular customer retention tactic is also a form of unilateral business contract.
The business promises a reward on the completion of certain actions, like making a certain number of purchases. You can see how that fits our unilateral contract definition.
The customer doesn’t have to complete these tasks, but they’re rewarded for doing so. This creates an incentive that can drive repeat business and customer loyalty.
Whatever type of unilateral agreement you wish to create, PandaDoc can help. Sign up for a free trial today.