Unilateral contract

What is a unilateral contract?

A unilateral contract is a type of contract where one party makes a promise or offer that the other party can accept only by performing a specific action. In simpler terms, it’s like a one-sided promise.

Take a reward poster for a lost pet: The person who lost their pet promises to reward anyone who finds and returns the pet. In this case, the person who finds the pet can only accept the offer (the promise of a reward) by actually finding and returning the pet. Until they do that, there’s no contract.

In insurance, a unilateral contract means that the insurance company commits to providing coverage if you fulfill your part by paying premiums and meeting other policy conditions.

How does a unilateral contract differ from a bilateral contract?

In comparison, a bilateral agreement is like a two-way promise between two parties. Both parties make promises to each other and fulfill these promises for the contract to be considered valid and enforceable.

Suppose you’re buying a used car from a seller. You both agree to the terms and exchange promises:

• You (the buyer) promise to pay $5,000 for the car.
• The seller promises to deliver the car with all agreed-upon features.

In this case, both parties are making promises to each other, so you form a bilateral contract when you agree on the price and features. Both parties are obligated to fulfill their promises. If you don’t pay, you’ve breached the contract, and the seller can take legal action. Similarly, if the seller doesn’t provide the car as promised, you can also take legal action.

Are unilateral contracts legally binding?

A unilateral contract is legally binding once the action has started. However, the person making the offer can withdraw it at any time before the action begins.

3 things to consider when using a unilateral contract

1. Flexibility. Flexibility is a major advantage of using unilateral contracts in business. You have all the power to withdraw the offer at any time before the action begins with no notice to anyone.
2. Non-committal. A unilateral contract can project a non-committed image. If the action requires any preparation, purchase of equipment or planning, the possibility of withdrawing the contract before actual work has begun may be too risky for participants.
3. Strength. If you’re serious about securing action to perform a task, a unilateral contract may not be strong enough to obtain the best people for the job. You must weigh the flexibility of a unilateral agreement with the more substantial commitment a bilateral agreement fosters.

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