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Unilateral contracts occur when one party puts out an offer, which is given only after another party completes the specific performance they demand.
It may sound a little perplexing, but unilateral contracts are just as much a part of our everyday life as other contracts. If you have ever seen a poster offering a reward for a missing item, participated in store promotions or even some competitions, then chances are you have come across a unilateral contract.
These contracts are unique as only one party sets the terms to the contract and it’s usually up to the other party to decide whether they would like to participate or not.
In this article, we will look further into unilateral contracts and discuss using them in business. This includes:
- Defining a unilateral contract
- Distinguishing between a unilateral contract and a bilateral contract
- Breaching and enforcing unilateral contracts
- Consideration in unilateral contracts
- Termination of a unilateral contract
What Is A Unilateral Contract?
Unilateral contracts are largely one-sided agreements. In most contracts, each party to the contract accepts the terms set out by the other party to form an agreement.
Unilateral contracts, on the other hand, have only one party agreeing to the terms set out by another party to the contract. In a unilateral contract, the consideration is usually given after a specific act is performed.
| Example Nick runs a small coffee shop. For their loyal customers, Nick creates a loyalty system where for every five drinks purchased, the 6th one is free. This special offer is considered a unilateral contract as it requires a specific performance to be completed prior to the ‘reward’ being handed and is very much one-sided. |
Unilateral contracts differ slightly from regular contracts. A standard contract has particular elements that are present in all agreements, no matter what purpose or industry they have been created for. These elements are:
- Offer and Acceptance
- Consideration
- Intention to be legally bound
- Capacity
- Legality
Unilateral contracts will likely fulfill most of these obligations, however, the consideration is usually not mutual or guaranteed.
Bilateral Vs Unilateral Contract
Bilateral contracts are agreements where there is a mutual benefit for both parties.
A bilateral agreement is the more common form of a contract and has all the elements of a contract that we discussed above, including consideration for both parties.
For example, an Employment Agreement is a bilateral contract, as the employee receives payment while their employer receives their labour. In this case, both parties are under an obligation to deliver their part of the contract, making it a bilateral agreement.
What Constitutes A Breach Of A Unilateral Contract?
The primary way a unilateral contract can be breached is if the party making the offer does not fulfil their promise, even after the performance has been completed.
Let’s say a store runs a ‘buy one, get one free’ promotion. However, they refuse when a customer abiding by it tries to enact it. In this case, the store can be accused of unethical and misleading conduct.
Therefore, if you decide to create a unilateral contract, ensure that you are able to complete your end of the deal as it can lead to legal consequences for your business.
How Can I Enforce A Unilateral Contract?
Unilateral contracts still have the same legal standing as other types of contracts. Therefore, a unilateral contract is still a legally binding agreement, granted all the obligations have been fulfilled.
If the offering party refuses to deliver on their promise, then legal action can be taken to enforce it. If you have questions about this, contact our legal consultants to discuss this further.
What Is Consideration In Unilateral Contracts?
Consideration in unilateral contracts is only guaranteed if a specific task has been performed. Furthermore, only the promisor is legally bound to deliver to consideration (granted the performance aspect of the contract has been satisfied).
Generally speaking, in a unilateral contract, a promisee has the option to participate and is not legally bound to deliver the performance.
| Example Dave posts a picture of his missing bicycle to social media, claiming anyone that can find and deliver the bike to him will get a reward of $200. Grace finds the bike on the side of a road and has the option to participate in Dave’s offer by delivering the bike to him in exchange for $200. However, Grace is under no obligation to do so. Dave, on the other hand, is required to give the consideration of $200 if someone does return his bike to him. |
When Would I Need A Unilateral Contract?
If you are a small business, you might decide to create a unilateral contract agreement to make a special offer to your customers or enter into partnerships.
| Example Hannah runs an online clothing store and has decided to use Mike, an influencer with a considerable social media following, to help promote her brand. Hannah approaches Mike with an offer, stating Mike can purchase any three items from her store and she will refund the money if he promotes the items on his social media and it results in at least five purchases from his followers. In this case, Hannah has used a unilateral contract to market her business. Mike can only receive the benefit of the contract if his promotion of the items results in five additional purchases. |
How Can I Terminate A Unilateral Contract?
Terminating a contract can be done in many ways. The most common way for contracts to end is by reaching their natural finish date. This is either done when both parties have received their respective considerations (i.e payment for a jo)b or at a particular agreed upon date (i.e a contractor’s services ending after 6 months).
In a similar manner, an ‘expiry date’ can be placed on unilateral contracts so the offer can only last for a particular amount of time. For example, if you are doing a promotion, then you could state the offer will only last till a particular date.
A unilateral contract will also terminate once the performance of its demands has been completed. For example, if someone has put out a reward for a lost engagement ring and it’s returned to them, the contract is automatically terminated.
If you are seeking to terminate a unilateral contract early, then it is possible to do so with no consequences if another party has not completed the performance.
However, if there is an instance that another party can incur a loss from suddenly terminating a unilateral contract, then it’s best to seek the advice of a legal professional first.
Key Takeaways
Unilateral contracts can be used by businesses to engage in transactions where you have full control over the terms. This can be useful in promotions or marketing activities, however, it’s important to make the terms of the agreement clear and be ready to provide the promised consideration. To summarise what we’ve discussed:
- Unilateral contracts are one-sided agreements
- The promisor is the only party under the obligation to deliver consideration
- This makes them different to bilateral contracts, where all parties are obligated to deliver consideration
- Unilateral contracts are legally enforceable
- They can end at a set date or be terminated upon completion
If you would like a consultation on unilateral contracts, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
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