Definition and examples
Contracts are an essential aspect of everyday business operations (and even everyday life in general). They govern myriad transactions and agreements – serving as the cornerstones of personal and business relationships. There are many different ways to categorise and compartmentalise contracts by type – including as unilateral and bilateral contracts.
One of the most common types of contracts that appears in business settings is a unilateral contract. What is a unilateral contract – and why does it matter?
In this blog post, we will dive into the concept of unilateral agreements and provide an example of them at work.
What is a unilateral contract?
A unilateral contract is a legally enforceable agreement in which one party, known as the offeror, makes a promise in exchange for the performance of a specific act by the other party, known as the offeree. In other words, the offeror offers a remunerative value in exchange for the offeree completing a specific task or act.
The contract is only formed and legally binding once the offeree performs the requested act as per the offeror’s terms.
Unilateral contracts versus bilateral contracts
Unlike bilateral agreements, where both parties exchange promises, unilateral agreements involve one party making a promise in exchange for the other party’s performance. In this sense, unilateral contracts are a one-sided type of agreement.
Elements of a unilateral contract
To have a valid unilateral agreement, certain elements of a contract must be present.
- Offer: The offeror must make a clear and definite conditional promise to the offeree. The offer should specify the exact act or performance required from the offeree to accept the offer and create a binding contract.
- Acceptance by performance: The offeree must accept the offer by performing the requested act or performance. This performance is the offeree’s acceptance of the offer and forms the contract. Until the performance is completed, there is no binding contract.
- Consideration: Consideration refers to the benefit or value that the offeree provides in exchange for the offeror’s promise. In a unilateral contract, the offeree’s performance of the requested act is the consideration.
- Intent to create legal relations: Both parties must have the intention to create a legally binding contract. If either party does not intend to be legally bound, there will be no valid contract.
Example 1
Let’s take an example to better answer the question: What is a unilateral contract in action?
Suppose Connie offers a £500 reward to anyone who finds and returns her lost dog. Tom decides to look for the dog, finds him, brings him to Connie, and receives his award as per the terms of the unilateral contract.
Until Tom completes the task, there’s no binding contract and Connie isn’t obligated to pay him. However, once Tom brings her the dog the contract is formed, and Connie is under contractual obligation to pay him the specific amount she promises to pay as per the terms of the offer – lest she be in breach of contract.
Example 2
Another example is an open request for an open contract. For example, say the Metropolitan police department offers £1,500 to any civilian who provides information regarding the whereabouts of a kidnapper that leads to him being apprehended.
If the evidence that a civilian provides leads to the kidnapper’s arrest, the police are obligated to pay them the £1,500. If it doesn’t, then the police are under no unilateral obligation – per a unilateral agreement – to provide the reward.
Revoking unilateral contracts
One crucial aspect of unilateral contracts is that the offeror cannot revoke the offer once the offeree has started performing the requested act.
Once the offeree has started the performance, the offeror cannot back out of the contract and must fulfil their promise, even if the offeree has not completed the act yet. However, if the offeree has not started performing, the offeror can revoke the offer at any time.
Managing unilateral contracts
Unilateral contracts are a unique type of legal agreement – and understanding their key elements, such as offer, acceptance by performance, consideration, and intent to create legal relations, is essential to grasp the concept fully.
If you are entering into a unilateral agreement, it is crucial to carefully review the terms and understand your rights and legal obligations. Consulting with a qualified legal professional can also provide you with the necessary guidance and protection.
If you or your organisation manage a number of requests and unilateral agreements, you should have the right legal operations tools at your disposal. Contract management software can provide these helpful tools, such as:
- a centralised contract repository of open unilateral requests and easy searching of relevant documents, files, attachments, and contract and counterparty metadata
- key date and task alerts regarding contract offer and performance timelines
- automated contract workflows for approaching unilateral agreement performance management and tasks
- comprehensive budget, financials, and payment tracking
- thorough contract lifecycle management.
Contract Insight is an award-winning contract lifecycle management software solution that has received acclaim from third-party analysts, customers and many others. Users can successfully oversee comprehensive contract lifecycle management and exceed contract management KPIs.
To find out more, contact John O’Brien, CEO at Four Business Solutions – global business consultants and software integrators specialising in business process improvement.