What is a unilateral offer? How does an offeree accept an offer unilaterally?

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Date published: 27 Nov 2020
by DocPro Legal
Last Update: 10 Feb 2021

One of the most common questions people ask in business is - would I be bounded by the seller / service provider's one sided terms if I did not sign anything or explicitly agree to it? Such terms are known as unilateral contracts.

 

Whilst most people are aware of bilateral contracts – an agreement between two parties with each party undertaking to perform obligations – many people are unaware of or do not understand what unilateral contracts are.

 

The article will provide you with a comprehensive overview of unilateral contracts and will cover the following:

  • What is a unilateral contract?

  • Bilateral Contract vs Unilateral Contract

  • Types of unilateral contract

  • Are unilateral contracts legally enforceable?

  • When to enforce a unilateral contract?

 

This article will finish by providing you with templates for essential unilateral contracts that you need for a successful business.

 

What is a unilateral contract?

 

A unilateral contract is a contract in which only one party undertakes an obligation without any corresponding obligation undertaken by the party accepting the offer.

 

In unilateral contracts, one party – the party making the offer (‘offeror’) – undertakes an obligation to perform in return for some act by the other party. This other party is called ‘the offeree’.

 

The offeree does not legally have to perform this act and cannot be forced to do so. This is because there is no corresponding obligation on the offeree – the offeree is not legally bound to perform this act as they have not undertaken any obligation to perform the act. In a unilateral contract, only an offeror undertakes an obligation to perform.

 

If, however, the offeree chooses to perform the act as stipulated in the offer and does actually completely perform the act, the offeree accepts the offer and a unilateral contract is formed. At this stage, the offeror is legally bound to perform his obligations as outlined in the offer.

 

It is important to note that the offeree can only accept the offer if he completely performs the act demanded by the offeror in the offer. For the offeror, this means they will only be bound to perform if the offeree completely performs the act as requested in the offer.

 

A common example of a unilateral contract is offers of cash rewards for crime tips. For example, you might see a flyer from your local police station offering “$100,000” for information leading to the arrest of a known criminal in your area.

 

Here, the police are the offerors – they are the only parties undertaking the obligation. The police undertake the obligation to pay $100,000 in return for an act – the act being the provision of information leading to a criminal’s arrest. There is no obligation on anybody to actually provide this information. If someone does, however, they accept the offer and can enforce this unilateral contract. They can legally demand that the police to pay the $100,000 to them.   

 

This example involves an offer made to the world at large. It is important to note, however, that unilateral contract offers can be made to specific people as well.

 

Bilateral Contract vs Unilateral Contract

 

Unilateral contracts are different from bilateral contracts.

 

The main difference is that for a unilateral contract, only one party – the offeror – undertakes an obligation to perform something or refrain from performing something. The other party – the offeree - undertakes no obligation whatsoever. The offeree may choose to perform the act requested of them in an offer but cannot be compelled to perform the act by an offeror.

 

In a bilateral contract, both parties – the offeror and offeree – undertake obligations to perform something or refrain from performing something. A common example of a bilateral contract is an employment contract – the employer undertakes the obligation to pay the employee a salary; the employee undertakes the obligation to work for the employer.

 

In a bilateral contract, both parties are legally obliged to perform the obligations undertaken in the contract. If either party fails to perform its obligations, there will be a breach of contract. Depending on the breach, the other party may be entitled to terminate the contract or claim damages.

 

The distinction between unilateral and bilateral contracts can be very nuanced. Let’s take the above example of cash rewards by your local police station for crime tips.

 

If the police agree to give $100,000 to you to find information concerning the whereabouts of a criminal, this would create a bilateral contract. In this case, the offeree would be agreeing to perform something: to find information concerning the whereabouts of the criminal.

 

Performance of the act is not optional in this case for the offeree. The offeree must find information to lead to the arrest of the criminal.

 

If it were a unilateral contract however, the offeree would not be obliged to perform the police would only pay the offeree if they actually provided information leading to the arrest of the criminal.

 

This helps illuminate the distinction – the fact that both parties are undertaking obligations to perform in the case of bilateral contracts and only one party undertaking to perform obligations in the case of a unilateral contract.

 

 

Types of unilateral contracts:

 

Coupons

 

A company may issue coupons, which if used by a customer will provide them with a discount on the price of a product.

 

This is a unilateral contract. The offeror (the company) undertakes to perform an obligation – which is to sell the product at a discounted price. The offeror will do this if a particular act is completed by the offeree (the customer), which is to present the coupon at one of the company’s stores.

 

The offeree (the customer) is not under a legal obligation to present the coupon. The offeree may present the coupon or may not.

 

Rewards

 

Another common category of unilateral contract is when people offer rewards for doing some act.

 

The example used above concerning rewards for crime tips is an example falling under this category.

 

Other examples include people offering rewards for finding their dog, or cat.

 

Insurance Contracts

 

Insurance companies undertake an obligation - to make payments to policyholders - should a particular specified event occur.

 

In this case, there is not an act, strictly speaking, to be completed by the offeree for the offeror to perform. Rather there is an event which must occur.

 

 

Are unilateral contracts legally enforceable?

 

Unilateral and bilateral contracts are contracts alike. Thereby, they must fulfil the same requirements to be legally enforceable.

 

Generally, these requirements include:

  • 1) Offer

  • 2) Acceptance

  • 3) Consideration

 

We will go through each of these requirements in turn and describe their presence in unilateral contracts.

 

Offer:

 

An offer is a specific proposal by one party to enter into an agreement with another party, which is essential to the formation of an enforceable contract.

 

In the case of a unilateral contract, the offer is made by the offeror to do something if some other person performs some specified act. Such an offer can be made to a specific person or the whole world.

 

Like with bilateral contracts, unilateral contract offers can be terminated. Unilateral contract offers are generally subject to the same rules on termination as bilateral contract offers with a few modifications.

 

The general methods, where applicable, for termination of bilateral contract offers also apply in the case of unilateral contract offers including:

  • 1) Revocation

  • 2) Rejection

  • 3) Lapse

 

1) Revocation

 

As with bilateral contracts, for unilateral contracts an offeror can revoke – take back – an offer at any time before an offeree has accepted it.

Any such revocation of a unilateral contract offer should be communicated to the offeree, however.

 

If an offer is made to the entire world, this requirement for communication to the offeree is fulfilled if the revocation takes a similar form to the offer. So, for instance, in the case of a police station asking for information leading to the arrest of a criminal, if the police made this offer by posting flyers around town, revocation should take the same form – notice of revocation should also be posted as flyers around town.

 

Distinct from the rules for revocation for bilateral contracts, for unilateral contracts, an offeror cannot revoke an offer if the offeree has begun performance of the act as specified in the offer. So, for instance, if you offer someone $10,000 if they climb up the Eiffel Tower, once they begin climbing it is not possible for you as the offeree to revoke your offer to give them $10,000.

 

 

2) Rejection

 

A unilateral contract offer can be rejected outright as with bilateral contracts.

 

 

3) Lapse

 

A unilateral contract offer can also be terminated through the death of the offeror and death of the offeree depending on the unilateral contract at issue.

 

 

 

Acceptance:

 

Acceptance can be defined, for both unilateral and bilateral contracts as an agreement to the terms of an offer.

 

In the case of unilateral contract offers, acceptance happens when an offeree completes performance of the act as required by the offer. The offeree must complete performance of the act as required by the offer – part-performance or beginning to perform is not enough.

 

For the acceptance of a unilateral contract offer, certain requirements, which are slightly different from those which apply to bilateral contracts, must be fulfilled:

 

Firstly, acceptance must exactly match the terms of the offer. In other words, to accept a unilateral contract offer, an offeree must perform the act exactly as specified in the unilateral contract offer.

 

Secondly, unlike for bilateral agreements, acceptance need not be communicated to the offeror. In the case of unilateral contract, the courts generally imply that an offeror has waived for this requirement for communication of acceptance. Mere performance, therefore, of the act can constitute acceptance without prior notification of acceptance.

 

It is unclear whether the offeree must have knowledge of the offer for effective acceptance.

In most common law jurisdictions, whether the offeree must have the offer in mind when performing the act for effective performance has not be definitively judged upon.

 

Consideration:

 

The requirement for consideration demands that something of value be given by each party in exchange for the other party undertaking the obligations as stated in the contract.

 

In a bilateral contract, both parties undertake obligations to perform or exchange promises. This exchange of promises, by each party, in of it itself, is treated as sufficient consideration. Once the parties exchange such promises, a contract is created which binds both parties.

 

In a unilateral contract, both parties do not exchange promises/undertake obligations to performs. Only the offeror undertakes an obligation in return for the offeree performing some act.

 

The obligation undertaken by the offeror serves as consideration from the offeror. The promisee only provides consideration when he/she has performed the act as required by the unilateral offer. The very performance of this act constitutes consideration – the thing of value provided by the offeree to the offeror.

 

Consideration is a requirement for a contract to be binding and enforceable between the parties. Thereby, it is only after performance of the act by the offeree that a unilateral contract is enforceable and binds the offeror. It is only at this stage that an offeree can legally demand performance by an offeror of his obligations under the unilateral contract.

 

If there exists offer, acceptance and consideration, generally, this will lead to the creation of an enforceable, legally binding unilateral contract.

 

When to enforce a unilateral contract?

 

Often offerees decide to enforce unilateral contracts when an offeror has refused to fulfil their obligations under a unilateral contract after the offeree has performed the act required by the unilateral contract.

 

Depending on the situation, this may constitute a breach of contract, for which the offeror may be held liable.

 

For there to be a breach of contract, a few elements must be proven by the offeree:

  • 1) All the elements required for an enforceable contract were present

    • The offeree must prove that there was an offer, acceptance and consideration (see above).

  • 2) There was a breach of contract

    • The offeree must show that the offeror didn’t comply with the terms of the contract. Usually, the offeree will be trying to show that the offeror did not fulfil his/her obligation as stated in the unilateral contract offer.

  • 3) You suffered loss

    • You suffered some loss, recognised in law, as a result of the non-performance of the offeree.

    • Proving loss is critical: If you cannot prove this, then despite there being a breach, you will not be entitled to any financial compensation.

 

UNILATERAL CONTRACT TEMPLATES:

 

DocPro offers comprehensive unilateral contract templates. DocPro’s unilateral contract templates include templates for non-disclosure agreements and non-compete and non-solicitation agreements.

 

You can find links to these templates below:

 

You can find and select a suitable unilateral non-disclosure Agreement template here: https://docpro.com/cat40/general-business/nda-confidentiality-agreement

 

You can find and select a suitable unilateral non-compete and non-solicitation agreement here: https://docpro.com/cat43/general-business/non-compete-exclusivity-agreement

  

 

Disclaimer: Please note that this is a general summary of the position under common law and does not constitute legal advice. As the laws of each jurisdiction may be different, you may wish to consult your lawyer.  

 

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