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What is a Unilateral Contract?

What is a Unilateral Contract?

A unilateral contract is a contractual promise made by one party if certain conditions are met. Find out in this article how they work.

16th March 2020

Contracts may seem pretty straightforward – two people (or businesses) discuss making a deal of sorts which benefits them both. They then agree on the terms, sign a document, and shake hands to seal the deal. However, contracts can take more forms than a simple handshake. A unilateral contract is a good example of this. In this article, we’ll explain what a unilateral contract is and the legal ramifications involved.

Establishing a legally binding contract

There are strict elements which need to be fulfilled in order to make a contract legally binding. To ensure a contract is legally enforceable, there are four major elements that must exist:

1. Agreement

One party needs to present an offer to another party. After this, the parties may negotiate until both accept the offer. In agreeing on terms, there must be no coercion or duress on either side. A contract may be void if it is found that one party’s ability to agree was compromised. A good example of this would be where a small business agrees to the terms of a contract after being pressured to by a bigger company.

2. Consideration

There needs to be a price or liability paid for the promise. A contract is not enforceable if there is no exchange from both sides. However, consideration does not always have to be monetary. For example, if you’re selling your car, you can accept shareholdings or other property of the purchaser as payment. This will also constitute consideration.

3. Intention to create legal relations

There needs to be an intention for the contract to be legally binding. Each party to the contract should understand what they’re signing up to and what their legal obligations will be upon signing the contract. If the terms of the contract are unclear, you should seek legal advice before signing anything.

4. Certainty

The contract needs to be sufficiently clear and complete. The fundamental backbone of a contract is an agreement, consisting of an offer by one party and acceptance by the other. What makes unilateral contracts unique is the way in which an agreement is formed. Suffice to say, contracts in this sense are not always accepted by signing, but by performing a particular action.

Unilateral contracts

When most people think about a contract, they are most likely thinking of a bilateral contract where the two or more parties enter into a mutually beneficial agreement. Learn more about Bilateral Contracts to further understand the difference. Unilateral contracts are by contrast, one-sided. This means that one party accepts the terms of another, but this does not work in reverse. A unilateral contract is a legally binding contract where an offer is accepted by fulfilling a certain condition. Unlike bilateral contracts where there is an exchange of mutual promises, only one party in a unilateral contract makes an express promise. If this condition is fulfilled, then the offering party has to fulfil the promise.

A common example is where “Person A” places an advertisement offering a reward for anyone who finds their lost dog. This offer may state that if someone finds their lost dog and returns it to them, then “Person A” will pay them $100. Only “Person A” has made an express promise and is obliged to fulfil it. If “Person B” finds and returns their lost dog, then “Person B” has fulfilled the condition posed by “Person A”, thereby accepting the offer.

Another example would be a burrito stand which runs a burrito-eating competition. The burrito stand promises that whoever eats the highest number of burritos in 2 minutes will receive a $200 voucher. Although multiple people are ‘entering’ into this contract, only one will fulfil the condition which will activate the promise held within the contract.

Unilateral contracts for small businesses

Consumers or parties are sometimes hesitant to enter into a contract with small businesses. However, due its one-sided nature, unilateral contracts have a variety of uses that can be used to grow your business. When used the right way, unilateral contracts though one-sided, are beneficial to both businesses and consumers.

Firstly, unilateral contracts can be used to establish the loyalty of consumers through establishing a rewards system. This can work on a points-basis that lead to discounts or incentives which encourage your customers to buy from your business more. One common example of this are businesses which sell hot coffee. Many cafes or coffee stands hand out cards to customers which entitle them to their tenth (or fifth) coffee free. This common marketing technique utilises the reward system. This will incentivise consumers to remain with your business or product – thereby assisting in your own business’ growth. However, your customers need to be aware of any limits or conditions that apply to your rewards program. An example of this would be if the reward only applies for 10 coffees purchased within the space of a month.

Secondly, unilateral contracts can promote awareness of your business. A prime example today is the Killa Burger Challenge. The promise from Killa Burger Grill was that if you eat a Killa Burger (30cm wide), Wicked Chips, Killa Drink (1.25L) and a Killa Soft Serve alone in 60 minutes, you will receive some ‘Killa’ prizes and your name on the ‘Wall of Fame’. This promotional challenge and campaign is also a unilateral contract, with Killa Burger Grill promising the prizes to those that complete the challenge.

Conclusion

Unilateral contracts may at first sound unequal, one-sides and unfair. However, unilateral contracts are one the most common types of contract a business will use. This is because it will not only benefit your business, but also your customers. After all, your customers wouldn’t sign up to a unilateral contract if there was no potential benefit. Unilateral contracts are seen in all walks of lif If you’re unsure what terms to include in you unilateral contract, it is worth consulting with a business lawyer for further advice. 

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Author
Jackie Olling

Jackie is the Content Manager at Lawpath and manages the content team. She has a Law/Arts (Politics) degree from Macquarie University and is an admitted solicitor in the Supreme Court of NSW. She's interested in how technology can help shape the future legal landscape.