Unilateral Contract

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Unilateral Contract

Brief Introduction About Unilateral Contract

What is a unilateral contract? Unilateral contracts, also known as one-sided contracts, can be defined as “An agreement where an offer can only be accepted with a specific performance by the promise/offeree, hence, a promise of an act/performance.” They are unique agreements that differ from every other contract. It is formed with an offer that can only be accepted with a specific performance. This sequence of performance and acceptance separates unilateral contracts from other contracts. Usually, the acceptance comes first, followed by the performance.

The contract is formed when a person makes an offer/promise (called promisor/offeror) for an exchange of performance by another party. The other said the party could only accept the offer when the requested action is performed. We can easily remember this if we break down its name. Unilateral, here “Uni” stands for one; thereby, the contract only allows one person to form an agreement or promise.

The contract must have:

  1. An offer/promise must be made.
  2. There must be consideration involved.
  3. There must be a performance of the asked task.
  4. The offer can only be accepted with specified performance.
  5. The performance must be legal.

Who takes the Unilateral Contract

A unilateral agreement does not need to have two parties to be formed, but it does eventually need at least two parties to be considered a legal contract. A person (offeror/promisor) makes a promise for the performance of a specific act. Now, any party that performs the specific activity can be considered the offeree/promise. No contract will be formed if no party fulfills the performance, even if they explicitly accept the offer.

Purpose of the Unilateral Contract

A unilateral contract, much like any other contract, is formed to get a specific act or performance finished. This type of contract is usually helpful in lost and found cases where someone makes an offer/promise to remunerate anyone who finds their belongings. A one-sided contract falls under the category of contract based on the performance. These are quite the opposite of bilateral contracts and serve a different purpose as well. We can better understand the need and purpose of unilateral contracts with an example.

Take a case in which Person X lost his dog, and he offers to pay anyone Rs. 500 if they get his dog back. Now, X has nothing else to lose as he does not have to pay anyone if he does not get his dog back. If someone does get his dog back, then a fee of Rs. 500 is not much. No contract would be formed until X gets his specific performance done. Hence, he would not be liable or obligated to anyone until the act is performed.

Every other contract needs the offer to be accepted first, but a one-sided contract helps someone get the necessary act done before payment is given. Suppose, X hired a detective for the same job, He would first have to pay the detective his fee, and even then, there would be no guarantee of him getting his dog back.

There are special rules regarding payment of unilateral contracts in some states. The offeror is obligated to pay the offeree an appropriate amount if he/she made sufficient efforts to fulfill the task. In X’s case, if someone put up posters for the lost dog with their money or spend valuable time looking for it, then the person would be obligated to compensate them appropriately.

Contents of the Unilateral Contract

Unilateral contracts fall under legal contract classification based on performance. As it falls under a legal contract, it needs to have every component of one as well. A contract is defined as an agreement enforceable by law. So a one-sided contract must have legal dealings, consideration, and enforceability by law. Unilateral contracts are mostly used for real estate and insurance purposes.

The contract can only be formed after the performance of a specific act asked by the offeror. Hence its effective date of formation is when the offeree performs his particular task. It eventually needs to have at least two involved parties, one offeror/promisor and another offeree/promisee.

One of the most common questions regarding unilateral contracts is its enforceability. The contract certainly seems one-sided but is usually accepted by the court. As these contracts can only be formed after the performance of an act, the next question that arises is, can they be breached? The answer would be yes; they can. One of the most troublesome issues regarding one-sided contracts occurs when the offeror refuses to reward the other party even after the performance of the said task.

Continuing the unilateral contract example mentioned above, if Person X refuses to pay the person who got his dog back, then X can be sued for breach of contract. The evidence the other party would have to provide is:

  1. Proof of the contract’s existence.
  2. Evidence of its breach.
  3. Evidence of your damages or losses in the contract’s performance.
  4. The offeror’s responsibility for the loss.

Can advertisements be considered unilateral contracts? Advertisements may seem like they are one-sided contracts; however, the majority of the time, that is not so. Although, if X posted an advertisement in the newspaper about the reward for finding his lost dog, then it would be considered a unilateral contract.

[ Also Read: Advertising Contract ]

How to Draft the Unilateral Contract

Unilateral contracts differ from other contracts because of their drafting process, so it is essential to know exactly what the process is. Before understanding the procedure of contract drafting, the involved parties must ensure that the essentials of a valid contract are fulfilled. This must be ensured to prevent the contract from becoming void. The drafting process of a one-sided contract is as follows:

  1. A promise/offer: The first step in forming such a contract is an offer/promise made in good faith. The offeror makes a clear offer and mentions the guidelines about the performance he wants from the other party. The offer can be conveyed verbally or in writing; moreover, it can be advertised as well. The offeree can make the offer to a specific person, or in general.
  1. Performance of a specific task/action: The sequence of one-sided contracts is different from standard contracts as here; performance comes before the acceptance. In case the offer was made to a specific person, and some other party finishes the task, then the offeror is not necessarily liable to pay him. After the task is performed, it would be considered as an acceptance of the promisee/offeree.
  1. Consideration: Finally, the offeree/promisee is paid the promised amount. This closes up the contract, and no further action is necessary.

Some key points should be considered in the process.

  • The subject matter of the contract must be legal.
  • The consideration must be of some value.
  • The asked act must be humanly possible.

Negotiation Strategy

The following points must be considered before forming a unilateral contract:

  1. The offeror should offer appropriate consideration according to the difficulty of the task
  2. The task could be performed with human efforts.
  3. The offer must be clear and without vagueness.
  4. The offer/promise must be made in good faith.

Benefits and Drawbacks of the Unilateral Contract

Unilateral contracts are formed to fulfill the unique needs of an individual, advertiser, contest manager, or service provider. These can be broadly categorized into two parts; advertisements and insurance contracts. There are several benefits of forming a one-sided contract, and here are some of them:

  • Effective for business activity advertisement: These contracts are the most effective way to advertise a business activity, be it an advertisement or social activity.
  • Economical: These contracts are time, energy, and resource-efficient. The promisor/offeror can utilize the same contract with numerous parties.
  • Ideal for unique tasks: This type of contract is the ideal choice for unique tasks such as recovering lost pets or items.
  • Productive: The contracts are productive as the offeror only has to pay after the performance of the act. Even though a one-sided contract has several benefits, it has some drawbacks, as well. Here are a few:
    • One-Sided obligation: The obligations are not equally divided into these contracts, as only one party has to perform. The majority of the time, the party cannot sue the offeror for a breach of contract.
    • Possible difficulties after revocation: There may be cases where the offeror revokes the rewards. In such scenarios, any party without such knowledge could suffer unnecessary losses.

What Happens in Case of Violation of Unilateral Contract?

Unilateral contracts are one-sided, and there is no obligation to fulfill them; however, they can be breached as well. The breach of contract happens when one of the involved parties is unable to carry out their assigned tasks. In such cases, the party on loss, usually the promisee can sue for losses.

A breach in a one-sided contract usually happens when the offeror refuses to pay the promised amount even after the task is performed. There are several things that the aggrieved must prove before suing for breach of contract. These include:

  1. Proof that such a contract existed.
  2. Proof that it was breached.
  3. Proof for the suffered losses.
  4. Proof that the offeror was responsible for them.

For example, Aarav asks Kenny to take his truck to the mechanic, on the condition that he will be given Rs. 500 for this task. Kenny finishes the job. However, Aarav refuses to pay him. In such a case, Kenny can sue Aarav for the damages he incurred during the task.

A special case of breach of contract can take place in these contracts. For example, Anuj published an advertisement in the newspaper about his lost puppy. He offered Rs. 10,000, to whoever returns his puppy. However, he changes his mind after a week and withdraws the offer. Meanwhile, Rahul, who read the advertisement but is unaware of its withdrawal, keeps looking for the puppy. If Rahul finds the puppy, then Anuj may be held accountable to remunerate Rahul.

Unilateral contracts are a special kind of contract where the performance of the contract precedes its acceptance. It accounts for only a small number of contracts where one party holds more rights over the other. In such contracts, a party makes a promise/offer for the performance of a specific task. Here, the offer will only be deemed accepted after the task has been performed. Even though the tasks sound unfair, they are enforceable by law and can be breached as well.

These contracts must have all the elements of a valid contract, like the legal subject matter, consideration, and party capacity. The offeree is not obliged to take the offer. However, in cases where they fulfill the task within a reasonable time, the offeree becomes liable to pay them. If the offeror refuses to pay, then it would be considered a breach of contract(1), and the aggrieved party can sue for damages and losses.