What is a Unilateral Contract?

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What is a Unilateral Contract?

February 3, 2022         Anthea Dinh-Tram

Most would know that a contract is formed when one party makes an offer to  another, who accepts that offer. A unilateral contract is a specific type of contract that can only be accepted by performance. Unlike bilateral contracts, unilateral contracts are one-sided because only one party is required to make and fulfil an expressed promise. Bilateral contracts require a mutual exchange of promises. 

An example of a unilateral contract would be a local library promoting an art competition. The library makes an offer to the public that whoever submits the best artwork celebrating diversity in the community will receive a $500 cheque and see their work displayed at the library reception. The winner is the party who fulfils this expressed promise via submitting the artwork judged to be the best out of all submissions. 

Establishing a Unilateral Contract

All legally enforceable contracts satisfy the following four elements: 

  1. Agreement

The parties negotiate and agree on contract terms without the occurrence of coercion, duress, or other negating actions. 

  1. Consideration

An exchange, price, or liability is paid for fulfilling the contract promise. 

  1. Intention to create legal relations

There was a mutual intention for the contract to be legally binding. Each party is aware of their legal obligations upon entering the contract. 

  1. Certainty

The contract has been completed by signature or performance, as in the case of unilateral contracts. 

Unilateral contracts are established in their drafting. The contract should clarify that acceptance will only be signified by the other party performing a certain act. A unilateral contract should mention:

  • What is being offered; 
  • What needs to be done in order to accept that offer. 

Unilateral contracts can be written, spoken, or in other approved forms. 

Uses of Unilateral Contracts 

  1. Marketing and Promotion

Businesses could use unilateral contracts to encourage customer loyalty and establish a positive reputation for themselves. A rewards system is a unilateral contract. For instance, a store gives customers a stamp on their loyalty card for every time they purchase a drink from the menu. By the fifth visit, the customer could receive a free drink. This type of arrangement will encourage customers to come back to the store and to spread awareness of the ‘good deal’ to their friends and family because the idea of receiving a free drink is very enticing. 

  1. Open Requests

Businesses may further use unilateral contracts as an open request for labour. They could advertise a task, such as a tutoring business offering $55 for someone to edit a student’s final essay, and the person who takes up that task will receive the payment. 

  1. Insurance

Insurance companies may promise to pay clients if acts are performed under what the contract covers. The client pays a premium as specified by the insurance company to maintain the insurance plan. Then, they will be able to claim insurance if a specified event occurs.

Conclusion

Unilateral contracts are a type of contract that can only be accepted by performance. A unilateral contract should clearly display the four elements of agreement, consideration, an intention to create legal relations, and certainty. Where there are many uses for unilateral contracts, you may be unsure where to start. It is worth consulting with our business lawyers for friendly advice. 

If you need any help with business contracts get in touch with us by filling out the form on this page, or call us on 1300 337 997.

About Anthea Dinh-Tram

Anthea works as a legal intern with OpenLegal, whilst studying a Bachelor of Communication (Public Communication)/Laws at UTS Sydney.