• A unilateral contract refers to a contract in which one party makes a promise in exchange for the other party’s performance.
• Many unilateral contracts exist in the insurance industry, while other common examples include promotional deals and reward money for returned items/pets.
• While one-sided, unilateral contracts are enforceable under contract law.
• An example of a unilateral contract in real estate is a lease option, where the seller gives the buyer an option to purchase the leased property at the end of the term, but the buyer is not obligated to buy it.

A unilateral contract refers to a contract in which one party makes a promise in exchange for the other party’s performance[1]. In such a contract, only one party is obligated to perform; the other is not.

In other words, a unilateral contract is a one-sided agreement with a pre-arranged commitment[2]. It is often used as an open request for a specified action to be paid for[3].

That said, unilateral contracts are legally binding agreements. Once the option is exercised, both parties are bound by the terms of the contract.

The Two Parties in a Contract

In any contract, the two primary elements are the buyer and the seller. However, in a unilateral contract, this role morphs into an offeror and an offeree, respectively.

The offeror is one who requests a particular action. This offer can be to a specific person (or even the general public), who, in turn, becomes the contract’s offeree.

The offeree’s obligation in the contract is only to decide whether to do (or not) what the offeror has requested.

The unilateral contract becomes binding if the offeree’s performance conforms to the contract’s specified action. When this happens, the offeror is legally bound to deliver what they have promised to the offeree[4].

The rules on unilateral contracts are generally similar to the guidelines of contract law. The laws in the state where the contract was made apply instead of federal laws[5].

Note that the offeree initiating the task specified in the unilateral contract does not automatically mean an acceptance of the contract. Completing the task is the only way to accept it, and upon completion, the offeror must abide by the agreement and fulfill their contractual obligations[6].

An offeror can revoke the contract offer at any time before the offeree’s performance starts. The conditions that can trigger a revocation are typically expressed in the contract.

The following are unilateral contract examples.

• Marketing-oriented contests. Promotional ads offering some rewards for patronizing certain products or services are common examples of unilateral contracts [7].
• Bounties or rewards. These are offers for rewards like cash in exchange for the return of a lost valuable item or information leading to its retrieval.
• Insurance policies. Insurance contracts are unilateral agreements because the insurance company sets the terms, not the insured entities or individuals[8].

Unilateral contracts also have some applications in real estate. A common example is an option[9]. An option contract is an agreement in which the seller of a property grants the buyer the exclusive right to purchase the property at a predetermined price within a specified period. The buyer is not obligated to purchase the property, but the seller is obligated to sell it to the buyer if the buyer chooses to exercise the option.

An open listing contract of a property seller with several real estate agents is also unilateral. Here, the seller will pay the commission of the agent, who will close the property’s sale[10].

Bilateral contracts differ fundamentally from one-sided contracts. However, these two types of agreements also have some similarities.

For instance, either one is a binding contract enforceable in court. A breach in the agreement is possible in both unilateral and bilateral contracts, where either side fails to comply with the terms of the agreement without a lawful, justifiable reason.

The aggrieved party in either contract, whether written or oral, can seek remedy in court. The complainants in a suit on breach of contract must show the following:

• A valid contract.
• The alleged breach that occurred.
• The loss they suffered from the breach.
• The other party’s responsibility for the breached contract.

Based on court rulings, there are instances when unilateral contracts can become bilateral agreements. Such a transformation can happen when the offeree begins to engage in the unilateral offer.

In such cases, the offeree accepts the contract and offers the obligation that the offeror has proposed[11].

Differences Between Unilateral and Bilateral Contracts

Unilateral contracts differ from bilateral contracts in two aspects:

• Contracting parties’ obligations. A unilateral contract obliges action only on its offeror, with just a promise of action from the offeree. Typically, the offeror is the only party legally bound in a unilateral contract. A bilateral contract, on the other hand, legally binds the two contracting parties and requires completed action from both.
• Exchange of contracting parties. The exchange in a unilateral contract, such as a reward for a specific action, can only happen after the action’s completion. A bilateral contract, in contrast, binds both parties from the get-go. The exchange between the two parties thus can happen upfront[12].

1. Legal Information Institute. (n.d.) Unilateral Contract. Cornell Law Institute. Retrieved from https://www.law.cornell.edu/wex/unilateral_contract
2. CFI Team. (2021.) Unilateral Contract. Corporate Finance Institute. Retrieved from https://corporatefinanceinstitute.com/resources/knowledge/deals/unilateral-contract/
3. Rasure, E. (2021.) What Is a Unilateral Contract? Investopedia. Retrieved from https://www.investopedia.com/terms/u/unilateral-contract.asp
4. Incorporated Zone. (2020.) Unilateral Contract Overview (With Concrete Examples). Retrieved from https://incorporated.zone/unilateral-contract
5. FindLaw. (2018.) Contracts and the Law. Retrieved from https://www.findlaw.com/smallbusiness/business-contracts-forms/contracts-and-the-law
6. DeLoe, R.L. (2022.) Understanding Your Unilateral Contract. Legal Zoom. Retrieved from https://www.legalzoom.com/articles/understanding-your-unilateral-contract
7. UpCounsel. (n.d.) Advertisement Unilateral Contract. Retrieved from https://www.upcounsel.com/advertisement-unilateral-contract
8. Pureza, G.M. (n.d.) Unilateral Contract. Wall Street Mojo. Retrieved from https://www.wallstreetmojo.com/unilateral-contract
9. Prep Agent. (n.d.) Bilateral Vs Unilateral. Retrieved from https://www.prepagent.com/article/bilateral-vs-unilateral
10. Reilly, J. (2018.) Unilateral Contract Vs Bilateral Contract. RealTown. Retrieved from https://www.realtown.com/blog/Unilateral-Contract-VS-Bilateral-Contract
11. Upcounsel. (n.d.) Bilateral Promise: Everything You Need to Know. Retrieved from https://www.upcounsel.com/bilateral-promise
12. Juro Knowledge Team. (2022.) Unilateral Vs Bilateral Contract: What’s the Difference? Retrieved from https://juro.com/learn/unilateral-vs-bilateral-contract