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What Is a Unilateral Contract?

Standard insurance policies are unilateral contracts where the company offers coverage while the insured party makes no promises.
Offering a reward for a criminal is a unilateral contract.
An example of a unilateral contract is when someone offers another person money to mow a lawn.
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  • Written By: Charity Delich
  • Edited By: Bronwyn Harris
  • Last Modified Date: 15 October 2014
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A unilateral contract is a type of agreement in which one party promises a second party something if the second party will act – or refrain from acting – in a certain manner. The second party generally does not make an express promise and is not obligated to act in any way. For example, a unilateral contract would be created if a woman offered to pay a neighbor boy $15 US Dollars (USD) for mowing her lawn. In this example, the neighbor boy has not promised to mow the lawn, and he is not legally obligated to do so. The woman, however, would be required to pay the boy $15 USD if he does, in fact, mow her lawn.

In a unilateral contract, the party making a promise is typically referred to as the offeror or the promisor. The other party is usually called the offeree or the promisee. While the offeror expressly promises something to the offeree for completing – or for refraining from – a certain act, the offeree usually does not expressly consent to perform - or refrain from performing - the act. The offeree indicates his or her acceptance of the offer by actually performing the act. This phenomenon is known as acceptance by performance.

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Once the offeree performs, then the offeror must complete his or her end of the bargain. If the offeree only partially performs, however, the offeror does not have a legal obligation to complete his or her promise. In other words, a unilateral contract becomes legally binding on an offeror once the offeree completely performs.

A unilateral contract is commonly formed in a number of cases. Insurance policies are usually unilateral agreements. In a standard insurance contract, the insurance company promises to provide coverage against losses while the insured does not make any promises. Rather, the insured simply pays a premium on the policy. The offering of a reward for providing information about a criminal suspect or for finding a lost cat or dog are other kinds of unilateral contracts.

A unilateral contract is different from a bilateral contract. In a bilateral contract, the parties each promise one another something. They may agree to do something or to refrain from doing something. Bilateral contracts are often formed in business arrangements. For example, a bilateral contract would be created if a company promises to pay a manufacturer for delivering 100 widgets and the manufacturer agrees to make the delivery. If the manufacturer did not make a return promise, the contract would be unilateral in nature.

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Discuss this Article

starrynight
Post 6

@indemnifyme - That's an interesting way to look at it. People definitely don't think twice about paying their insurance late, but if the insurance company doesn't fulfill the contract, they are in big trouble!

I actually think the whole idea of unilateral contract is pretty unfair. Why should one party be obligated while the other isn't? I think that if both people aren't under obligation it really shouldn't count as a contract at all!

indemnifyme
Post 5

I think an insurance policy is the best example of a unilateral contract. Of course, this is probably because I work in insurance, and deal with unilateral contracts every single day!

As the article said, the insurance company is the only party that is really obligated to do anything. If the insured stops paying their premium, all we can do is cancel their policy. We can't go after them and make them keep paying if they don't want to!

In fact, now that I think about it, most people have more obligation to their gym than to their insurance company! Many people sign year long contracts with their gym, and the gym can force you to fulfill it. This seems a bit crazy to me, but whatever.

MrMoody
Post 4

@David09 - I remember the Biblical story of David and Goliath.

Apparently King Saul made a unilateral contract of an offer to give his daughter to the man who killed Goliath. David famously rose to the challenge, as we all know, and ended up marrying Saul’s daughter.

I know that’s a funny analogy, but most of our laws have some Biblical precedence, so I wouldn’t be surprised if the unilateral contract went back to Bible days.

David09
Post 3

I offer a unilateral contract to my son now and then when I don’t want to mow my big backyard.

I tell him, “Mow the lawn and I’ll give you $20.” Nothing is signed, and he can choose to do it or not do it. It’s not part of his weekly chores (and he has those) so there is no obligation either way.

But boy, does money speak. I’ve never had him refuse yet.

everetra
Post 2

@allenJo - That’s an excellent question. Frankly, I think that it would be up to the person making the offer to determine who gets the reward money.

After all, neither party can prove that they – and they alone – offered the tip that nailed the suspect. In my opinion, in your example I think the money would be given to the person with the precise location of the suspect.

If two people came forward with the precise location, then I guess it would be first come, first served, as they say.

allenJo
Post 1

Wouldn’t a unilateral contract potentially open the first party open to acceptance of the contract by more than one other party? I don’t think that this would be the case with the lawnmower example that the article talks about; here two specific parties are involved.

However, what if someone offers up a $100,000 reward leading to the arrest of a suspect? Two people come forward, one with a tip as to the general location, the other with a tip as to the specific location.

Does the second person get the money because his information was more precise? Does the money get split between the two parties? How would that work?

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