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.
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.