Unilateral Contract

What is a unilateral contract?

A unilateral contract is a one-sided, legally binding agreement in which one party promises to compensate another party if they perform a specific task or action. The compensation doesn't have to be a monetary payment, as long as it’s specified in the contract and understood by both parties.

Unilateral contracts involve two parties. The offeror is the party that makes the promise in exchange for the performance of an action, and the offeree is the party that agrees to the contract by performing the action. Only the offeror has an initial obligation to fulfill the contract if the offeree agrees. 

Here are some examples of unilateral contracts:

• Insurance policies. The insurance company pays the policyholder if an event occurs that meets the contract's terms of coverage.
• Reward offers. An offeror makes an open request—such as for help finding a lost pet—and only gives the reward if another party finds the pet.
• Contest prizes. The contest board gives prizes to participants who achieve a specific outcome, such as in an art or piano contest. 
• Unilateral nondisclosure agreements (NDAs). One party discloses information, and the other party maintains confidentiality as the performance-based acceptance of the offer.
• Real estate agreements. The seller pays a real estate agent a commission if the agent successfully sells the property.

FAQs 

Is a unilateral contract legally binding?

Yes, a unilateral contract becomes legally binding once an offeree accepts a unilateral contract by performing the specified action. 

What is the difference between a unilateral and bilateral contract?

Both contracts involve an offer made by one party that can be legally binding if accepted and both provide compensation in exchange for an action or performance. 

However, only one party (the offeror) initially has a legal obligation to fulfill the contract in a unilateral agreement. The offeree isn't bound by the contract until they accept it. Similarly, the offeror only needs to fulfill their promise if the offeree completes or performs the specific act.

In a bilateral agreement, both parties make mutual promises that establish a contractual obligation.

Can you revoke a unilateral contract?

Yes, the offeror can revoke a unilateral contract at any time before the offeree’s agreement. However, they generally can’t revoke the contract after the offeree completes the action. 

That said, the offeror may be able to revoke the contract even after the offeree has begun the task if it is a reward offer, such as a reward for finding a lost pet. Seek legal advice if you’d like to revoke a unilateral contract but don’t know how to move forward. 

Do you need a lawyer to write a unilateral contract?

While you might not need a lawyer to create a reward offer for your lost pet, you will benefit from seeking legal advice to draft a more complex contract. For example, it’s smart to consult an attorney when drafting a unilateral NDA, which is meant to protect your business’ confidential information.

State laws, not federal laws, govern unilateral contracts, so rules vary by state. A local attorney versed in your state’s laws can help ensure your contract is truly enforceable.