The obligation of Unilateral Contract and how it is different from Bilateral Contract

Soumya Bajpai

09 Apr, 2020

A unilateral contract is open and available to anyone where only one party makes a promise, and the other is required to perform the action against that promise. This type of contract is mostly sometimes applicable to advertisements made to the public at large.  On the other hand, a bilateral contract is a type of contract where two parties enter into an agreement and agree to fulfil the promise from both sides to do something.

A unilateral contract is a one-sided contract, and hence the offeror agrees to complete the agreement when the other party, the offeree, performs an action. Unlike bilateral contracts in unilateral contracts, the agreement is not made in exchange for a promise made from the other party. However, the offeror is obligated and bound by the action if performed by the other party to fulfil the contract, whereas the offeree is not obligated to act.

The obligation under Unilateral Contracts

While a contract is made in which the consideration is given in exchange for a promise, in the case of the unilateral contracts, there is a consideration, but there is an absence of promise. These contracts are developed to cater to the unique interests of some service providers, contest managers, and advertisers. There are some instances of unilateral contracts which are:

Insurance Contracts: In an insurance contract, if their property is lost or damaged, the insurer offers to compensate people in a specified way. The customer makes very few legally enforceable promises, and normally his responsibility is limited to paying the premiums. In case the property is damaged, and the insurance company refuses to compensate the customer, then customers can sue for breach of the contract, whereas the insurance company cannot sue its customer generally.

Advertisements: Advertisements are not bilateral contracts, but however, the advertisements may be constituted as a unilateral contract. For instance, Mr. A publishes an advertisement in the local newspaper promised to pay Rs.1000 as a reward to anyone who finds his missing wallet. The advertisement may constitute a unilateral contract. Mr. B, a member of the public, brings his lost wallet; therefore, Mr. A is obligated to pay the Rs.1000. However, Mr. B was not under any obligation to Mr. A. In case Mr. A refuses to give Mr. B the Rs.1000 as a reward, then Mr. B can sue Mr. A for breach of contract.

Characteristics of Unilateral Contract

One-Sided: The main characteristic of a unilateral contract is that only one party to the contract makes a promise. And the other party is not obligated to fulfill that contract. For example, J asks K to take her car to the repair shop. She promises to pay K Rs.200 if he takes her car. If he does not take her car, then she is not obligated to pay him, but if he takes the car to the repair shop, then she is obligated to pay the Rs.200 to fulfill as a promise.

Breach of Contract: There is no generally breach of contract in the case of unilateral contracts as no promise is made by both the parties. But it can be breached when the offeree, performs certain action and in return, no part promise is completed by the offeror then offeree can sue for breach of contract. Breaching a unilateral contract can be enforced by bringing a lawsuit. In case of a lawsuit, the aggrieved party has to prove that the contract existed between both parties, and the person who made the offer is only responsible for not performing his part of the promise, and the other person got suffered a loss in the contract.

Rewards and Contests: Many unilateral contracts are based in the form of rewards and contests. For example, an advertisement agency makes an announcement to award a person who found the lost car of the owner. The person accepts the announcement as an offer and founds the car of the owner. In this case, a unilateral contract is made by the owner through an agency. The person who has found the car needs to be awarded by the owner. If there was no one who has found the car, then the agreement becomes void.

Characteristics of Bilateral Contract

There are basic elements that are required to be made to make the contract legally binding upon both parties. A contract is legally enforceable; if all these elements are exist

Agreement: The one party needs to present an offer to another party. Both parties may negotiate until the other accepts the offer. While making an agreement, there must be no coercion or duress from either of the side. A contract becomes void if it is found that one party’s ability to agree was compromised. An example is where a small business agrees to the terms of a contract after being pressurized to do so by a bigger company.

Consideration: There is a need to pay the price or liability paid against the promise made. A contract cannot be enforceable if there is no exchange of any consideration from both sides. However, consideration is not required to be in monetary form. For example, if one is selling the car, he can accept shareholdings or other property of the purchaser as payment. This will be considered as a consideration.

Intention to create legal relations: There has to be an intention for entering into the contract, which later will be legally binding. Each party to the contract should understand what they’re signing up to and what their legal obligations will be upon signing the contract. If the terms of the contract are unclear, one should not sign before seeking legal advice.

Certainty: The contract must be sufficiently clear and complete. The fundamental backbone is an agreement in the contract. It consists of an offer by one party and acceptance by the other. The unilateral contracts are unique is the way in which an agreement is formed after the performance of other parties. These contracts are not always accepted by signing, but by performing a particular action.

Differences between Unilateral and Bilateral Contracts

Most people know about a bilateral contract, which means when two or more parties mutually entered into a beneficial agreement. In contrast to it, unilateral contracts are one-sided and rely upon the wish of the other party activities. It means that one party accepts all the terms of another, but this does not work in reverse. The following are more differences:

Legal binding: The bilateral contracts are when there is an exchange of mutual promises, whereas, in a unilateral contract, only one party makes an express promise. A unilateral contract is a legally binding contract where an offer is accepted by completing a certain condition. If a certain condition is fulfilled, then the offering party has to fulfill the promise.

Promises: In a unilateral contract, only one party makes a promise, whereas, in a bilateral contract, both parties make mutual promises.

Offer by the promisor: In a unilateral contract, the offeror pays for action, whereas in a bilateral contract, the offeror pays for a promise from the other party.

Acceptance by the promise: In a unilateral contract, there is no specified person; anyone can accept the promise made by an offeror, whereas in the bilateral contract, there is always a specific person who accepts the promise against the offer.  

Consideration: The considerations are a necessary element in the contract. It can be in monetary form or in any other form, which specifies that a person is willing to perform the contract in bilateral agreement whereas the performing action of the other party is a consideration in the unilateral agreement.   

Legal capacity: In the bilateral contract, both the parties must have attained the age of 18 yrs for entering into a bilateral contract, but nowhere in the unilateral contact there is a mention of any age criteria. 

Advantages of Unilateral Contracts

• A unilateral contract proves to be an efficient way to publicize a business activity. For example, it is an efficient way of trying to recover lost items.
• It is beneficial as anyone can accept the offer as it is made to the public at large.
• This contract type enables the offeror to save both money and time. The offeror can make use of the same contract template with various entities.

Disadvantages of Unilateral Contracts

• The entire obligation is upon the offeror in the contract, and that is not reciprocated. An offeror cannot sue for breach of contract as no specific person is there.
• Difficulties may arise when there is a revocation of reward made by the offeror before its terms have been fulfilled. In those cases, the offeror may face lawsuits from other parties who claim that they had suffered loss because of the contract.

Conclusion

Both unilateral and bilateral are two different types of contracts. The unilateral agreement is one-sided, and therefore it is less preferred except in the cases of advertisements and lost and found goods. Its enforcement becomes different as no establish act defines the unilateral contract. On the contrary, the bilateral contract is formally made and is useful as both parties agree on terms at the same time. It can be easily enforced by the law made in the act.