Understanding your unilateral contract

Contracts are part of daily living, especially in the business world. You enter into contracts all the time by purchasing goods, where you promise to pay, and the other party promises to give you the goods or send the goods you requested online. This type of binding contract is a bilateral contract.

There are other types of contracts that are just as binding, such as unilateral contracts. The way they're entered into is what makes unilateral contracts different from bilateral contracts.

Elements of unilateral contracts

Unilateral contracts are where one party, the offeror, makes an offer. It could be an offer to the general public or to a specific person. This type of contract isn't made by a promise; instead, it requires the offeree—someone who has agreed to act pursuant to the contract—to perform an act that the offeror requests. Yet the offeree has no obligation to perform that act.

One example of a unilateral contract is where an offeror puts up a reward sign for their lost dog. If someone sees the sign and wants the reward, they can only get the reward if they find the dog. It's not enough for the person to promise to find or to look for it—the person must find the dog to earn the reward money. Nobody is required to search for the dog, but whoever wants the reward must find the dog.

Acceptance of a unilateral contract

Acceptance of a unilateral contract happens when the offeree performs their part of the contract. It's not enough for the offeree to begin to perform—the offeree must complete the required performance. When the offeree completes performance, the offeror must abide by the contract, usually by paying money for completion of the act.

The only way to accept a unilateral contract is by completion of the task. If, for example, an offeror says they will give someone $500 for climbing all the steps in the Empire State Building, the offeree isn't required to climb the steps. If they do it, though, the offeror must pay them for it; otherwise the offeror breaches or breaks the unilateral contract.

How a unilateral contract can be revoked

An offeror can revoke a unilateral contract at any time before performance starts. Whether or not a unilateral contract can be revoked after the offeree begins to perform its requirements depends on whether the contract is the performance type (that is, climbing the Empire State Building steps) or the reward type (that is, finding the dog).

Specific to the performance type, the old law was that—even if the offeree had started performing—the offeror could still revoke the contract. This is no longer the case: Once an offeree starts a physical performance of the contract, the offeror can't revoke a unilateral contract. For example, once the person begins climbing the Empire State Building steps, the offeror must pay if the person completes the task.

However, the offeror can revoke the reward type of unilateral contract at any time, so long as the offeror clearly conveys that they've revoked the offer. (If the offeror posted signs for the reward, then the offeror should post similar signs stating that they've revoked the unilateral contract.) In a reward type contract, the contract isn't fully performed if the dog hasn't been found. Accordingly, an offeror of a unilateral contract for such a reward can revoke it at any time before the dog is found.

Unilateral contracts vs. bilateral contracts

Unilateral contracts require one party to make a promise. The contract isn't complete until someone performs it. Bilateral contracts, however, require at least two people to make promises to each other, such as when you rent an apartment. These promises require each party to perform their part of the contract.

Either party who fails to perform under a bilateral contract will breach the contract. If the offeror of a unilateral contract fails to honor their commitment after the offeree has performed, then the offeror has breached the contract and they may be liable to the other party for breach.

Courts can enforce both unilateral and bilateral contracts, whether they're written or oral. To sue for breach of contract, the injured party must show:

• There was a valid contract.
• A breach of contract occurred.
• They suffered a loss by relying on the contract.
• The other party is responsible for the breached contract.

There are all kinds of contracts people enter into every day, whether it's in the course of business or whether you're a consumer who purchases a product or service, such as engaging a contractor.

If you're not sure whether your contract is valid or if the other party has breached it, check with a business attorney who can interpret it for you. Be aware that there are some slight variations in contract requirements in each state. Working with an attorney to make sure your contract, whether unilateral or bilateral, is a binding contract can save you money and help guard against future liability. An attorney also can help you enforce a contract if it's been breached.