An unilateral contract is an agreement between two or more parties in which only one party is legally obligated to offer goods or perform services. The other party or parties are not obligated to hold up their end of the contract.
More often, the agreement between parties in a unilateral contract determines that one party pays the other party to perform services or offer goods, which the second party provides. If the obligation specified in the contract is fulfilled, then the paying party is legally required to transfer funds; however, if the order or obligation is not fulfilled, then no payment will be issued.
How and When is a Unilateral Contract Used?
Unilateral contracts are not very common business agreements, but they do show up from time to time. The most common form of unilateral contract, which few consider to be a contract, is an advertisement for a lost pet. The ad promises a reward if found; however, if the pet is not found, the owner does not have to pay anyone who contacts them regarding the ad.
Another common form of unilateral contract is an insurance agreement. The insurance company promises to pay at least a percentage of certain types of care (dental care with certain dentists, for example) while the insured makes no promises other than to pay their monthly premium. The insured does not have to use those services according to the contract, but if the insured does use the insurance company’s services, then the insurance company is obligated to fulfill their end of the contract.
When is a Unilateral Contract Invalid?
Unilateral contracts should be written – verbal contracts of any kind are difficult to enforce, especially if one party has a strong enough grievance to go to court. Laws regarding the validity of oral contracts vary by state, but as a general rule, always write down agreements between parties and have everyone sign them.
A unilateral contract can be broken if one party fulfills their service – for example, finding the lost dog – but then the other party refuses to hold up their agreed-upon terms – paying reward money. While it is rare for one party to take another to court over a lost pet’s reward money, it is possible, as written unilateral contracts are legally enforceable. One must simply prove that one suffered a serious loss when the terms of the contract were unfulfilled.
If you are concerned about ensuring that services are fulfilled, consider a bilateral contract instead. Under that definition, both parties must fulfill specific requirements.
Elements of a Unilateral Contract:
Generally, a unilateral contract will follow this formula:
- An offer from Party A to Party B
- Acceptance of that offer on the part of Party B
- Party B promises to perform the action as part of the offer
- Party A offers a reward of some kind, often money, in exchange for Party B’s service
- Terms and conditions for both parties
- Party B completes the contract by taking action, and Party A is obligated to reward them.
- It is best to get all of this in writing, and if the contract is complex, have all parties sign and date it.
Our free unilateral contract form can help you get started, but if you have serious business concerns, contact an attorney for help.