What is a Unilateral Contract?

October 27, 2024
7 Min

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Key takeaways

  • Unilateral contracts involve a party making a one-sided promise to another party.
  • They can encourage specific behavior or action without the need for mutual promises.
  • Docupilot contract automation can help you improve the efficiency and effectiveness of contract creation.

Suggested read:

Understanding the Basics of Wholesale Real Estate Contract

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According to a Thompson Reuters, respondents who use document automation for lease agreements (22%) report that they have time to Leverage workflows to develop new business models with clients and Win new clients with better business development.

A sales manager promising a bonus for exceeding the annual sales target. 

A retailer offering a big discount to the first 100 customers.

An NFL team owner motivates the team by offering a bonus for winning the championship.

All these are examples of unilateral contracts. 

In this article, we will explain unilateral contracts and their types, and share examples from business and everyday life. We will also show how contract automation with Docupilot can help you streamline contract creation. 

What is a unilateral contract?

A unilateral contract is an agreement in which one party (the promisor) makes a promise or an offer, and the other party (the promisee) accepts the offer by performing an action specified by the promisor. 

The promisor is legally bound to fulfill the promise if the promisee performs the specified action.

For example, a company can include in its terms and conditions a clause that says: ‘If you read till here, you can get a 50% discount on the next three payments.’ This will not be enforceable by everyone who is signing the terms and conditions but only by the select few who will end up reading till the end of the document.

Unilateral contracts are flexible because they allow one party to make an offer, and the other party can choose to accept or reject it. 

Unilateral contract examples

To get a better understanding, let's look at a few examples. 

Real estate listing agreements

Real estate listing agreement is a real estate contract applied between a property seller and a real estate agent that authorizes the agent to market and sell the property on behalf of the owner.

These contracts can be both unilateral and bilateral. These are unilateral contracts when the seller signs an open listing agreement which says that every real estate agent is allowed to market and sell the property but the commission will go to the first person that makes the sale. 

Every agent that signs this deal is under no obligation to make a sale. But if they do, they have the right to the commission promised.

Another example would be an option contract. This is a contract where a party secures an option to purchase a property for a premium. This gives the buyer the time to consider their options. However, this option is available for a specified period of time, if the buyer does not arrive at a conclusion within that time period then they lose their option and the premium paid. If the buyer wants to buy the property at the end of the option period, then the seller has to sell the property to them.

SaaS free trials 

Free trials offered by SaaS and software companies are another example of unilateral contracts. 

Typical free trials include the service for free for a specified time period. A business or individual user accepts the offer by using the software. The company has the obligation to provide the service. The user is under no obligation to use the service/software for the duration of the trial or to continue after the trial concludes by signing up for a paid subscription.

Insurance policies

Insurance policies are also unilateral contracts contingent on performance and become binding when the specified action or event occurs. 

For example, a life insurance policy is a unilateral contract where the insurer (the promisor) promises to pay a life insurance payout upon the insured's (the promisee's) demise. 

The policyholder does not have an obligation other than paying premiums. The policyholder can even cancel the policy at any time without legal repercussions. 

Performance bonuses

Performance bonuses are a common motivational tactic in business and sports. 

For example, an employer can offer a bonus to the sales team contingent on the team exceeding its annual sales target by a certain percentage.

In sports, team owners motivate players by offering individual and team performance bonuses. NFL teams can get bonuses for reaching the playoffs, winning the conference championship, or winning the Super Bowl. Individual players can get bonuses for achieving specified defensive or offensive targets. 

Advertising promotions

Businesses often offer promotions on new or updated products to drive sales. 

A company launching a new product can promote it by promising a free product to the first 100 customers. Customers can accept by waiting in line and being one of the first 100 into the store. 

Examples from Everyday Life

A few more unilateral contract examples from everyday life include the following:

  • Rewards: A person offering a reward for the return of a lost item or pet, and  rewards and discounts offered by retailers as part of loyalty programs.
  • Lotteries: Organizers promising to pay a prize to the winner, and participants accepting the offer by purchasing one or more tickets.
  • Contests and Competitions: Organizers promising monetary prizes to the top three participants in an art contest.

Key elements of unilateral contracts

The following key elements help define the structure of unilateral contracts, making them enforceable and protecting the interests of both parties involved.

Offer

An offer is a promise made by one party (the offeror) that invites the other party (the offeree) to accept the offer by performing a specific action.

Agreement

For unilateral contracts, acceptance is assumed when the offeree performs a specified action. The acceptance must be made voluntarily and without any form of coercion or duress. 

Consideration

Consideration refers to value exchanged between parties. In the insurance policy example, premium payments made by the policyholder is the consideration for the insurance company, and the promise of coverage is the consideration for the policyholder. 

Intention

Both parties to a unilateral contract must have the intent to form a legal contract. The offeror must convey their intention to be bound by the promise once the offeree performs the act

Certainty

To form a unilateral contract, the promisee must perform an act and the promisor must fulfill their promise as made in the original offer. 

Certainty ensures that the terms of the contract are clear and certain so that both parties understand what is required for fulfillment. The actions or tasks that need to be completed for contract fulfillment must be explicitly defined.

How is a unilateral contract different from other contracts?

In unilateral contracts, only the promisor has obligations. In all other forms of contracts, both the promisor and the promisee have their respective obligations. Another major difference is that the offeror can retract the offer before the offeree can perform the specified action. 

For example, if a company had promised free donuts to everyone who shows up to their shop at 10 am, the company can retract the promise even by 9.59 am. Their reputation would be damaged, but the contract is not breached. 

There are further differences between unilateral and bilateral contracts, as we shall see in the next section.

Difference between unilateral and bilateral contracts

Table 1: Unilateral vs. bilateral contracts

Feature Unilateral Contract Bilateral Contract
Definition A contract in which one party makes a promise that the other party can accept by performing a specific act. A contract in which both parties make mutual promises to each other.
Parties Involved Involves one promisor and one promisee. Involves two parties, each acting as promisor and promisee.
Acceptance methods Acceptance occurs once the specified act is performed by the promisee. Acceptance is conveyed through verbal or written formats with clear proof.
Formation Formed when one party makes a promise contingent upon the other party's performance of a specific act. Formed when both parties make mutual promises to each other.
Negotiation Usually, involves less negotiation, as the offeror makes a specific promise and the offeree decides whether to accept by performing the action. Involves negotiation between both parties, where terms, obligations, and conditions are discussed and agreed upon.
Modification Can often be altered unilaterally by the offeror if the original contract includes a provision allowing for such changes Modifying a bilateral contract generally requires agreement from both parties.
Risk Risk primarily lies with the promisor until the act is performed. Risks are shared by both parties based on their respective promises.
Enforceability Enforceable once the act is completed by the promisee. Enforceable once the contract is signed and accepted by both parties.
Revocation An offer can be revoked before the offeree completes the required action. Once a bilateral contract is formed, neither party can revoke their promise without breaching the contract.
Examples Reward offers (e.g., "I will pay $100 for the return of my lost dog"). Sales contracts, employment contracts (e.g., "I will pay you $500 in exchange for your services").

Are unilateral contracts enforceable?

Unilateral contracts are legally enforceable when valid and satisfy the four key elements of acceptance, consideration, intention, and certainty.

Some legal jurisdictions require unilateral contracts to have definite and clear terms to be enforceable. A lack of clarity can render contracts unenforceable.

Revocation of offers can also affect enforceability. An offer can be revoked before the offeree completes the required action; however, once the action is performed, the offeror is bound to fulfill their promise. If the offeree has begun performance, revocation may be limited, especially if the offeree has relied on the promise, potentially leading to legal remedies for improper revocation. 

In the event of a breach, the non-breaching party can seek remedies via legal recourse, such as compelling the breaching party to fulfill their obligations or seeking monetary compensation for incurred losses.

A written unilateral contract significantly enhances enforceability by providing clarity, documentation, and a solid foundation for legal recourse.

Creating enforceable unilateral contracts with Docupilot

Unilateral contracts are a common and integral element of numerous business relationships and transactions. 

However, creating complex legal contracts manually is a time-consuming and costly process: 

  • Multiple resources are required to draft and vet contracts
  • The review and approval process leads to further delays, and
  • Time and client pressures lead to errors and mistakes.

Doupilot offers a superior alternative to manual contract creation. Its state-of-the-art platform allows you to easily create contracts using templates.. With the AI Copilot feature, you can generate a document template with a simple command or a combination of pre-built commands. Integration with Zapier, DocuSign, Make, Airtable and 70+ apps gives you unparalleled flexibility in setting up workflows and improving efficiency.

Our proficient support team is always available to help you with onboarding and sort out any problems you encounter. The affordable credit-based pricing starts at $29/month and gives you full access to all features, without requiring you to pay extra for features you don’t need. 

‍Sign up today for a free trial or request a demo.

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What is a Unilateral Contract?

Rohit
Oct 27, 2024
•
7 Min

Contents

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A sales manager promising a bonus for exceeding the annual sales target. 

A retailer offering a big discount to the first 100 customers.

An NFL team owner motivates the team by offering a bonus for winning the championship.

All these are examples of unilateral contracts. 

In this article, we will explain unilateral contracts and their types, and share examples from business and everyday life. We will also show how contract automation with Docupilot can help you streamline contract creation. 

What is a unilateral contract?

A unilateral contract is an agreement in which one party (the promisor) makes a promise or an offer, and the other party (the promisee) accepts the offer by performing an action specified by the promisor. 

The promisor is legally bound to fulfill the promise if the promisee performs the specified action.

For example, a company can include in its terms and conditions a clause that says: ‘If you read till here, you can get a 50% discount on the next three payments.’ This will not be enforceable by everyone who is signing the terms and conditions but only by the select few who will end up reading till the end of the document.

Unilateral contracts are flexible because they allow one party to make an offer, and the other party can choose to accept or reject it. 

Unilateral contract examples

To get a better understanding, let's look at a few examples. 

Real estate listing agreements

Real estate listing agreement is a real estate contract applied between a property seller and a real estate agent that authorizes the agent to market and sell the property on behalf of the owner.

These contracts can be both unilateral and bilateral. These are unilateral contracts when the seller signs an open listing agreement which says that every real estate agent is allowed to market and sell the property but the commission will go to the first person that makes the sale. 

Every agent that signs this deal is under no obligation to make a sale. But if they do, they have the right to the commission promised.

Another example would be an option contract. This is a contract where a party secures an option to purchase a property for a premium. This gives the buyer the time to consider their options. However, this option is available for a specified period of time, if the buyer does not arrive at a conclusion within that time period then they lose their option and the premium paid. If the buyer wants to buy the property at the end of the option period, then the seller has to sell the property to them.

SaaS free trials 

Free trials offered by SaaS and software companies are another example of unilateral contracts. 

Typical free trials include the service for free for a specified time period. A business or individual user accepts the offer by using the software. The company has the obligation to provide the service. The user is under no obligation to use the service/software for the duration of the trial or to continue after the trial concludes by signing up for a paid subscription.

Insurance policies

Insurance policies are also unilateral contracts contingent on performance and become binding when the specified action or event occurs. 

For example, a life insurance policy is a unilateral contract where the insurer (the promisor) promises to pay a life insurance payout upon the insured's (the promisee's) demise. 

The policyholder does not have an obligation other than paying premiums. The policyholder can even cancel the policy at any time without legal repercussions. 

Performance bonuses

Performance bonuses are a common motivational tactic in business and sports. 

For example, an employer can offer a bonus to the sales team contingent on the team exceeding its annual sales target by a certain percentage.

In sports, team owners motivate players by offering individual and team performance bonuses. NFL teams can get bonuses for reaching the playoffs, winning the conference championship, or winning the Super Bowl. Individual players can get bonuses for achieving specified defensive or offensive targets. 

Advertising promotions

Businesses often offer promotions on new or updated products to drive sales. 

A company launching a new product can promote it by promising a free product to the first 100 customers. Customers can accept by waiting in line and being one of the first 100 into the store. 

Examples from Everyday Life

A few more unilateral contract examples from everyday life include the following:

  • Rewards: A person offering a reward for the return of a lost item or pet, and  rewards and discounts offered by retailers as part of loyalty programs.
  • Lotteries: Organizers promising to pay a prize to the winner, and participants accepting the offer by purchasing one or more tickets.
  • Contests and Competitions: Organizers promising monetary prizes to the top three participants in an art contest.

Key elements of unilateral contracts

The following key elements help define the structure of unilateral contracts, making them enforceable and protecting the interests of both parties involved.

Offer

An offer is a promise made by one party (the offeror) that invites the other party (the offeree) to accept the offer by performing a specific action.

Agreement

For unilateral contracts, acceptance is assumed when the offeree performs a specified action. The acceptance must be made voluntarily and without any form of coercion or duress. 

Consideration

Consideration refers to value exchanged between parties. In the insurance policy example, premium payments made by the policyholder is the consideration for the insurance company, and the promise of coverage is the consideration for the policyholder. 

Intention

Both parties to a unilateral contract must have the intent to form a legal contract. The offeror must convey their intention to be bound by the promise once the offeree performs the act

Certainty

To form a unilateral contract, the promisee must perform an act and the promisor must fulfill their promise as made in the original offer. 

Certainty ensures that the terms of the contract are clear and certain so that both parties understand what is required for fulfillment. The actions or tasks that need to be completed for contract fulfillment must be explicitly defined.

How is a unilateral contract different from other contracts?

In unilateral contracts, only the promisor has obligations. In all other forms of contracts, both the promisor and the promisee have their respective obligations. Another major difference is that the offeror can retract the offer before the offeree can perform the specified action. 

For example, if a company had promised free donuts to everyone who shows up to their shop at 10 am, the company can retract the promise even by 9.59 am. Their reputation would be damaged, but the contract is not breached. 

There are further differences between unilateral and bilateral contracts, as we shall see in the next section.

Difference between unilateral and bilateral contracts

Table 1: Unilateral vs. bilateral contracts

Feature Unilateral Contract Bilateral Contract
Definition A contract in which one party makes a promise that the other party can accept by performing a specific act. A contract in which both parties make mutual promises to each other.
Parties Involved Involves one promisor and one promisee. Involves two parties, each acting as promisor and promisee.
Acceptance methods Acceptance occurs once the specified act is performed by the promisee. Acceptance is conveyed through verbal or written formats with clear proof.
Formation Formed when one party makes a promise contingent upon the other party's performance of a specific act. Formed when both parties make mutual promises to each other.
Negotiation Usually, involves less negotiation, as the offeror makes a specific promise and the offeree decides whether to accept by performing the action. Involves negotiation between both parties, where terms, obligations, and conditions are discussed and agreed upon.
Modification Can often be altered unilaterally by the offeror if the original contract includes a provision allowing for such changes Modifying a bilateral contract generally requires agreement from both parties.
Risk Risk primarily lies with the promisor until the act is performed. Risks are shared by both parties based on their respective promises.
Enforceability Enforceable once the act is completed by the promisee. Enforceable once the contract is signed and accepted by both parties.
Revocation An offer can be revoked before the offeree completes the required action. Once a bilateral contract is formed, neither party can revoke their promise without breaching the contract.
Examples Reward offers (e.g., "I will pay $100 for the return of my lost dog"). Sales contracts, employment contracts (e.g., "I will pay you $500 in exchange for your services").

Are unilateral contracts enforceable?

Unilateral contracts are legally enforceable when valid and satisfy the four key elements of acceptance, consideration, intention, and certainty.

Some legal jurisdictions require unilateral contracts to have definite and clear terms to be enforceable. A lack of clarity can render contracts unenforceable.

Revocation of offers can also affect enforceability. An offer can be revoked before the offeree completes the required action; however, once the action is performed, the offeror is bound to fulfill their promise. If the offeree has begun performance, revocation may be limited, especially if the offeree has relied on the promise, potentially leading to legal remedies for improper revocation. 

In the event of a breach, the non-breaching party can seek remedies via legal recourse, such as compelling the breaching party to fulfill their obligations or seeking monetary compensation for incurred losses.

A written unilateral contract significantly enhances enforceability by providing clarity, documentation, and a solid foundation for legal recourse.

Creating enforceable unilateral contracts with Docupilot

Unilateral contracts are a common and integral element of numerous business relationships and transactions. 

However, creating complex legal contracts manually is a time-consuming and costly process: 

  • Multiple resources are required to draft and vet contracts
  • The review and approval process leads to further delays, and
  • Time and client pressures lead to errors and mistakes.

Doupilot offers a superior alternative to manual contract creation. Its state-of-the-art platform allows you to easily create contracts using templates.. With the AI Copilot feature, you can generate a document template with a simple command or a combination of pre-built commands. Integration with Zapier, DocuSign, Make, Airtable and 70+ apps gives you unparalleled flexibility in setting up workflows and improving efficiency.

Our proficient support team is always available to help you with onboarding and sort out any problems you encounter. The affordable credit-based pricing starts at $29/month and gives you full access to all features, without requiring you to pay extra for features you don’t need. 

‍Sign up today for a free trial or request a demo.

Did you know?

According to a Thompson Reuters, respondents who use document automation for lease agreements (22%) report that they have time to Leverage workflows to develop new business models with clients and Win new clients with better business development.