Unilateral Contract: Definition, Types, Examples, Elements, and Comparison with Bilateral

Contracts are fundamental to business and personal dealings, offering legal frameworks to guide agreements. Among the various types, unilateral contracts stand out due to their unique one-sided obligation. Understanding unilateral contracts is crucial for businesses and individuals, as these agreements often form the basis for rewards, insurance, and other specific commitments.

This article will explain the concept of unilateral contracts, provide an overview for businesses looking to navigate the details of such agreements, and explore examples, key elements, and differences compared to bilateral contracts.

What is a unilateral contract?

A unilateral contract is a type of agreement where one party, known as the offeror, makes a promise that is fulfilled only when the other party, the offeree, performs a specific act. Unlike bilateral contracts that involve reciprocal promises, unilateral contracts are one-sided and impose an obligation only on the offeror.

For example, when someone offers a reward for finding a lost pet, the promise to pay is only fulfilled if someone successfully finds the pet. The person seeking the pet does not owe the offeror any obligation unless they complete the task.

In a business context, unilateral contracts are often used for performance-based agreements, such as offering bonuses for achieving specific targets. Understanding what is a unilateral contract can help businesses frame clear and enforceable agreements.

Types of unilateral contracts

Unilateral contracts are widely used across various scenarios. Below are the common types:

Open requests

• These involve offers made to the public or specific individuals with payment contingent on meeting particular conditions. For example:
• Reward offers for locating lost items or providing critical information
• Tasks like cleaning services or freelance gigs, where payment occurs only upon completion of the work

Insurance policies

• Insurance contracts exhibit unilateral characteristics. The insurer commits to compensating the policyholder if predefined events occur, such as accidents or natural disasters
• For instance, an individual pays a premium for car insurance, and the insurance company is obligated to cover damages if the terms are met

Examples of unilateral contracts

Unilateral contracts are commonplace in daily life and business. Here are some examples:

Reward contracts

• A common instance is a public reward notice. For example:
• “Rs. 5,000 reward for finding my lost wallet”
• The offeror pays the reward only if someone retrieves and returns the wallet

Insurance agreements

• A policyholder pays regular premiums to maintain coverage. If a specific event, such as a car accident, occurs, the insurer must compensate according to the policy terms

Promotions or contests

• Businesses may promise incentives for certain customer actions, such as cashback offers for spending above a certain amount within a promotional period

Performance bonuses

• Employers often use unilateral contracts to motivate employees, offering bonuses for achieving specific sales targets or project milestones

Elements of unilateral contract

For a unilateral contract to be legally binding, the following elements must be present:

• Agreement: The offeror must make a clear and unambiguous offer. The offeree’s acceptance is through action, not verbal agreement
• Consideration: Consideration is the value exchanged. For example, the offeror’s promise and the offeree’s action are considered the elements of consideration
• Intention: Both parties must intend to form a legally binding agreement. Ambiguity can render the contract unenforceable
• Certainty: The contract terms must be clear. Both the act required of the offeree and the obligations of the offeror must be specific and understandable

Unilateral contracts vs. bilateral contracts

While unilateral and bilateral contracts serve similar legal purposes, they differ in structure and obligations. Here is a comparative overview:

Aspect	Unilateral contract	Bilateral contract
Obligation	Only the offeror is obligated	Both parties have mutual obligations
Example	Reward for finding a lost pet	Employment agreement with set terms
Acceptance	Action by the offeree signifies acceptance	Promise by both parties signifies acceptance
Common use	Rewards, promotions, insurance policies	Employment, business contracts, sales agreements

Unilateral contracts offer flexibility but may lack the reciprocity seen in bilateral contracts. Businesses can decide the appropriate contract type based on the situation.

Conclusion

Unilateral contracts play a crucial role in various transactions, providing clarity and structure for performance-based obligations. Whether you are designing a reward offer, an insurance policy, or an employee incentive, understanding unilateral contracts ensures legal and operational efficiency.

For businesses, leveraging tools like the Bajaj Finserv Business Loan can provide the necessary financial flexibility to meet contract obligations, expand operations, or invest in growth. With easy terms, minimal documentation, and quick disbursal, Bajaj Finserv offers customised solutions tailored to business needs.

Take control of your business’s financial future today. Explore how Bajaj Finserv Business Loans can empower your growth and ensure success in fulfilling unilateral contract commitments.