Summary
- A unilateral contract binds the offeror once the offeree begins performing the specified act, meaning you cannot withdraw your offer at that point without risking a breach of contract claim.
- Unlike bilateral contracts, only the offeror is obligated to perform, and the offeree’s completion of the act serves as both acceptance and consideration.
- As a business owner, open offers such as rewards, promotions, or invitations to tender can create unilateral contracts and legal obligations you may not have intended.
- This article is a plain-English guide to unilateral contracts under Australian law, written for business owners who enter into or make open commercial offers.
- The content has been produced by LegalVision, a commercial law firm that specialises in advising clients on contract law and commercial agreements.
Tips for Businesses
Before making an open offer – such as a promotion, reward, or tender – confirm the terms are clear and reflect your genuine intentions. Be aware that once someone begins performing, you are bound. Consider whether a bilateral contract better suits your needs, as it gives both parties defined, mutual obligations from the outset.
On this page
- What is a Unilateral Contract?
- Unilateral Contracts vs Bilateral Contracts
- Examples of Unilateral Contracts
- Obligations in a Unilateral Contract
- When Could I Use a Unilateral Contract?
- When Can You Withdraw From a Unilateral Contract?
- What Happens if a Dispute Arises?
- Key Takeaways
- Frequently Asked Questions
As a business owner, you should familiarise yourself with the different ways to enter a contractual relationship. A unilateral offer can give rise to a contractual obligation. It often occurs when an offeror promises money upon the completion of a specific act. Unilateral contracts can be a good way of hiring services, running promotions, and getting an insurance policy. This article will explain what a unilateral contract is, what your contractual obligations are and provide some common examples.
What is a Unilateral Contract?
A unilateral contract is an agreement where the offeror agrees to perform their side of the bargain when the other party completes a particular act. This may appear as the offeror making an open request. For a unilateral contract to be enforceable, it must still fulfil the elements of contract formation, being:
- valid offer and acceptance;
- certainty of terms;
- mutual intention for entering into an agreement; and
- consideration.
As such, the terms of an offer for a unilateral contract must show the genuine intention of the offeror to enter into an agreement. Additionally, for some unilateral contracts, there is no need for the party accepting the contract to provide notice of acceptance; they can simply accept by performing their obligations under the contract.
It is important to note that the performance of the requested act not only accepts the offer but also constitutes the necessary consideration to make the contract binding. Because of this, a unilateral contract can be a practical tool to motivate the public or a broad audience to take action. For example, using reward-based promotions can help increase customer engagement without entering into negotiations with each individual participant as well as helping to promote your brand.
Unilateral Contracts vs Bilateral Contracts
Unilateral agreements differ from bilateral agreements because they only require a commitment from the offeror. A bilateral contract becomes legally enforceable when both parties have made an offer and come to an agreement about the terms of the contract. This usually involves a written agreement, where both parties make mutual promises which result in valid contract formation- most contracts you will enter into are bilateral contracts.
This type of contract is also advantageous when you want to limit your own risk. Since a unilateral contract only obligates you to act once someone completes the task, you are not bound unless that condition is met. It creates a flexible structure for low-risk commercial arrangements where you need performance before commitment.
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Examples of Unilateral Contracts
A typical example of a unilateral contract is a reward. For instance, when someone posts a reward for finding a lost pet, car, wallet, or phone, they are making a unilateral offer that will create legal relations when the offeree starts to try to complete the act.
Another example is an invitation to tender. For example, suppose you make an advertisement to consider an offer for tender. In that case, you may have created a unilateral contract where you are obliged to consider the offers you receive.
Further, you can have a unilateral contract with an insurance company for an insurance policy. In an insurance contract, the insurance firm might promise to pay you money if certain events occur. However, until the event arises, they do not have any obligation to give you anything.
Obligations in a Unilateral Contract
In a unilateral contract, legal relations between the offeror and offeree form when the offeree begins to try to complete the specified act as part of the contract. As a result, if you are the offeror, you will have a binding contract and will not be able to rescind your offer. Doing so could be a breach of contract, and the offeree may sue you for damages.
If you are the offeree, you will have a right to the reward specified in the contract if you complete the specified act or fulfil the conditions as part of the offer. Although you have not made an express promise to the offeror that you will complete your side of the bargain, a court will treat you as being in a binding contract with the offeror if you complete the act. At the same time, however, because you are working with an open offer, you do not have an obligation to complete your side of the bargain.
When Could I Use a Unilateral Contract?
A unilateral contract could be useful for your business in many ways. For example, you could create an invitation to tender, which is a good way of getting competing offers. Similarly, you could run a promotion by advertising an open offer. This might include a reward to anyone who collects a certain amount of tokens you give as part of a promotion.
When Can You Withdraw From a Unilateral Contract?
As the offeror, you can generally withdraw your unilateral offer at any time before someone starts performing the act. However, once an offeree acts on your promise, you can no longer withdraw from the contract. For example, if your company offers £5,000 to any marketing agency that creates a successful campaign increasing sales by 20%, you cannot withdraw this offer once an agency has started working on your campaign – even if they have not achieved the 20% increase yet.
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What Happens if a Dispute Arises?
If you and the offeree disagree about whether the act was completed, a court will look at your original offer. It will ask whether the terms were clear enough to decide if performance was met.
This is why clear drafting matters. Vague terms like “successful campaign” or “best effort” can lead to disputes about what actually counts as completion.
For example, if you offer $5,000 for a “successful” marketing campaign, define what success means upfront. Set measurable targets, deadlines, and any conditions that apply.
If a dispute does arise, the offeree may claim damages for work already performed. Under Australian contract law, courts can award compensation where a party has partly performed and the offeror withdraws unfairly.
To reduce your risk, always put your open offer in writing. Include clear completion criteria and any expiry date for the offer.
Key Takeaways
As a business owner, it is useful to be aware of unilateral contracts. It can be a valuable way of seeking new opportunities and business partnerships. However, you may unknowingly commit yourself to contracts you do not wish to be part of. If you make an open offer, this may give rise to legal obligations. As such, you should generally seek legal advice before making a unilateral offer.
LegalVision provides ongoing legal support for all businesses through our fixed-fee legal membership. Our experienced contract lawyers help businesses in multiple industries manage contracts, employment law, disputes, intellectual property and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 0808 196 8584 or visit our membership page.
Frequently Asked Questions
What is a unilateral contract?
A unilateral contract is a contract where an offeror agrees to perform their side of the bargain if the offeree completes a specified act.
What is a bilateral contract?
A bilateral contract is where both parties make mutual promises to each other. In a bilateral contract, both parties will make an offer and an acceptance during a communication.
Can an offeree withdraw from a unilateral contract?
Yes. Since you make no express promise to complete the act, you can stop performing at any time without breaching the contract.
When does a unilateral contract become binding?
It becomes binding once the offeree begins performing the specified act.
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