What is a 'Unilateral Contract'

A unilateral contract is an agreement by which a buyer promises to pay for performance of a specified, legal act. 

BREAKING DOWN 'Unilateral Contract'

In a unilateral contract, one party pays the other party to perform a certain duty. If the first party fulfills the duty, the second party is obligated to transfer the specified funds. However, the first party is under no binding obligation: they only have to fulfill the task if they want to. 

For example, Keith can offer a unilateral contract to pay Carla $2000 if Carla will take Keith's boat into storage. Carla has no binding obligation to take the boat into storage, but if she does, Keith has to pay her $2000. In other words, a unilateral contract is contingent on an action being taken.

Unilateral contracts are considered enforceable by contract law, although legal issues cannot arise until one party claims to have completed the task. Because the contract incurs no obligation until an action is taken, legal contestation generally takes the form of the offering party refuses to pay the offered sum, citing improper completion of the task. The determination of contract breach would then depend on whether or not the terms of the contract were clear and if it can be proven that the party completing the task did so adequately. 

Unilateral contracts often take the form of a reward or contest. For example, Mike can place an advertisement offering to pay $300 for the safe return of his missing cat. In this case, anybody can enter into the unilateral contract by returning the cat. This is one of the few instances in which an advertisement can be considered a kind of contract. 

Unilateral Contracts vs. Bilateral Contracts

Unlike in bilateral contracts, the party fulfilling the request in a unlateral contract is under no obligation to do so. The example of Mike's cat would become a bilateral agreement if Jill enters into an exclusive agreement with Mike to search for the cat, as both parties would then be under obligation. 

The primary distinction between unilateral and bilateral contracts is the reciprocal obligation of bilateral contracts. Jill would now be obliged to actively search for the cat and could be found in breach of contract for not doing so. Mike is also under more obligations: in addition to paying Jill $300 for the return of the cat, he is also under obligation to withhold the offer from any other parties. 

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