Unilateral contract: definition, examples and how it works

Most contracts are an exchange of promises. A unilateral contract is different: one side promises, and the other side does not promise anything back. They just act, and the act is what makes the promise binding.

Unilateral contract

A contract in which one party (the offeror) promises something in return for a specific act by another party (the offeree). The offeree makes no promise. The contract forms when the offeree performs, and only the offeror has an obligation, which is where the name comes from: unilateral means one-sided.

Bilateral contract

A contract in which both parties exchange promises, such as “I will deliver the design by Friday” and “I will pay €500 for it”. The contract forms the moment the promises are exchanged, before anyone has performed. Most business contracts are bilateral, and so is bartering, where both sides promise goods or services instead of money.

Unilateral vs. bilateral contracts

When an offer is ambiguous, US courts lean towards reading it as bilateral. The Restatement (Second) of Contracts §32 says that in case of doubt, an offer can be accepted either by promising or by performing. A unilateral contract exists only when the offer clearly asks for the act itself. For an overview of the other categories, see our guide to types of contracts.

Unilateral contract examples

• Reward offers. “$500 for the return of my lost dog” or a police reward for information leading to an arrest. Whoever performs gets paid, and nobody else owes anything.
• Insurance policies. The insurer promises to pay if a covered event happens. The policyholder does not promise to keep paying premiums; if they stop, the policy simply lapses. That is why insurance is the standard textbook example. Insurance is also an aleatory contract, because whether the insurer ever pays depends on an uncertain event.
• Contests and prize competitions. “The first team to solve this problem wins $10,000.” Entering is the act; winning triggers the obligation.
• Open listings in real estate. An owner tells several agents: “I’ll pay commission to whoever brings me a buyer I sell to.” No agent promises to look, and only the one who produces the buyer is paid.
• Finder’s fees. A developer promises a fee to anyone who introduces a landowner whose land it later buys.
• Sales and performance bonuses. “Anyone who closes 12 new clients this quarter gets a $10,000 bonus.” Employees are not obliged to hit the target, but the bonus is owed to those who do.
• Referral programs. “Refer three friends and get a $25 credit.”
• Rebates and cash-back offers. “Install solar panels and claim up to €2,000.” Completing the purchase and submitting the claim is the acceptance.

Option contracts are often listed here too. Strictly, an option is a separate contract in which the buyer pays for the seller’s promise to keep an offer open. It behaves unilaterally because only the seller is bound until the buyer decides to exercise it.

Carlill v Carbolic Smoke Ball Co [1893]: the landmark case

The case every law student learns for unilateral contracts is Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, decided by the English Court of Appeal.

During an influenza epidemic, the Carbolic Smoke Ball Company advertised that it would pay £100 to anyone who used its smoke ball three times a day for two weeks as directed and still caught the flu. To show it was serious, the advert said the company had deposited £1,000 with the Alliance Bank. Louisa Carlill used the ball as directed, caught influenza and claimed the £100. The company refused, arguing among other things that an advert could not be an offer and that she had never told them she accepted.

The court rejected every argument:

• An advert can be an offer. It was a promise to anyone who performed the conditions, not an invitation to negotiate.
• The company intended to be bound. The £1,000 deposit showed the promise was not a mere sales puff.
• No notice of acceptance was needed. In an offer of this kind, the offeror implicitly waives notice. Performing the conditions is the acceptance.
• Using the ball was consideration. Mrs Carlill’s inconvenience in following the directions was enough.

How acceptance works

In a unilateral contract, acceptance is the act. There is no signature, no reply and usually no notice.

1. The offer is made. It has to be specific about the act and the reward, and it can be made to one person, a group or the whole world.
2. Nobody is obliged to act. People who see the offer can ignore it with no consequences.
3. Someone performs. Generally, the offeree must know about the offer when they act. In the Australian case R v Clarke (1927), a man who gave information about a murder without having the reward in mind was not entitled to it.
4. The contract is complete. Once the act is done exactly as the offer requires, the offeror must perform. Partial performance of a reward condition, such as finding the dog but not returning it, does not complete acceptance.

Notice becomes relevant afterwards. The offeree usually has to tell the offeror that they performed, simply so the offeror knows whom to pay.

Can a unilateral offer be revoked?

Before anyone starts performing: yes. Like any offer, a unilateral offer can be withdrawn until it is accepted. A public offer can be revoked through the same channel it was made in, even if not everyone sees the withdrawal. The US Supreme Court applied this to a reward notice in Shuey v. United States (1875).

Once performance has begun: generally no. The classic problem is the offeror who withdraws when the offeree is halfway up the flagpole. Modern law protects the offeree:

• United States. Under the Restatement (Second) of Contracts §45, when an offer invites acceptance by performance only, an option contract is created as soon as the offeree begins or tenders the invited performance. The offeror can no longer revoke, but their duty to pay is still conditional on the offeree finishing. The offeree remains free to stop, and mere preparation to perform does not count as beginning.
• England and Wales. In Daulia Ltd v Four Millbank Nominees Ltd [1978] Ch 231, the Court of Appeal held that once the offeree has embarked on performance, there is an implied obligation on the offeror not to prevent it from being completed.

Offers with a deadline lapse automatically when it passes, and an offer can state its own revocation terms, which is why reward and bonus schemes usually carry an expiry date and a “we may withdraw this offer” line.

What makes a unilateral contract enforceable

A unilateral contract has to meet the same basic tests as any other enforceable contract. The difference is that acceptance and consideration both come from the act.

• A definite offer. The act and the reward must be clear enough that a reasonable person knows what to do and what they will get. Vague promotional claims (“the best coffee in town”) are puffery, not offers.
• Intention to create legal relations. The offeror must appear to mean it. Commercial offers are presumed serious; an offhand remark at a dinner party is not.
• Performance as consideration. The act must be something the offeree was not already legally obliged to do. A police officer generally cannot claim a reward for catching a suspect as part of their job.
• Complete performance on the offer’s terms. Close is not enough. If the offer says “closes 12 clients by 30 June”, eleven clients or a July close does not trigger payment.
• Legality and capacity. The act and the promise must be lawful, and the offeror must have the capacity to contract.

Breach and remedies

A unilateral contract is breached when the offeror refuses to deliver after the offeree has performed. The offeree cannot be in breach, because they never promised anything. Typical remedies for breach:

• Expectation damages: the promised reward or its money value, the usual remedy. See compensation for damages.
• Reliance damages: expenses the offeree incurred acting on the offer, where the expected gain is hard to prove.
• Restitution: the value of a benefit the offeror received, to prevent unjust enrichment.
• Specific performance: rare, and only where the promised thing is unique and money will not do.

Where the offer was withdrawn after the offeree relied on it but before a contract formed, courts sometimes step in through promissory estoppel. For the general rules, see our guide to breach of contract.

Implied unilateral contracts

A unilateral contract does not have to be written down. It can be implied from conduct or an established policy. The best-known example is the employee handbook: in Pine River State Bank v. Mettille (1983), the Minnesota Supreme Court held that handbook provisions on job security could be a unilateral offer, accepted by the employee continuing to work. Many US courts take the same approach to published bonus, commission and severance policies, unless the handbook clearly says it is not a contract.

Unilateral contract vs. unilateral contract change

People often search for “unilateral contract” when they mean something else: one party changing an existing contract on its own. The two have nothing in common except the word.

The default rule is that a contract can only be changed by agreement of both parties. A unilateral change works only when the contract itself reserves the right, as SaaS terms, credit card agreements and price adjustment clauses often do. Even then, courts and consumer law limit it. Most contracts require advance notice and give the other side a right to terminate. In the EU, the Unfair Contract Terms Directive (93/13/EEC) lists terms that let a business alter the contract unilaterally without a valid reason specified in the contract as potentially unfair in consumer contracts. In the US, a reserved right to change anything at any time can make a promise illusory. A clean amendment clause that requires written, signed changes avoids most of these disputes.

Changes are also where the record matters most. If every amendment sits next to the original agreement, with dates and signatures, nobody has to argue later about which version applied. In fynk, amendments and annexes are attached to the contract they change, so the full history is in one place.

FAQ

• What is a unilateral contract in simple terms?

  A promise that becomes binding when someone does what it asks. One party promises a reward for an act, nobody has to do the act, and whoever does it can claim the reward. A lost-pet reward is the classic example.

• What does unilateral mean?

  Unilateral means one-sided, from the Latin for one and side. In a unilateral contract only one party makes a promise. In general use, a unilateral decision is one made by one party without the agreement of the other.

• What is an example of a unilateral contract?

  Reward offers, prize contests, insurance policies, open real estate listings, sales bonuses and referral programs. The best-known legal example is Carlill v Carbolic Smoke Ball Co (1893), where an advertised £100 reward was held to be a binding unilateral offer.

• Is a unilateral contract legally binding?

  Yes, once the offeree has performed the requested act. Before that there is only an offer. The offer must be definite and seriously meant, and the act must be performed on the offer’s terms.

• What is the difference between a unilateral and a bilateral contract?

  In a bilateral contract both parties exchange promises and both are bound from the start. In a unilateral contract only the offeror promises, the other party accepts by acting, and only the offeror is ever obliged.

• Can a unilateral contract be revoked?

  The offer can be revoked before anyone begins performing. Once performance has begun, US law under Restatement (Second) of Contracts §45 treats the offer as irrevocable while the offeree finishes, and English courts imply a duty not to prevent completion.

• Why is an insurance policy a unilateral contract?

  Only the insurer makes an enforceable promise: to pay if a covered event happens. The policyholder does not promise to keep paying premiums. If they stop paying, the policy lapses, but they are not in breach.

• Can one party change a contract unilaterally?

  Usually not. Changes need the agreement of both parties unless the contract reserves a right to change specific terms, typically with advance notice and a right to terminate. Consumer law limits such clauses further, for example in the EU.

• Can a unilateral contract benefit a third party?

  Yes, if the benefit was intended. An intended third-party beneficiary, such as the beneficiary of a life insurance policy, can enforce the promise once the conditions are met. An incidental beneficiary cannot.