Unilateral Contract: Definition, Example and Related Terms
What is a Unilateral Contract ?
For example, in a unilateral contract, a person might offer a reward for the return of a lost dog. The person who offers the reward is making a promise, and the only way for someone to accept this offer and be entitled to the reward is by finding and returning the lost dog.
These contracts are often used in situations where one party wants to incentivize a specific action, without the need for the other party to commit until they choose to perform the action. It's important to understand the terms and conditions set in a unilateral contract to ensure both parties are clear about what is required to fulfill the contract.
Since unilateral contracts become binding only after the prescribed action takes place, they can reduce the risk for the offeror, as no obligation arises until the action is completed. However, they also present risks as the offeror cannot compel the other party to perform the action.
Example(s)
Scenario Description A person issues a public advertisement offering a $500 reward for the return of their lost dog. This is a unilateral contract. The offeror (the person who lost the dog) is promising to pay $500 to anyone who finds and returns the dog. The contract becomes binding only when someone finds and returns the dog, thus performing the condition of the offer. A company offers a bonus to its employees for every new customer they bring to the business. In this scenario, the company's offer of a bonus acts as a unilateral contract. The company promises to pay a bonus to employees, but only if they bring in new customers. The employees accept the offer by performing the action of acquiring new customers, thus making the contract binding upon the completion of said action.