Unilateral Contracts: How Do One-Sided Agreements Work?

In the world of contract law, understanding different types of agreements is essential, especially for those pursuing a real estate career. Contracts vary greatly in terms of obligations and enforceability, but one of the most distinct types is the unilateral contract. Unlike other agreements where both parties are bound to perform specific actions, unilateral contracts only bind the offeror (the one making the offer). 

This type of contract is particularly common in real estate, insurance, and employment, where one party agrees to reward or compensate another upon the completion of a specific task.

In this article we will explore the essential features of unilateral contracts, the key differences from bilateral agreements, and real-life examples to help you master this foundational concept.

What is a unilateral contract?

A unilateral contract is a legally binding agreement in which one party (the offeror) makes a promise to pay or reward another party (the offeree) if the offeree performs a specific action.

Unlike bilateral contracts, which involve mutual promises between two parties, unilateral contracts are one-sided. In these agreements, the contract becomes legally binding only when the offeree completes the requested act, not when they agree to it.

For example: an individual posts a reward for the return of their lost pet. This reward offer forms a unilateral contract because the pet owner promises to pay if someone finds and returns the pet. No one is obligated to search for the pet, but if someone completes the task, the contract becomes binding, and the pet owner must pay the promised reward. This feature highlights the performance-based nature of unilateral contracts.

Key elements of a unilateral contract

To be valid and enforceable, unilateral contracts must contain specific elements that ensure clarity and legality:

1. Offer: The offeror must make a clear and specific promise, outlining exactly what is expected in exchange for a particular action. In our pet example, the reward offer should specify the task required to claim the reward.
2. Acceptance by performance: Unlike bilateral contracts, which can be accepted with a promise, a unilateral contract requires the offeree to perform the requested action to accept the contract.
3. Consideration: In unilateral contracts, the act performed by the offeree is the consideration, or the “price” paid to make the offeror’s promise binding.
4. Intention to create legal relations: Both parties must intend for the agreement to be legally enforceable. The offeror’s terms must be clear enough to create this intention and leave no room for ambiguity.

Types of unilateral contracts

Unilateral contracts appear in many different scenarios, often in cases where the offeror seeks a specific result without requiring a commitment from the offeree. Here are some common types of unilateral contracts:

Reward contracts

The reward contract is one of the most recognizable unilateral agreements. In these cases, the offeror provides an open offer to anyone who completes a task. Classic examples include rewards for finding lost pets or solving crimes (such as rewards offered by police departments).

Insurance policies

Insurance policies are another classic example of unilateral contracts. Here, the insurance company, as the offeror, agrees to cover certain damages or losses if specific conditions are met (e.g., fire damage, theft, or accidents). The policyholder’s payment of premiums is their performance, and the insurer only becomes obligated to pay if the outlined conditions occur.

Performance-based agreements

In employment or service industries, unilateral contracts sometimes offer rewards or bonuses for completing specific actions or hitting set targets. For instance, a salesperson might receive a bonus if they reach a particular sales goal within a certain timeframe.

Real estate option contracts

This is the most common use of unilateral contracs in real estate. A real estate option contract is a legal agreement where the landlord (in the role of optionor) agrees to lease a property to a tenant (optionee) with the option to buy at a designated time. The obligation only goes one way: the landlord has to sell the property to the tenant as agreed, but the tenant doesn’t have to buy it if they don’t want to.

Unilateral vs. bilateral contracts

Understanding the difference between unilateral and bilateral contracts is essential in any contractual agreement, especially in real estate and insurance where both types are commonly used. 

The primary difference between unilateral and bilateral contracts lies in mutuality. In a bilateral contract, both parties make promises to perform actions. For example, in a real estate sale, buyer and the seller agree that the buyer will pay a specified amount for the property, while the seller commits to transferring ownership. On the other hand, in unilateral contracts, only the offeror is obligated to act. No obligation rests on the offeree to perform any task unless they choose to; if they do, the contract becomes binding.

Advantages of unilateral contracts

• Clarity and Simplicity: These contracts provide straightforward terms, reducing potential for legal disputes between parties.
• Flexibility: The offeree is not obligated to act, which can be beneficial in scenarios where the obligations can be too hard to fulfill.
• Motivation to Perform: Tying rewards to specific actions can incentivize performance.

FAQs about unilateral contracts in real estate

1. Can a unilateral contract be revoked once the offeree has started performing?

No, once the offeree has begun the requested action, the offeror cannot revoke the contract. This is known as the “promissory estoppel” principle, which prevents the offeror from revoking an offer once the offeree has reasonably relied on it and has taken substantial steps to fulfill it.

2. Is a unilateral contract legally binding?

Yes, unilateral contracts are legally binding once the offeree completes the requested task. For example, if someone completes a task in response to a reward offer, the offeror is legally bound to fulfill the promise.

3. What makes an insurance policy a unilateral contract?

An insurance policy is considered unilateral because the insurance company is the only party with a binding obligation. If a claim is filed for a covered event, the insurer must pay, but the policyholder has no legal requirement to submit claims.

4. Can both parties have obligations in a unilateral contract?

No, in a unilateral contract, only the offeror is bound by an obligation, which becomes enforceable when the offeree completes the specified action. This differs from bilateral contracts, where both parties have mutual obligations.

Summing-up

Unilateral contracts, in particular, are very important to certain types of industries and provide a framework for performance-based obligations without the need for mutual promises. It is especially effective for offering rewards, insurance policies, and for real estate options contracts. Because only the offeror is bound to fulfill his obligations; this gives flexibility to the offeree, who is not legally bound to act unless he chooses to fulfill the terms.

By knowing these distinctions, real estate students and professionals can navigate various contractual agreements, helping and advising clients properly, and ensuring real estate operations comply with legal requirements.