Navigating business contracts requires an awareness of the difference between unilateral and bilateral agreements.
But what exactly are unilateral and bilateral contracts, and how do they differ? In this article, we delve into the world of commercial agreements and explore these types of contracts.
What is a unilateral contract?
A unilateral contract is an agreement where one party makes a promise to perform a certain act and the other party accepts the offer by actually performing that act. In simple terms, it's a one-sided promise that becomes binding once the specific action is completed.
This type of contract is often used when one party wants something done and offers something in return, such as a reward, once the task is accomplished.
Does a unilateral contract need consideration?
A fundamental aspect of unilateral contracts is that the consideration is the act itself. The performance of the act requested by the offeree in exchange for the offeror's promise provides the consideration for the contract.
How do you communicate your acceptance in a unilateral contract?
In a unilateral contract, acceptance is demonstrated through the performance of the specified act. There’s no requirement for a formal acceptance communicated verbally or in writing. Once the offeree completes the act as outlined in the offer, the contract is in effect.
Are unilateral contracts enforceable?
Yes, unilateral contracts are legally enforceable in the UK. If someone makes a valid offer and the other party fulfils the conditions, a binding contract is formed. The party that made the offer is obligated to fulfil their promise, whether it's a promise to pay a reward or any other commitment stated in the offer.
Can an offer of a unilateral contract be revoked?
Generally, an offer for a unilateral contract can’t be revoked once the offeree has begun to perform the act. The law sees it as unfair to allow the offeror to retract the offer once the offeree has started acting upon it, as this would undermine the trust and expectations formed by the offeree.
What is a bilateral contract?
A bilateral contract, on the other hand, is an agreement in which both parties make mutual promises to each other. In this scenario, both sides commit to specific actions, forming a legally binding agreement.
What is consideration in bilateral contracts?
Bilateral contracts require consideration from both parties. Each party's promise to perform an action or make a payment serves as the consideration for the other party's promise. This mutual exchange of promises forms the legal foundation of a bilateral contract.
Bilateral contract acceptance
Acceptance in a bilateral contract is more conventional. It's usually communicated through a clear and direct acceptance by the offeree. This can be in the form of a written acceptance or a verbal agreement, depending on the circumstances.
When can a bilateral contract be revoked?
In a bilateral contract, either party may only revoke the offer before the other party has accepted the offer. Once acceptance has occurred, the contract becomes binding and revocation is no longer an option.
The difference between unilateral and bilateral contracts
The key differentiator between unilateral and bilateral contracts lies in the different methods of offer and acceptance and the differences in consideration as set out above. The key point is that the performance of the makes the contract legally binding.
Examples of unilateral and bilateral contracts
To illustrate the difference between unilateral and bilateral contracts, let's look at some example scenarios:
Unilateral contract example
Scenario: A small business owner wants to motivate their independent self-employed sales consultants to improve sales. They announce a one-off payment of £500 to any consultant who achieves a minimum 20% increase in the month’s sales compared to the previous month.
In this case, the consultants only accept the offer and make it legally binding by fulfilling the specified condition: achieving a minimum 20% sales increase on the previous month. Once the condition is met, the business is obligated to pay the £500 payment to each consultant who satisfies the condition. If the condition isn’t met, then no such payment falls due.
Bilateral contract example
Scenario: A small business enters into a contract with a supplier for the regular delivery of raw materials. The supplier agrees to deliver 100 units of raw materials each month, and the business agrees to pay £1,000 for each delivery of 100 units upon receipt.
In a bilateral contract, both parties make promises to each other. The business promises to pay upon receipt, and the supplier promises to deliver the raw materials in the quantities and regularity as agreed. If either party fails to fulfil their promise, it would be considered a breach of contract, and legal remedies would apply.
Get legal assistance from LawBite
Understanding the nuances of unilateral and bilateral contracts is essential if you’re a small business owner entering into an agreement. Both types of contracts can be legally enforceable, but the key lies in recognising the fundamental differences between them.
If you’re unclear about your contractual obligations under an existing contract or you need a new contract drafted, speak to one of our expert contract lawyers. They’ll be able to provide you with the clarity and confidence you need to make informed decisions. To speak with one of our lawyers, book a free 15 minute consultation or call us on 020 3808 8314.