When most people hear the word “contract,” an agreement between two people may come to mind, just like most personal or business contracts. Nonetheless, these are not the only sorts of contracts that exist.
A unilateral contract refers to an agreement enforceable by contract law, in which one party promises to reward another party for performing a particular act. And when the recipient agrees to complete the requested task, the contract is considered accepted.
The easiest way to understand a unilateral contract is to look at the word “unilateral.” “Uni” means one, so unilateral contracts allow only one person to make a promise or agreement.
How Unilateral Contracts Work
Before we understand how unilateral contracts work, we need to know what a contract is. A contract means a promise. For instance, a party promises something to a second party under certain conditions. The party that creates the contract is free to set all the terms.
If one thinks they have been tricked into doing something and then backed down on the reward without warning, they can take the matter to court. Nevertheless, certain conditions must be met if the case is brought to court:
- The unilateral contract must exist, and you need real evidence.
- The person who created it decided to stop it after you had spent your time doing the task.
- You suffered a loss of money or time because you believed the promise, and there was no reward.
The person responsible for the breach of contract is the person who must act.
Types of Unilateral Contracts in Real Estate Investing
Unilateral contracts are mainly one-sided, with no significant obligation on the part of the offeree. Two of the most popular types of unilateral contracts are open requests and insurance.
In open requests, offerors use unilateral contracts to make a wide or optional request that can only be accomplished when certain conditions are met.
For instance, the community police promises $200 to any citizen who has precise information on the whereabouts of a dangerous criminal accused of murder if that information leads to his arrest.
No one is obligated to contact the police and provide information. However, if they do and there is enough information to help the police find the criminal, they will receive the reward.
Once the police receive the call, they will dispatch a unit to the suspect’s location. And if the information is correct, the caller will receive the promised reward. However, if the murderer is not present, the individual will not receive the $200 as there is no evidence that he was telling the truth.
If someone calls the police, they use the information, catch the criminal, and then refuse to pay the reward, that person has reason to sue the community police department.
Insurance is a one-sided contract because it is the company that sets the terms, not the customer. They determine how much you would pay for insurance and under what circumstances you would be insured. Common reasons include theft of someone’s car and accidents.
A man named Elliot decides to take out insurance for his car. The company assesses his situation and determines that he needs to pay $150 per month. This insurance works if his car is stolen or if he has an accident that is not his fault.
If the conditions set exclusively by the insurer are met, he will receive the money. If he stops paying or the accident is his fault, he won’t get any insurance, and he will have to pay the damages himself.
In commercial real estate, you may purchase liability insurance for joint and several liability or if you’re the general partner and have unlimited liability. In this case, you may come across a unilateral contract.
What Is the Difference Between Unilateral Contracts and Bilateral Contracts?
Unlike unilateral contracts, bilateral agreements require that two (or more) parties accept a role in a promise.
In a unilateral (one-sided) contract, one isn’t forcing the other party to do anything. If someone wants the reward, they can do something, but that is primarily their choice. However, in a bilateral contract, the person has a clear role, and anyone who is not a party to this contract cannot enjoy the reward.
This dynamic means that if one of the parties breaches their contractual obligations and the other party suffers losses, as a result, they can be sued for breach of contract.
Most business-to-business contracts are bilateral, including loans, mortgages, and employment contracts.
Therefore, every time you hear someone talk about a unilateral contract, it probably means that Party A has to do something for Party B, which has no other obligation than to pay compensation for Party A after all services have been completed.