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Unilateral and Bilateral Contracts: Examples & Differences

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  • 0:05 Unilateral Contracts
  • 3:31 Bilateral Contracts
  • 5:20 Lesson Summary
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Instructor: Kat Kadian-Baumeyer

Kat has a Master of Science in Organizational Leadership and Management and teaches Business courses.

There are two types of contracts: a unilateral contract and a bilateral contract. The essential difference between the two is in the parties. Unilateral contracts involve only promisor while bilateral contracts involve both a promisor and a promisee.

Unilateral Contracts

While strolling along the beach, you notice a sign tacked to a palm tree that reads, 'Lost wallet, brown with several hundred dollars in it. Return to owner and receive a $50 reward.' This piques your interest, and you begin sifting through the sand, turning over seashells, and flipping beach towels in search of the missing wallet. After all, you could use the 50 clams!

So, you find the wallet under a coconut tree and contact the owner, return the wallet, and collect on the cash reward. What you really did was enter into a unilateral contract with the owner of the missing wallet. A unilateral contract requires that only one party make a promise that is open and available to anyone who performs the required action, like collecting the reward for finding a lost pet. This sometimes applies to advertisements to an extent.

Advertisements, in general, cannot be construed as an offer to all parties. However, in some cases, the courts do consider an advertisement an offer when it contains specific language. Like when Bruto's Tacos runs a special for 50% off tacos between the hours of 4:00PM and 6:00PM, four-taco limit and until tortillas run out. It's all in the details of the advertisement that creates the unilateral contract.

Bruto's ad is clear in that it contains language that the message is sent to anyone who happens to read the ad, but is limited to only a certain amount of people who can actually accept the offer. A bilateral contract works differently. In this type of contract, two parties enter into an agreement where both parties promise to do something. However, the elements of either contract remain the same:

  • Offer by the promisor
  • Acceptance by the promisee
  • Consideration or support for the offer, like money
  • Of legal capacity, meaning both parties are free from mental illness or addiction and
  • Lawful terms

Let's focus on the unilateral contract for the moment.

A unilateral contract is a contract in which one party makes a promise to whomever takes action as prescribed in the offer. In this case, returning the wallet was the action taken by you. To keep it simple, the owner (promisor) of the missing wallet places an all points bulletin for the safe return of his property. You (the promisee) found and returned it. You had no obligation to do so, but once you took action, you became a party to the contract, even without the promisor's knowledge.

In fact, until you happened upon the palm tree bearing the grim news of the missing wallet, you were no part of this mess. That is exactly how a unilateral contract works. The promisor makes a promise to whoever is willing to act on it. There is no promise until the action is complete and the exchange is made. Unilateral contracts are enforceable.

Using the lost wallet to stress this point, had the owner of the wallet refused to pony up the cash reward, you could take legal action against him, because the reward was posted as an advertisement, and you would not have searched for the wallet had you not known it was missing.

Of course, you would have to prove a couple of things:

  • A contract existed (reward sign on the tree).
  • The contract was breached by the promisor (failing to provide the reward).
  • Promisee suffered a loss as a result (time spent looking for the wallet).
  • Promisor was responsible for the loss (refusal of payment for returning the wallet).

If all of these things occur, there is a good chance the court will see it your way.

Bilateral Contracts

Typically, a bilateral contract is used when purchasing products or services. A bilateral contract requires both parties to a contract to perform an action. Just like a unilateral contract, the basic elements must be present. However, in a bilateral contract, there are two distinct and named parties to the contract. Each party is aware of their contractual obligations.

These parties are a promisor who makes a promise to perform an action, in exchange for the promisee to accept the offer in exchange for consideration for something of value, like money. An example will help. After calling several bakeries, Denise decided on using Cakes by Jacques to design and bake her wedding cake.

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