contract is formed when certain legal elements are met, two of those being, “offer” and “acceptance”. Unilateral contracts are a specific type of contract where a person can make an offer, and another person can only accept the offer if they perform certain actions. You may use unilateral contracts in a range of circumstances. This article will provide examples as well as some important considerations about unilateral contracts.

How Is a Unilateral Contract Made?

A unilateral contract is made in the way the contract is drafted. This means that if a person wishes for a contract to be a unilateral contract, it should be clear in the contract that acceptance of an offer can only occur once the other person has performed a certain act. 

The contract should detail what:

  • a person is offering under the contract; and
  • the other person needs to do to accept the offer.

Of course, people can also form a contract without having a contract in writing. If this were the case, it would nevertheless need to be clear that an offer and acceptance has occurred. For unilateral contracts, that acceptance of the offer can only occur once certain acts have been performed.

What Are Examples of a Unilateral Contract?

There are many common business scenarios where unilateral contracts exist. For example:

  • an online platform offers a 15% member discount on a person’s membership fee if the person refers a friend to the online platform and the online friend joins the platform. The offer here is a 15% member discount on a person’s membership fee. The acceptance of the offer can only occur if a person refers a friend to the online platform and that friend joins the online platform;
  • a cafe offers a free coffee if a person purchases nine coffees. The offer here is a free coffee. The acceptance of the offer can only occur if a person purchases nine coffees;
  • a pub offers a cheese platter to the team who wins a trivia game. The offer here is a cheese platter. The acceptance of the offer can only occur if a team wins the trivia game; and
  • an insurance business offers to pay a person an amount if a certain event were to arise. The offer here is the payment of the insurer of an amount. The acceptance of the offer can only occur if the event actually arises. Here, it would also be important to note that the insurer may have other additional terms and conditions that they need to meet in order for the insured party to be able to claim on its insurance. For example, some insurers will not pay an amount if the event arose due to a person’s negligent acts or omissions.

What Are Legal Considerations Relevant to Unilateral Contracts?

Businesses that intend to use unilateral contracts should be aware of other legal considerations that may impact on the operation of the contract. A few considerations include the following:

Revoking the Contract

A party may revoke a unilateral contract at any time prior to acceptance taking place. This is because until acceptance occurs, the parties have not yet created a binding contract.

Nevertheless, if you incorporate unilateral contracts into your business, it should be clear as to how long an offer will be available for. It should also be clear on the circumstances when a business can revoke an offer. This is to avoid falling foul of Australian Consumer Laws related to misleading or deceptive conduct. 

For example, if a business were to offer a “Buy nine coffees and get the tenth coffee free” arrangement, it may wish to specify that a purchaser would need to buy nine coffees within six months. 

Elements of a Contract

Offer and acceptance are not the only two elements which create a contract. Businesses should also be mindful of the other elements that create a contract, including:

  • consideration – the reason behind a party entering a contract. Most commonly, this takes the form of monetary value;
  • intention to create legal relations – this means that both parties to a contract understand that they intend for their arrangement to be legally enforceable. Although this may be obvious in written contracts, this will need to be clear in verbal or implied contracts; and
  • capacity – all parties of a contract will need to be legally competent to enter a contract. This means that they will need to have the mental capacity to enter a contract.

Without fulfilling all the above elements, a legal contract will not exist, despite there being offer and acceptance.

Terms and Conditions

Any other terms and conditions that may apply under the contract should also be communicated.

For example, a retail business sets up an Easter egg competition awarding prizes for a person who finds all the toy easter eggs in the store. Here, it may wish to state that the prize will only be awarded to the first 10 people who find all the toy easter eggs.

Bilateral Contracts

Unilateral contracts differ from bilateral contracts. The main reason they differ is that a unilateral contract will not be formed until the required action is performed. This differs from bilateral contracts as a contract may be formed by other ways of acceptance, e.g. signing a contract.

In a bilateral contract, the parties will form a contract, and there will be certain obligations that each party has to fulfil under the contract. In a unilateral contract, a party will only need to fulfil its side of the contract if the other party has performed the specific action required under the contract.

Key Takeaways

Unilateral contracts are widespread in business contracts, even if a business is unaware of the legal mechanisms that allow a unilateral contract to arise. If you run a business and are thinking of offering rewards or discounts, you could be offering these benefits under a unilateral contract arrangement. It’s important to be aware that unilateral contracts do not operate in isolation, and other legal considerations should be front of mind, including to avoid your offers being misleading or deceptive. If you would like to discuss unilateral drafting contracts, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.

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