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What are “unilateral contracts” and “bilateral contracts”?
Contracts are divided into unilateral and bilateral agreements based upon the duty of performance and how an offer to contract is accepted.
Bilateral Contract – A bilateral contract consists of two promises between individuals that form a contract. Specifically, one party makes a promise to another party that she will do something (or forgo doing something) in exchange for the other party’s promise to do something (or promise to forgo doing something).
- Example: Eric promises to wash Julia’s car if she promises to pay him $20. The both activities will occur at some point in the future, so you have two promises of future performance.
Unilateral Contract – A Unilateral contract is an agreement with only one promise. That is, one party promises a future action if the other party performs whatever is requested of her. The promising party does not want a return promise. As such, a contract is formed or comes into exists once the other party begins to perform the requested services.
- Example: Suppose Eric tells Julia that he will pay her $20 if she washes his car. Eric does not want a promise to wash the car. Julia can accept Eric’s offer by beginning to wash his car. Julia is not obligated to wash the car unless or until she begins doing so. Further Eric is not obligated to pay Julia until she begins washing the car.
- Note: The common characteristic between unilateral and bilateral contracts is that it entails a promise of performance and a demand from the offeree. This is critical to the requirement that a contract contain an offer, acceptance, and exchange of value.
Discussion: Why do you think it is important to distinguish and recognize these two types of contracts? Do you think each type of contract is more applicable in either sales of goods or services? Why or why not?
Practice Question: Jennifer is looking for someone to paint her house. She sends out an email to several painters in the neighborhood that she has purchased the paint and will pay $3,000 to anyone who paints her house. She also includes some detailed requirements for the painting process and states that project must be completed by the coming weekend. Rob shows up the next morning with all of his equipment and ready to paint. Is there a contract in this situation? Why or why not?
- Yes, there is a valid contract. This is an example of a “unilateral contract”. A unilateral contract is a contract that arises out of an offer made by one party to another with the promise to compensate the other person once there is performance of an obligation. This happens when one party makes an open request and the other person performs the request. It is not necessary that the party performing the request make a promise to do so prior to beginning performance.. The performance of the request is enough to make it a valid contract. The promise to pay or compensate the party for doing the obligations also an important aspect of a unilateral contract. In the example, Jennifer established a unilateral contract the moment she made an offer for the painting job and promised to pay whoever would show up to do the job. Rob showing up to do the job is acceptance of the offer made by Jennifer. However, the contract will only be completely performed once Rob does the painting job and Jennifer compensates him.