Introduction

Contracts usually make us think of two parties signing an agreement and sealing the deal with a firm handshake. But not all contracts need two signatures or even two people to make promises. Thatʼs where a unilateral contract comes into play. A unilateral contract is a one-sided promise that becomes binding only when the other party fulfills their end of the bargain.

Letʼs explore what a unilateral contract is, how it works, and why you might encounter one (without even realizing it).

Read: Does a contract have to be in writing?

What is a unilateral contract?

In simple terms, a unilateral contract is an agreement where only one party makes a promise, and the other party accepts by performing a specific action. Itʼs like saying, “Iʼll pay you $100 if you find and return my lost dog.ˮ Youʼre not making a mutual promise with anyone; youʼre just offering a reward. If someone finds your dog, youʼre legally bound to pay up. If no one does, youʼre not on the hook for anything.

Unilateral contracts are more common than you might think and pop up in various scenarios, from everyday situations to business arrangements. Here are some typical examples.

Rewards and contests

The classic "Lost Dog—$100 Reward" poster is a straightforward unilateral contract. So are contests like “Win a free vacation if you submit the best photo.ˮ In both cases, the person offering the reward or prize isnʼt obligated to give anything until someone performs the required action—returning the dog or submitting a winning entry.

Insurance claims

Some insurance policies operate like unilateral contracts. For example, you might have a policy that promises to pay a certain amount if specific conditions are met, like damage to your car or a house fire. The insurance company only has to pay if those conditions are fulfilled.

Employment bonuses

Many companies offer performance bonuses based on achieving certain targets. For instance, “Get 20 new clients this quarter, and weʼll give you a $1,000 bonus.ˮ In this scenario, thereʼs no requirement to pay until the employee hits the target.

Business offers

Sometimes, businesses use unilateral contracts in their promotions, like “Refer a friend, and get $50 credit.ˮ The company only has to fulfill the promise when someone actually refers a friend.

Understanding these scenarios can help you recognize unilateral contracts in action, making it easier to know when youʼre entering one—even informally.

Read: Do I need to sign a contract for it to be valid?

The importance of unilateral contracts

Knowing how unilateral contracts work is crucial for both personal and business reasons. Hereʼs why.

Avoiding unintentional commitments

If youʼre offering a reward or bonus, understanding unilateral contracts ensures you donʼt unintentionally commit yourself to something vague or unenforceable. For example, promising a “great rewardˮ for a good deed could lead to disputes if what you think is “greatˮ doesnʼt match someone elseʼs expectations.

Maximising business incentives

Businesses often use unilateral contracts for promotions, bonuses, or rewards programs. Knowing how they work helps you structure these offers clearly, as you can make sure that participants know exactly what they need to do and you know what youʼre required to provide.

Legal protection

Vague or poorly worded unilateral contracts can lead to legal headaches. For example, if you post a reward for returning your lost dog but donʼt specify any conditions, someone might demand payment after returning a dog that looks vaguely like yours but isnʼt. Understanding the nuances can help protect you from such scenarios.

Recognising opportunities

If you know how unilateral contracts work, you can spot opportunities to benefit from them, like taking advantage of a promotional offer or participating in a contest. Youʼll know exactly whatʼs required and whether itʼs worth your time.

Read: Are oral contracts legal?

Key components of a unilateral contract

Unilateral contracts might seem simple—one party makes a promise, and the other performs an action—but they still have specific components that make them legally binding. Here are the key components.

Offer

The offer is the cornerstone of any unilateral contract. Itʼs a clear, definite promise made by one party to do something if the other party performs a specific action. For example, “I will pay $100 if you find my lost dogˮ is a straightforward offer. The offer must be specific and unambiguous, leaving no doubt about what action is required and what the reward will be.

Example: A company may offer a $50 bonus to any employee who refers a friend for an open position, provided the friend gets hired. The offer is specific: refer a friend, and if theyʼre hired, you get the bonus.

Acceptance

Acceptance in a unilateral contract isnʼt verbal or written—itʼs action. The second party accepts the offer by performing the specific action requested. Thereʼs no contract until this action is completed. For instance, in the lost dog scenario, the contract isnʼt binding until someone finds and returns the dog.

Example: If someone does find and return the dog, they have accepted the offer through their actions, and the person who made the offer is now legally required to pay the $100 reward.

Consideration

Consideration is what both parties get out of the deal. In a unilateral contract, the person making the offer wants something done, and in return, the person who does it gets the promised reward. For the contract to be valid, both sides must receive something of value—whether itʼs a task completed or a payment made.

Example: In a business context, a company offering a bonus for hitting sales targets benefits from increased revenue, while the employee benefits from the additional compensation.

Communication of the offer

For a unilateral contract to be valid, the offer must be communicated effectively to the other party. The person performing the action must know about the offer before they complete the required task. If someone returns your lost dog without knowing about the $100 reward, youʼre not legally bound to pay them (but you probably should, just to be nice).

Example: If a company offers a referral bonus, it needs to communicate this clearly to all employees, so everyone is aware of the opportunity to earn extra cash for referring a friend.

Intent to enter into a contract

The person making the offer must have a genuine intention to enter into a contract. This means they must be serious about their promise and willing to fulfill it if the conditions are met. For example, if you jokingly say, “Iʼll pay you $100 if you bring me coffee every morning for a month,ˮ and someone takes you seriously, you might find yourself in a binding contract.

Example: In a business setting, an employer might offer a bonus for completing a challenging project. The employerʼs intent is clear: they genuinely want the project finished and are willing to pay for it.

Legal capacity

Both parties must have the legal capacity to enter into a contract. This means they must be of legal age, sound mind, and not under the influence of drugs or alcohol.

For unilateral contracts, this mostly applies to the person making the offer, as the second party only accepts by performing an action.

Example: A teenager cannot legally enter into a binding contract, so if they offer $500 for a new website design, the contract may not be enforceable.

Read: Do I need to sign a contract for it to be valid?

Why use a unilateral contract?

You might be wondering, why bother with a unilateral contract in the first place? Well, there are a few good reasons.

Encourages action

These contracts are great for getting people to do something specific. Think of reward posters for lost pets or sales incentives for employees. Youʼre basically saying, “Do this, and youʼll get that.ˮ It motivates action without any upfront commitment from the other party.

Low-risk for the offeror

Since no one is required to accept the offer, the person making it (the offeror) doesnʼt have to worry about being locked into a deal right away. If no one returns your lost dog or hits the sales target, youʼre not out anything—you only have to pay up if someone actually fulfills the terms.

Easy to set up

Unilateral contracts cut through a lot of the back-and-forth youʼd find in traditional agreements. Thereʼs no need for negotiation or signatures from the other side. Itʼs as simple as stating your terms and waiting to see if someone takes you up on it. This makes them perfect for straightforward situations where you donʼt need a lot of formalities.

Legal considerations

Unilateral contracts might seem straightforward, but there are important legal aspects to keep in mind to avoid potential pitfalls.

Crystal clear terms

The terms of your unilateral contract need to be super specific to prevent any misunderstandings. For example, if youʼre offering a reward for returning your lost dog, donʼt just say, “Return my dog, get $500.ˮ Specify that the dog must be returned in good health, and include a deadline if necessary. Vague language can lead to disputes over whether the conditions were truly met, leaving you in a legal gray area.

Communication of acceptance

In some situations, the person fulfilling the contract needs to inform you that theyʼve completed the task. Take, for instance, a reward for information leading to an arrest. If someone provides that information but doesnʼt notify you, it could complicate things. Itʼs crucial to know when and how performance is communicated so youʼre not left guessing whoʼs entitled to the reward.

Revocation rules

You can retract a unilateral offer anytime before someone starts fulfilling the conditions, but you usually have to make sure theyʼre actually aware of the revocation. For example, if you post a reward flyer and later decide to cancel it, you canʼt just quietly take down the flyers and assume youʼre off the hook. You need to make an effort to communicate the revocation to anyone who might be acting on your offer, or you could still be held liable.

Should you use a unilateral contract?

Deciding whether to use a unilateral contract comes down to what youʼre trying to achieve.

When to use a unilateral contract

If you want to motivate someone to take a specific action without needing them to commit upfront. For instance, offering a reward for finding your lost pet or setting up a bonus system for employees who hit a certain sales target. The focus is on encouraging an action, not a mutual promise.

When to avoid a unilateral contract

If you need a clear, two-way agreement where both parties are making promises, like hiring an employee or signing a partnership deal. In these situations, a bilateral contract is a better choice because it establishes mutual obligations and expectations, ensuring both sides are legally bound to fulfill their part of the agreement.

Read: Do legal documents have to be written in English?

Conclusion

Unilateral contracts might not be the most common type of agreement, but they play a unique role in business and everyday life. From reward posters to performance bonuses, theyʼre all around us, motivating actions without the need for mutual promises.

The key takeaway? Unilateral contracts are all about getting results—no mutual promises needed. Just be clear about the terms and know that youʼre only on the hook when the other side delivers.

How Cobrief can help with contract review

Reading your business contracts can feel overwhelming as an owner-manager of a small to medium-sized business. Thatʼs where Cobrief comes in. Cobrief helps business owners and operators review their business-to-business contracts for legal risks.

Upload your contract to Cobrief's AI contract review software, click review and youʼll get a list of all the risks, in plain English. This helps you decide whether to sign, negotiate or reject the terms of your contract, or hire a lawyer. Think of it as a heat map for your contracts.

Get started here.