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Unilateral Contracts


A unilateral contract is a type of agreement in finance and law where only one party makes a binding promise to execute certain obligations. The second party doesn’t make any promises but instead, accepts by performing the obligations set out in the contract. This differs from a bilateral contract, where both parties make promises to each other.


The phonetic pronunciation of “Unilateral Contracts” is:yoo-nuh-lat-er-uhl kon-trakts

Key Takeaways

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  1. A Unilateral Contract is a type of contract in which only one party makes a promise or agreement. This refers to the instance where only one party is legally bound to perform an action, often in exchange for the performance from the other party.
  2. In Unilateral Contracts, the offering party makes a promise in return for an act or forbearance. This means the contract is only executed when the offeree performs the action required. Until this action is taken, the offerer has the right to revoke the contract.
  3. The enforceability of Unilateral Contracts can sometimes be challenging. If the offeree begins the task but doesn’t complete it, this may or may not be considered a breach of contract as per the specific legal jurisdiction and the exact contract terms. Therefore, it’s essential to understand the specific rules and regulations in place for Unilateral Contracts.



Unilateral contracts are crucial in business and finance because they represent a personalized commitment where one party (the promisor) commits to perform a certain duty if the other party (the offeree) decides to comply with the specified action. This contract structure is particularly relevant in areas like insurance policies or reward situations. It promotes risk management, flexibility, and motivation for one party to perform actions that will trigger the other party’s commitment to deliver on the promise. Understanding unilateral contracts is essential for businesses, as it not only defines the responsibilities and roles of each party involved, but also gives insight into potential risk areas, ensuring better planning and decision-making.


Unilateral contracts are primarily used as a means to promise a payment, reward or benefit to someone for completing a specified task or obligation. Simply put, it’s a one-sided agreement where only one party is making enforceable promises. These types of contracts are often used in insurance policies, where the insurer promises to pay specified amounts in return for the policyholder’s premium payments and compliance with the policy’s terms. Thus, it serves the purpose of assuring the party that stands to benefit from the contract that they will be compensated upon fulfilling certain obligations.Unilateral contracts can also act as tools to stimulate certain actions in business arrangements, for instance, rewards for lost property return can be seen as unilateral contracts. The property owner guarantees a reward for the person who finds and returns the lost item, hence stimulating the action of searching and returning lost items. In a nutshell, the primary function of a unilateral contract is to encourage or compel a certain behavior with the promise of payment or some other form of reward upon completion of the stated task.


1. Insurance Contracts: One of the most common examples of a unilateral contract is an insurance policy. In this case, the insurer promises to pay the insured a specified amount of money if a certain event (like a car accident, health issue, or damage to property) occurs in exchange for regular premium payments by the insured. The insured does not have to do anything for the insurance company, but if the event specified happens, the insurer is obliged to pay as per the terms outlined.2. Rewards Offers: When a company or an individual offers a reward for the return of lost property, they’re making a unilateral contract. For example, if someone loses their dog and offers a reward for its return, they’re promising to pay money in return for the specific action of returning the dog. In this case, no one is specifically contracted to find and return the dog, but if someone does, the original owner is legally obligated to fulfill the reward promise.3. Lotto Tickets: When you buy a lottery ticket, you’re partaking in a unilateral contract. The organization running the lottery promises to pay a certain sum of money to the person who buys the winning ticket. Even though there are millions of sold tickets, the lottery organization is obligated to pay the winner the prize they promised.

Frequently Asked Questions(FAQ)

What is a unilateral contract in finance and business?

A unilateral contract is a kind of agreement in which one party makes a promise in exchange for the other party’s performance. The party making the promise, also known as the promisor, is obligated to fulfill the promise once the other party, known as the promisee, meets the specific requirements.

Can you give me an example of a unilateral contract?

A common example of a unilateral contract is an insurance policy. The insurance company promises to pay the insured some amount in the future if a specified event like an accident or damage occurs.

What is the main difference between a unilateral contract and a bilateral contract?

In a unilateral contract, only one party is obliged to perform under the contract terms. In a bilateral contract, both parties exchange mutual promises and have obligations to perform.

How do you enforce a unilateral contract?

A unilateral contract becomes enforceable once the promisee performs the specific action or meets the requirement in the contract. If the promisee begins performance, the promisor is obligated to fulfill their promise.

Can a unilateral contract be cancelled?

A unilateral contract can be revoked by the promisor before the promisee begins performance. However, once the performance has begun, the contract usually cannot be revoked, depending on the specific terms of the contract and local laws.

What happens if I don’t fulfill my promise in a unilateral contract?

If you don’t uphold your end of the bargain, it can result in the other party initiating a legal proceeding against you for breach of contract. Potential consequences may include paying damages to the other party or being compelled by court order to fulfill your promise.

How do I create a unilateral contract?

Writing a unilateral contract involves a clear statement of the promises being made, the specific action that must be performed by the other party, and ensuring that all promises are legally enforceable. It’s always recommended to seek professional legal advice when crafting any contract.

Related Finance Terms

  • Offeror
  • Offeree
  • Performance
  • Consideration
  • Legal Enforceability

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