Unilateral contracts and performance : an overview

This article has been written by Pritam Kunda pursuing Diploma in Intellectual Property: Prosecution, licensing and litigation and edited by Shashwat Kaushik.

This article has been published by Sneha Mahawar.

Under the typical conception of entering into a contractual agreement, what usually comes to an individual’s mind is negotiation, paperwork, and the signature of the two parties. However, the formation of a contract is not just limited to the mutual agreement of the parties simultaneously; a contractual obligation can also unilaterally come into vogue as well.  Even an act of advertising is a declaration of reward for finding someone’s stolen car, which, if fulfilled by an individual, becomes a contract that is enforceable at the will of the person finding the car. These types of contracts are called unilateral contracts, which will be discussed in terms of their fundamental aspects and performance in this article.

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Contracts can be broadly classified, based on the number of parties undertaking obligations, into unilateral and bilateral contracts. In unilateral contracts, it is a single party who undertakes to perform his obligation, whereas in bilateral contracts, two people undertake reciprocal obligations in exchange for consideration for each other.

The concept of unilateral contracts is based upon a reward that is receivable upon the completion of a task by the other party, which is in contrast to the conception of bilateral contracts, where both parties undertake obligations on the part of each other simultaneously in exchange for reciprocal promises deliverable by the other party.

Unlike bilateral contracts that become a contract as soon as the parties agree upon a promise based upon a reciprocal obligation, bilateral contracts do not become a contract right from the moment the party unilaterally makes a promise in exchange for a favour. This is due to the lack of two parties to the contract. The unilateral offer only becomes a contract if the other party has performed the performance of the obligation.

Definition of unilateral contracts

Although the term unilateral contract has not been defined anywhere in the Indian Contract Act, 1872, the concept of unilateral contracts has been functional universally, not just across the nation but across the world at large. The Hon’ble Supreme Court of India has defined the concept of unilateral contracts in the case of Alka Bose vs. Paramatma Devi and Ors. (2008) in the following words: “A unilateral contract refers to a gratuitous promise where only one party makes a promise without any return promise.”

Further, several academicians have defined the concept of unilateral contract in their own words based on their understanding. The renowned British jurist CJ Hamson describes the concept of unilateral contracts as “an act done at the request of the offeror in response to his promise is a consideration, and consideration in its essence is nothing else but the response to such a request.” As per Professor Melvin Eisenberg, “An offer which calls for acceptance by the performance of an act is known as an offer for a unilateral contract.”

The following examples of unilateral contracts are provided below for a better understanding of the concept:

Example 1: Anand puts up a poster looking for his lost Labrador retriever dog around his colony, in which he offers a reward of Rs. 5,000 for anyone who locates the dog and brings it to him. In this case, Anand has put up a unilateral offer. Such an offer will only become a unilateral contract when someone finds his dog and brings it to him. Only after the condition is met will Anand, on his part, be obligated to pay the amount of money promised by him.

Example 2: A poster attached to the walls of a police station has a picture of a most wanted terrorist who has recently absconded from police custody. In the poster, the police station further promises a sum of Rs. 100,000 as a reward to the person who gives any credible information about the criminal’s location, which is then proved to be accurate upon investigation. The unilateral offer shall only become a contractual obligation if two conditions are met simultaneously, that is firstly, information has to be provided regarding his location, and secondly, such a location must be proved to be accurate upon investigation by the police.

Example 3: A company announces on their social media page a logo design competition where they are calling for graphic designers around the nation to design a logo for their brand. Upon submission, the best logo shall be selected as the brand logo and the designer shall be rewarded with a sum of Rs. 25000. The above example shall be a unilateral contract as opposed to the following one, where instead, if the company had contracted a designer personally, set a deadline for the work, conditions not to disclose it and paid some money in advance to him, it would have been a bilateral contract instead.

The parties to a unilateral contract are the same as its bilateral counterpart, which consists of a promisor and a promisee, also known as an offeror and an offeree. In the case of a unilateral contract, the promisor himself undertakes the obligation of providing an incentive, which shall be granted upon the completion of the task. The promisee, on the other hand, shall voluntarily start performing the obligation at his discretion, after the completion of which he shall be entitled to claim the incentive as promised by the promisor.

A unilateral contract is an executory contract, which is a contract where the obligations have not been performed yet by either of the parties and are scheduled to be performed in the future. However, these types of contracts are concerned with the fulfilment of the task as opposed to the promise to fulfil the task at a predetermined future date by a particular person. In the case of a unilateral contract, the performance can be done by the promisee at any time at his convenience and can be carried out by any person who undertakes to carry out such a performance, given that he is eligible to do so as per the promisor’s conditions. The only determinant is the fulfilment of the task, which shall then entitle the person to claim the reward from the promisor. In the case of a unilateral contract, the parties exchange a promise for an act instead of exchanging a promise for another promise to carry out an act.

One of the most landmark cases that laid the groundwork for the enforcement of unilateral contracts was Carlill vs. Carbolic Smoke Ball Company (1893). In this case, the Carbolic Smoke Ball company manufactured a product called Carbolic Smoke Ball that, as per their claims, could cure influenza. The company, in their advertisement for the product, apart from their grand claims and promises, also claimed that in case the product failed to cure the flu of any of its consumers, such a consumer would be given a reward of £100, which was a substantial amount back in the day. The English Court of Appeals held that the claim made by the company in the advertisement was a unilateral promise that became a binding unilateral contract when the medicine failed to cure a consumer’s influenza, and thus, the company owed the person the sum that was promised in the advertisement.

The promisee cannot claim the rewards unless the obligation to be performed by him has not been carried out yet. In the case of Masum Ali and Ors. vs. Abdul Aziz and Ors. (1914), the defendant had promised the plaintiff a sum of Rs. 500 to rebuild a mosque. However, later on, when the defendant failed to pay the promised sum of money, the plaintiff claimed the money in court. The Allahabad High Court held that the promise of the defendant was not enforceable as no work for the reconstruction of the mosque had started yet; thus, the defendant was held not liable to pay the money as the conditions of the formation of unilateral contracts were not met.

Also, a promise to contribute money to a charitable institution cannot be held to be a unilateral contract. In the case of Jamuna Das vs. Ram Kumar Ji and Ors. (1937), the defendant had promised a charitable society to pay an amount of money that was proportional to the price of the goods imported by him. When the money was claimed in court, the Patna High Court held that such a promise was unenforceable and could not be held to be a unilateral contract because of the lack of any form of consideration in the agreement.

There are broadly two types of unilateral contracts and those are:

  1. Open requests: This is a type of unilateral contract that allows the offeror to make broad and optional requests and when certain specifications are met, the payment is made.
  2. Insurance: Insurance is also a kind of unilateral contract because, in such contracts, payment is made only after certain requirements are fulfilled.

The term contingent contract is used to denote a type of contract whose fulfilment is based on a contingency, i.e., possible circumstances or incidents that may occur in the future but cannot be predicted with absolute certainty. Unlike the term unilateral contract, the definition of contingent contracts has been provided in the Indian Contract Act in Section 30, which lays down that “a contingent contract is a contract to do or not to do something if some event, collateral to such a contract, does or does not happen.”

There are some inherent similarities between unilateral contracts and contingent contracts, which can often make it confusing to differentiate between the two, some of which include:

  • In both unilateral and contingent contracts, the promise is made unilaterally by one party.
  • In both unilateral and contingent contracts, the formation of the contractual obligations on the part of the promisor takes place in the future.
  • In both unilateral and contingent contracts, enforcement of the contractual obligation on the part of the promisor is at the option of the promisee.
  • In both cases, the promisee is not bound by any compulsion to carry out the future obligation as enforced by the contract.

Despite these stark similarities between contingent and unilateral contracts, both terms should not be confused with each other, as there are some fundamental differences between them in the very essence of their subject matter, some of which include:

  • The consideration in a contingent contract is based on a contingency, i.e., an uncertain event that has a chance of occurring in the future, whereas in the case of unilateral contracts, the condition to be fulfilled may or may not be uncertain.
  • The consideration in a contingent contract is based upon the occurrence of an event, as the condition to be fulfilled in case of a unilateral contract may or may not be based upon a future event but on a service that is to be rendered or a condition that is to be fulfilled.

Thus, based on the above discussion, we can conclude that all contingent contracts are unilateral contracts but not all unilateral contracts are contingent contracts; the unilateral contract is the genus, while a contingent contract is one of its species. Both instances will be explained in the examples given below.

Example: A contract of motor vehicle insurance that is payable by the promisor upon a motor vehicle accident suffered by the promisee is an example of a unilateral contract, which is also a contingent contract. This is contingent because the instances of a motor vehicle accident are a possibility that cannot be predicted with reasonable certainty for an individual. Additionally, the conditions for the formation of a unilateral contract can only be fulfilled in the future and are exercisable at the wish of the promisee, which also makes it a unilateral contract.

Example: Anand orders food from a restaurant in his neighbourhood and promises to pay the price of the food after it is delivered to his place. In this example, the contract is unilateral because the offer is made unilaterally by Anand, the obligation of the delivery man is to be fulfilled in the future and the delivery man is only entitled to the money after the delivery of the food. However, this is not a contingent contract because it is not an uncertain event and the delivery of food from a restaurant located in the neighbourhood is quite reasonably predictable.

Performance of consideration and acceptance

In a unilateral contract, the conditions that are meant to be fulfilled by the promisee happen to be the consideration of the contract, whereas the reward that the promisee is entitled to claim upon the fulfilment of such conditions is the reciprocal promise of the contract.

Unlike in the case of a bilateral contract, where both parties reach a consensus concerning the reciprocal promise and the consideration of the contract. In the case of its unilateral counterpart, both of them are determined by the promisor. If the promisee agrees to such conditions, then acceptance on his part is conveyed in the form of action and not words.

In the case of a unilateral contract, the act of fulfilling the consideration simultaneously amounts to the acceptance and performance of the promise at the end of the promisee. Unlike in the case of bilateral contracts, there is no predetermined agreement for the future fulfilment of the obligations but the fulfilment of the obligation itself makes the agreement binding.

Obligations of the performer

The person who undertakes to fulfil the task in the unilateral agreement does not have the same obligations as compared to its bilateral counterpart. Since both the offer and reward were made unilaterally, no binding contractual obligations existed before the task mentioned was completed by the performer. Only after the fulfilment of the obligations does the performer become a promisee, because before that, no contractual obligation exists on the part of the promisor either.

The performer is neither obligated to fulfil the task nor is he obligated to complete the task if he has started performing it and even if he stops the work midway, there is no legal remedy to force the person to complete the task because the contract comes into vogue only after the fulfilment of the task. The performer is also not obligated to claim or accept the incentive that he has been offered for carrying out such a work, even if he has completed such a work on his part.

Since a unilateral offer is made unilaterally by the promisee, it might be presumed by many that it will be unilaterally revocable by the promisee as well, but that is not always the case. The factor that shall determine whether the offer is revocable shall depend upon whether the performer has already started performing such a task: if not, then the offer can be revoked, but if yes, then the offer cannot be revoked without the consent of the performer.

There is a balance that the court needs to strike between the two parties in such a case because if the promisor can freely revoke the promise unilaterally, then he shall be armed with the ability to frustrate the performer at his pleasure. Whereas, if the offer is made to be irrevocable once the performance has been started on the part of the performer, then the promisor shall be bound by his promise irrespective of whether the performer has stopped performing such an obligation.

In the case of Errington vs. Errington and Woods (1951), the father, who was the owner of the house in which his son and daughter-in-law resided, promised the couple that if they would pay off the mortgage on the house that was due, then the ownership of the house would transfer to them. However, after the couple started paying off the mortgage in installments, he expressed his desire to revoke the offer. The Court, however, held the father’s offer to be a unilateral contract and the payment of the installments by the couple was considered the commencement of the obligation on their part; hence, it was held that the offer shall not be revocable.

However, keeping in mind the interests of the promisor, it was also held in the case of Morrison Steamship Co. Ltd. vs. Crown (1924) that the mere commencement of the performance does not transform the unilateral contract into a binding unilateral agreement to the extent that the promisor is bound to stay with his promise. The restriction only applies to the revocation of the offer. As per Professor Melvin Eisenberg, even if the communication of acceptance is made to the promisor by the promisee, the offer stands to be revocable until and unless the performance of the task has been started.

In conclusion, we can propound that a unilateral contract is a type of executory contract in which the offer becomes a contractual obligation after the fulfilment of the consideration by the promisee. In such a contract, the promisee unilaterally puts forward the proposal and determines the consideration and reward that are receivable by the promisor and such an offer is revocable until the performer has started to perform the act. The performer is neither liable to perform the act nor to complete it, however. He can only claim the reward after the work has been completed. 

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