Unilateral Contracts Should Not Be Considered Enforceable

Some scholars believe that since unilateral contracts do not involve a bargain between the offeror and acceptor, they should not be considered as enforceable contracts. Do you agree? How would the interest of parties be affected if unilateral contracts were not recognized? Discuss

What Is A Contract? And how is it formed?

Contracts are legally binding agreements. Attorneys often use the terms “contract” and “agreement” interchangeably, but not just any agreement is a legally binding contract. [1]

A contract is formed by a meeting of the minds of at least two parties, a mutual assent resulting from the expression of an offer by one and an acceptance of precisely that offer by the other. [2]

The offer has no effect if the other person does not accept it. A mere discussion of the offer does not constitute acceptance. Negotiation often leads people to believe that they can expect other people to commit themselves to certain things, but until there has been an actual offer and a clear acceptance, there has not been the necessary “meeting of minds” to form a contract. [3]

Introduction to a Unilateral Contract

A Unilateral contract is an agreement to pay in exchange for performance, if the potential performer chooses to act. A “unilateral” contract is distinguished from a “bilateral” contract, which is an exchange of one promise for another. [4]

Example of a unilateral contract: “I will pay you $1,000 if you bring my car from Cleveland to San Francisco.” Bringing the car is acceptance. The difference is normally only of academic interest.

Bilateral and Unilateral Contracts

An offer plus an acceptance equals a contract.

In effect, the offeror (person making an offer) is making a promise to do something or to refrain from doing something IF the other person (offeree) will do something or refrain from doing something.

“A little thought shows that an offer may be accepted either by a promise or by action. Where the terms of an offer permit, the contract is created by a promise in exchange for the offeror’s problem. It is called a bilateral contract, and both parties are bound as soon as the mutual promises are exchanged” [5]

“For example, if A says “I’ll sell you my car for 4 lacks.” B can accept by promising, “Okay, I’ll buy your car for 4 lacks.” The contract for sale is immediately formed, and both parties are bound to perform as mutually promised.” [6]

Now taking the example stated above, nobody mentioned when the actual exchange of car and money would take place. If, having exchanged a promise for a promise, the buyer for days keeps putting off producing the money, the seller (regretting that it didn’t occur to him to put a time limit on the transaction) will at some point become justified in deciding that the buyer has broken the agreement and that he (the seller) can sell the car to someone else. If the disappointed buyer sues the seller, the courts will probably solve the problem with two of their favorite words: “reasonable” and “imply”. The courts will most likely say that because there was no mention of time, that a “reasonable” time was implied by the contract, and that the seller was justified in selling the car to someone else after a week. In other situations a judge might say that failure to mention time omitted an essential term from a contract, and that the contract lacks specificity to the point that it is unenforceable…meaning that the disappointed party just has to lump it. [7]

A contract formed by a promise for a promise is a bilateral contract. A unilateral contract is one in which the offer cannot be accepted by a promise–only by action.

Where the terms of an offer show that it can be accepted only by an action–“I’ll pay you $200 if you’ll paint my barn by Tuesday”–then there is no contract until the act has been performed.

“Notice that the offer did NOT say, “I’ll pay you 20 K if you’ll promise to paint my barn by Tuesday.” A promise to paint the barn is not an acceptance and does not bind either party to anything. Only by the complete painting of the barn is the contract formed and the 20 K owed. And if the offeror comes when the barn is almost painted and says, “Sorry, I withdraw my offer,” there is no contract. The painter can, however, recover the value of his work under the doctrine of quasi-contract (see below), to prevent the unjust enrichment of the offeror.” [8]

The difference between unilateral and bilateral contracts may seem academic and difficult, but it does have practical consequences.

How is a Unilateral Contract Enforceable?

Any agreement* that creates a legal obligation is an enforceable contract

Agreement – A mutual understanding between two or more legally competent individuals or entities about their rights and duties regarding their past or future performances and consideration. While an agreement usually leads to a contract, it could also be an executed sale, a gift or other transfer of property, or a promise without a legal obligation. [9]

Elements of a contract are –

Offer and acceptance [10]

Mutual Assent – Traditionally, mutual assent has been described as a “meeting of the minds. “This means that the parties involved in a contract must come to an agreement about the particulars of the transaction. Mutual assent is demonstrated by “offer” and “acceptance.”

Consideration [11] – Consideration must also be present for a legal contract to be formed. The essence of consideration is that a party receives some kind of benefit in return for his promise. Consideration may consist of money, goods, or a promise to-do or not do something. Eg. The statement “I’ll give you my guitar” is not a contract because the giver would receive no specified consideration in return. When the mutual assent of legally capable parties<–which includes an offer and an acceptance, accompanied by consideration<–to a specific exchange or set of promises occur, a valid contract has been formed.

Capacity [12] – Fundamentally, two or more parties enter into a contract. A “party” may be an individual, a group of people, or even an “artificial person” such as a corporation. The parties to a contract must have the legal capacity to enter into that contract. Persons who are deemed incompetent due to physical or mental illness lack capacity to enter into contracts. Minors, who in most states refer to persons under the age of 18, may enter into contracts. However, any contract involving a minor is voidable. When a contract involving a minor goes unfulfilled it may be affirmed or disaffirmed when the minor reaches maturity, or legally becomes an adult. Parties to a contract also must have the legal right to do what the contract promises; for example, one cannot sell what one does not own.

Comparing Unilateral offers with the basic element of a contract that is offer and acceptance we get that unilateral offer invites acceptance , shows, that the offerer has an intention to create legal obligation and it is generally specific and clear in its term and conditions which makes it a valid offer.

As per the provisions in Indian Contract Act, under Section 8 we find that there is a scope to interpret unilateral offers and Section 8 gives the basics and ways of accepting the offers if there is a meeting of minds that is, the acceptor also wants to create a legal obligation

Unilateral offer favors the promisor as he earns a lot of profit and it favors the acceptor because he can buy the goods which are available in the market for sale

So, unilateral offer also has the basic element of consideration present in it.

Role of Bargain in a Unilateral Contract

Generally many scholars argue that bargain is not possible in a unilateral contract , and hence the offereor is in a better position than the acceptor , therefore it can’t be an enforceable contract but , I would disagree because in a unilateral contract there is still a meeting of minds as the acceptor only accepts the offer when he does not object to the terms and conditions laid down by the offeror and there is no compulsion that the acceptor goes into a contract with the offereor if he does not agree with the terms and conditions , hence even when there is no bargain there could still be a meeting of minds to form a contract which is legally enforceable

Discussing Carlill VS Carbolic Smoke Ball Company [13]

Facts

Carbolic Smoke Ball Co. (D) manufactured and sold The Carbolic Smoke Ball. The company placed ads in various newspapers offering a reward of 100 pounds to any person who used the smoke ball three times per day as directed and contracted influenza, colds, or any other disease. After seeing the ad Carlill (P) purchased a ball and used it as directed. Carlill contracted influenza and made a claim for the reward. Carbolic Smoke Ball refused to pay and Carlill sued for damages arising from breach of contract. Judgment for 100 pounds was entered for Carlill and Carbolic Smoke Ball appealed.

Issue

• Does, one who makes a unilateral offer for sale of goods through an advertisement; impliedly waive the notification of acceptance, given his purpose is to sell as many products as possible?

Holding and Rule (Lindley)

• Yes. One who makes a unilateral offer for the sale of goods by means of an advertisement; impliedly waives off the notification of acceptance, when his purpose is to sell as many products as possible.

The court held that any person who makes an offer can decline the requirement for a notice of acceptance, when he wishes thus. One, who makes an offer, dispenses the requirement of a notice of acceptance, if the form of the offer shows that a notice of acceptance is not required. To accept an offer, a person only needs follow the indicated method of acceptance. If the offeror, either expressly or impliedly intimates in his offer that it will be sufficient to act without giving notice of acceptance, performance is sufficient.

The court held that an advertisement is considered to be an offer when it specifies the quantity of persons who are eligible to accept its terms. If such an advertisement requires performance, the offeree is not required to give a notice of performance.

The court addressed the issue of whether the advertisement was intended to be a promise or whether it was merely “puffing”. The court pointed to Carbolic Smoke Ball’s claim in the advertisement that it had deposited 1000 pounds with Alliance Bank, which the court decided was intended to demonstrate the company’s sincerity in paying the reward.

Conclusion

Unilateral contracts are an essential part of the contract law, and it is legally enforceable as it fulfills all the basic criteria of contract law, as well as involves meeting of minds. The unilateral contracts seem to be most useful during commercial use- selling products like vaccines that promise prevention of diseases for instance, are specially benifitted by the legality of unilateral contracts. It makes transactions smooth, easy and efficient. Not only does the proposer benefit, but the acceptor is also benefitted, as he can simply act out his acceptance. The intricacies of communication of acceptance fall apart.

Alongside lays the fact that unilateral contracts are accepted in almost all countries with contract law. This shows the universal acceptance the contract receives. Hence the absence of these contracts would adversely affect all sections of society. The commercial units will suffer losses and the consumers will have to work just to obtain market goods, or facilities. Thus unilateral contracts are an essential part of contract law.