What is a Unilateral Contract?

A unilateral contract is a one-sided agreement where the offeror promises payment only after the offeree completes a task. In this arrangement, only the offeror has a contractual obligation. Unlike bilateral contracts, where both parties are bound by mutual agreement, unilateral contracts involve obligations solely on the offeror.

Key points:

• Unilateral contracts are one-sided, with only the offeror obligated.
• Offerees are not required to perform the task or act.
• These contracts are often used for optional offers.
• Bilateral contracts require mutual obligations from both parties.

Understanding Unilateral Contracts

A unilateral contract arises when an offeror makes an offer requiring the offeree to perform a specific act. The offeree isn’t obligated to act, and the offeror pays only if the act is completed. These contracts are enforceable under contract law, though legal action is rare unless the offeree claims entitlement to payment. Breach of contract depends on the clarity of terms and proof of the offeree’s eligibility for payment based on the contract’s provisions.

Types of Unilateral Contracts

Unilateral contracts are typically one-sided, placing no obligation on the offeree. Common examples include open offers and insurance policies.

Open Offers

Offerors often use unilateral contracts for broad, optional requests, only committing to pay if specific conditions are met. For instance, a reward offer for information leading to a criminal conviction is a unilateral contract, where payment is contingent upon fulfilling the specific purpose of the request. Payment may go to one or more individuals who provide useful information.

Similarly, a task-based offer is another type of unilateral contract. For instance, if someone offers to pay for dog walking or house cleaning, payment is only due once the task is completed.

Insurance Contracts

Insurance policies share characteristics with unilateral contracts. The insurer promises to pay a benefit if specific conditions, outlined in the policy, are met. Here, the insured party maintains coverage by paying a premium, and the insurer is only obligated to pay out if a qualifying event occurs.

Essential Elements

There are four key parts to ensure unilateral contracts are legally binding, and a court in Australia will scrutinise all lines for compliance with relevant laws.

• Agreement – The offeror must make a clear offer that the offeree is free to accept without any coercion.
• Consideration – Refers to something of value exchanged, but it doesn’t necessarily mean using cash. This value is mutually agreed upon as acceptable compensation.
• Intention – Both sides agreed to draft a binding contract and formally understand the terms.
• Certainty – Both sides should clearly define the terms of the entire contract, including all possible triggers to complete the contract or to set up escape clauses.

Unilateral Contracts vs. Bilateral Contracts

Contracts can be either unilateral or bilateral, each involving different obligations. In a unilateral contract, the offeror is solely bound by a promise, and the offeree will have the power to accept or refuse. In contrast, a bilateral contract involves reciprocal obligations, where both parties are committed to performing specified actions. The primary difference lies in the mutuality of obligations, with bilateral contracts binding both parties, whereas unilateral contracts place the onus solely on the offeror.

Mobil Oil V Wellcome

To illustrate the value of having a unilateral contract with clearly set terms, let’s take a look at the 1998 Federal Court of Australia ruling concerning Mobil Oil Australia and former franchisee Wellcome International Pty Ltd.

Background 

In 1991, Mobil Oil Australia GM for retail marketing Ken Stumbles offered a “nine for six” rewards programme to Australian franchisees, wherein if their branches consistently scored at least 90 per cent in Circle of Excellence performance evaluations for the entire duration of their franchise deal lasting six straight years, they will receive a host of incentives including their franchise contracts being extended nine more years at no additional cost. To sign on, the franchisees were sent a brochure with a return slip indicating they will accept the challenge.     

Wellcome International asserted it had met the criteria with its branches submitting return slips and sought to claim the promised reward, citing section 52 of the Trade Practices Act 1974. Mobil Oil, however, revoked the offer in 1994 and only offered discounted renewal fees for Wellcome franchisees that scored at least 90 per cent in 1992 and 1993.

Mr Stumbles’ promise of a free renewal was also dismissed in 1995 and the Circle of Excellence evaluations were also scrapped. Both incidents triggered the filing of a case that year where Wellcome was one of five franchisees that sued Mobil hoping they will honour the challenge terms as they did rate above 90 per cent (NG 841-1995).

The court originally favoured Wellcome and two other franchisees and ordered Mobil Oil to issue the extended franchises, but Mobil Oil filed an appeal in April 1997 (NG 366-1997). Regarding Wellcome, the company sought a review on factors such as whether the presiding judge showed ostensible bias by overlooking some elements that would not have engaged promissory estoppel, or being shown proof that Mobil did not have a firm contract on acceptance of performance. 

Court Ruling

The Federal Court ultimately ruled in favour of Mobil Oil in April 1998, stating Mobil had not entered into a binding unilateral contract with Wellcome International Pty Ltd. The court found the following.

No Clear, Binding Promise

The court held that Mobil’s franchise offer did not constitute a clear and unequivocal promise that could be enforced. The promotional material and incentives were deemed to be too vague and lacked the specific elements required to form a unilateral contract.

No Obligation to Perform

The court noted that Mobil’s incentive programme was simply an encouragement for franchisees to participate, not an enforceable promise that obligated Mobil to reward performance.

Unenforceable Incentives

The incentives were viewed as statements of intention rather than legally binding promises. Since Mobil’s offer lacked clarity regarding the exact terms of reward, it was considered an unenforceable incentive rather than a contractual obligation.

Implications for Unilateral Contracts

The Mobil Oil v Wellcome decision illustrates the high standard of compliance required in unilateral contracts. It demonstrates that, while unilateral contracts can be binding, the promisee’s entitlement to benefits hinges on their ability to fully and precisely meet the promisor’s stipulated conditions.

Conclusion

Unilateral contracts offer a unique method for creating binding agreements that depend on performance rather than mutual promises. However, as seen in the Mobil Oil v Wellcome case, their enforceability hinges on strict compliance with clear terms. The decision underscores the importance of setting precise conditions in unilateral contracts and demonstrates that courts expect promises to adhere rigorously to these requirements.

DISCLAIMER: This article is for informational purposes only and does not constitute official legal advice. The analysis of the above case was done to the best of the author’s understanding of the facts presented. BARTERCARD has no business interests in any company mentioned. Please consult your corporate counsel.