Key Differences Between Unilateral and Bilateral Contracts

Why This Matters

Understanding the distinction between unilateral and bilateral contracts is foundational to nearly every contracts question you'll encounter. This isn't just academic categorization—it determines when a contract forms, how acceptance works, when revocation is permitted, and what triggers each party's obligations. These concepts appear repeatedly in multiple-choice questions testing offer and acceptance rules, and they're essential for FRQ scenarios involving revocation timing or breach analysis.

You're being tested on your ability to recognize formation mechanics, acceptance methods, and revocation rules—not just definitions. When you see a fact pattern involving a reward poster, a contest, or someone beginning performance on a task, you need to immediately identify the contract type and apply the correct legal rules. Don't just memorize that "unilateral = act, bilateral = promise"—know why the timing of acceptance and revocation differs and how courts protect offerees who begin performance.

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Formation and Structure

The fundamental distinction between these contract types lies in what constitutes acceptance and when binding obligations arise. This structural difference cascades into every other rule.

Unilateral Contract Structure

• One promise exchanged for one act—the offeror makes a promise, but the offeree makes no promise in return; only performance creates obligation
• Acceptance through conduct only—no verbal or written acceptance is valid; the offeree must complete the requested act to accept
• Single obligor—only the offeror is bound once performance occurs; the offeree never promises anything and can abandon the task at any time

Bilateral Contract Structure

• Mutual promises create mutual obligations—both parties commit to future performance the moment promises are exchanged
• Acceptance through promise—the offeree accepts by promising to perform, not by actually performing
• Both parties bound immediately—once acceptance occurs, each party can sue the other for breach if they fail to perform

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Acceptance Rules

The method and timing of acceptance is one of the most heavily tested distinctions. How acceptance occurs determines when legal obligations attach.

Acceptance in Unilateral Contracts

• Performance is the only valid acceptance—saying "I'll do it" creates no contract; only completing the act does
• Offeree must know of the offer—performance by someone unaware of a reward offer typically doesn't constitute acceptance
• Completion required—partial performance generally doesn't create an enforceable contract, though it may trigger protection against revocation

Acceptance in Bilateral Contracts

• Promise constitutes acceptance—the offeree need only communicate agreement to the offer's terms
• Multiple communication methods valid—acceptance can be verbal, written, or through conduct that clearly manifests assent
• Mailbox rule applies—acceptance is generally effective upon dispatch, not receipt, creating the contract before the offeror knows of acceptance

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Revocation Rules

Revocation rules differ dramatically between contract types, and this is where exam questions often set traps. The key variable is whether performance has begun.

Revocation in Unilateral Contracts

• Revocable before performance begins—the offeror can withdraw the offer anytime before the offeree starts the requested act
• Irrevocable once performance starts—under modern law, beginning substantial performance creates an option contract protecting the offeree
• Communication required—revocation must reach the offeree (or be published comparably to the offer) to be effective

Revocation in Bilateral Contracts

• Revocable only before acceptance—once the offeree promises to perform, the offer cannot be withdrawn
• Acceptance cuts off revocation power—even if the offeror's revocation is "in the mail," an earlier acceptance creates a binding contract
• Post-acceptance "revocation" is breach—attempting to withdraw after acceptance doesn't void the contract; it creates liability

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Performance and Enforcement

Once a contract exists, the rules governing performance obligations and enforcement remedies apply similarly, but the trigger for those obligations differs.

Performance in Unilateral Contracts

• Offeror's duty triggered by completion—the promise becomes enforceable only when the offeree fully performs the requested act
• Substantial performance doctrine limited—because acceptance requires the specific act, partial or imperfect performance may not suffice
• Common examples include rewards, contests, and insurance—the offeror pays only if the condition (finding the item, winning, suffering a loss) occurs

Performance in Bilateral Contracts

• Both parties owe duties immediately—upon formation, each party must perform as promised or face breach liability
• Order of performance matters—contracts often specify who performs first, and failure to perform can excuse the other party's duty
• Most commercial contracts are bilateral—sales agreements, employment contracts, and leases all involve mutual promises

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Enforceability Considerations

Both contract types require the standard elements of enforceability, but how courts analyze formation differs based on the acceptance mechanism.

Enforceability of Unilateral Contracts

• Clear offer required—the offer must unambiguously invite acceptance by performance rather than by promise
• Awareness doctrine—the offeree generally must know of the offer before performing to claim enforcement
• Detrimental reliance may help—even without full performance, courts sometimes enforce based on reasonable reliance on the offer

Enforceability of Bilateral Contracts

• Mutual assent essential—both parties must manifest agreement to the same terms (meeting of the minds)
• Consideration flows both ways—each promise serves as consideration for the other, satisfying the bargain requirement
• Standard remedies available—breach allows the non-breaching party to seek damages, specific performance, or other appropriate relief

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Quick Reference Table

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Self-Check Questions

1. A homeowner posts a sign offering $500 to anyone who returns her lost dog. A neighbor sees the sign and spends three days searching. On day two, the homeowner removes the sign. Can the neighbor enforce the reward if she finds the dog on day three? What rule applies?

2. Compare how acceptance works in a reward scenario versus a standard sales contract. What must each offeree do to create a binding agreement?

3. An employer offers a job to a candidate, who says "I accept" over the phone. The next morning, before the candidate shows up for work, the employer calls to revoke the offer. Is the revocation effective? Would the analysis change if the employer had instead offered a $5,000 signing bonus "if you complete your first month"?

4. Why did courts develop the rule that beginning performance on a unilateral contract creates an option? What problem does this solve?

5. Identify which contract type applies to each scenario and explain why: (a) a contest promising $10,000 to whoever designs the best logo; (b) a contract where a graphic designer agrees to create a logo for $10,000; (c) a life insurance policy.