It Is Necessary to Enforce Unilateral Contracts?

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 effected if unilateral contracts were not recognized? Discuss.

The Indian contract Act,1872 provide us with the following definition of “contract” : “An agreement enforceable by law is a contract”. Generally, a contract is between two parties , where both parties agree to ‘do’ or ‘not to do’ something as mutually agreed by them. And what plays the most important role in contract is the concept of “ offer and acceptance”. This works as, one party makes an offer to another with provisions for a second party to accept it and with the acceptance a contract is said to be completed leaving no further room for negotiation and both parties are legally bound to perform their jobs.

Contracts are generally of two types : Bilateral Contracts and Unilateral Contracts. In this paper I will be dealing only with unilateral contracts and the various disputes as to whether they should be considered as legally enforceable or not and how their non-enforcement will effect the interests of parties? Through various cases I have tried to illustrate the negative consequences of non-enforceability of unilateral contrcats framing my arguments based on societal approach, economic theory and reliance theory of contracts. Also through these cases I have discussed the concepts of revocation of unilateral contracts and the criteria for their acceptance.

The major distinction between bilateral and unilateral contracts is that in bilateral contracts the parties are free to negotiate the terms and conditions of a contract and both parties make promises to each other while in unilateral contracts “only one party promises the other as consideration.”

1

So , basically a unilateral contract is a contract in which only one party makes an express promise, or undertakes a performance without first securing a reciprocal agreement from the other party. [2] In a unilateral or one-sided contract , one party known as the offeror makes a promise in exchange for an act(or abstention from acting) by another party, known as the offeree, if the offeree acts on the offeror’s promise , the offeror is legally obligated to fulfill the contract but an oferee cannot be forced to act(or not act), because no return promise has been made to the offeror after an offeree has performed, only one enforceable promise exists, that of the offeror. [3]

But “unilateral” does not mean one-sided in the sense that only one party has given or done something, rather it signifies that although both parties have given their consideration, only one of them has made a promise as consideration. [4] The other has furnished consideration by rendering the required exchange performance at very point of contract formation. [5] Unilateral contracts are also known as ‘if’ contracts , in that they can always be expressed in the form of one party(A) saying to the other party(B) that “ if you do act in a particular way, then I promise to do something for you”. [6] It can be more clearly illustrated by the case of Carllil v Carbolic Smoke Ball [7] in which the defendant,one of the members of smoke ball Co., placed an advertisement in a newspaper promising to pay $100 to anyone who uses Carbolic Smoke Ball for two weeks and after that contracts influenza. The plaintiff, Mrs Carllil, used it and contracted influenza so claimed for that reward. After being denied the reward, she sued the smoke Ball Co. The judgment was in favour of plaintiff. The court held that there was a contract and held that the advertisement was a promise which was an offer to the whole world, and was capable of amounting to an offer of unilateral contract.one of the arguments made by defendant was that it cannot be a contract as there was no acceptance from Mrs. Carllil then court ruled out regarding this point that in case of unilateral contract “need to communicate is impliedly waived by the performance of the act”. [8] In this case if the court’s decession would have been other way round i.e. if unilateral contracts were not enforceable as argued then there would have been no guarantee for customers like Mrs. Carllil and without which they would never buy the products. Thus, the interest of company to sell products and interest of customers to avail the newly available technology in the market both will be negatively effected. These arguments go with the main concept of “Reliance Theory “ of contracts, where one party has relied on other for some purpose then it it should be ensured that unilateral contrcats are enforced properly. This helps for better functioning of market-system in society.

Generally, the advertisements and offers to general public are unilateral contracts. This has been mentioned in Section 8 of the Indian Contract Act.

It is generally argued that advertisments cannot form unilateral contracts on the following grounds by the various scholars

• They are not offers but invitation to treat offers

• It is impossible to make offers to the whole world

• There is generally no acceptance to the offer

• They are bet or wagering contracts so they are automatically void to public policy [9]

• They are mere puff to sell the products and increase profits. [10]

But these claims appear too vague to me as there are much stronger rebuttals to these points, which prove that advertisements are unilateral contracts, and these are as follows :

• Advertisements are held to be promises which are offers to the whole world and are capable of amounting an offer to the whole world [11]

• They are offers to the whole public in general and they are designed in such a way that anyone interested can come and accept the offer by doing the required

• There need not be a specific acceptance, as the performance itself constitutes the acceptance

• They are promise instead of bets, to which the offeror becomes legally bound to perform once the other party has accepted them.

• Contracts law does’nt allow one party to benefit, both the parties should be equal and both should benefit.

There is an example, where the Pepsi Company is advertising its pepsi product and it is providing incentives to the consumers to buy their products and in return if they do collect certain number of pepsi coins then they will be given a Hariet Jet . One of their customers collects those required number of coins but then they refused to fulfill their promise. According to me the customer can sue the Pepsi Co. for breach of a unilateral contract. As they were legally bound to fulfill their promise as soon as the acceptance to their offer was completed. And according to me if the court fails to recognize such contracts then there will be great inequality in market power between the parties, commenting that “the strong cannot disregard any undertaking binding in law, however lightly given, and the weak unfortunate person, however gullible, can be sure that the Courts of this country will not permit anyone to escape the responsibility arising from an enforceable promise.” [12]

So, unilateral contracts should be legally enforceable keeping in mind the socialistic approach and this theory is generally known as “corollary theory” to the “autonomy theory” of contracts which allows them to act according to their whims.

In a unilateral contract situation an advertisement to the general public is an offer. So, an advertisement promising a reward to the person who provides infomation about a particular criminal is an offer. By contrast, generally, an advertisement issued to the general public by a seller of goods is not an offer but an invitation to treat. And one is obliged to fulfill the promise in the former case as soon as any information is provided.This concept is more clearly illustrated in case of Bowerman v Association of BritishTravel Agents Ltd. , [13] here the plaintiff had booked a school skiing holiday with a tour operator, who was a member of ABTA. After the booking, but before the holiday, the tour operator became insolvent. ABTA refunded all the money to the claimants, except a $100 insurance premium. The plaintiffs sued ABTA for $100. The court held that through the notices, displayed in the tour operator’s office, stating that ABTA will protect the public in the event of financial failure of its members, ABTA had made an offer to the public to fully refund their money, if the tour operator became insolvent. What was required of the public was to do business with the tour operator. The claimants had accepted the offer by performing what was required of them, namely doing business with the tour operator. On acceptance of an offer, a unilateral contract was formed between the claimant and ABTA. In this case Lord Justice Hob House ruled that a reasonable person would understand that the condition sof the contract will apply to to him only if he chose to do business with an ABTA member. It satisfied the criteria of a unilateral contract and contained promises which were sufficiently capable for legal enforcement. [14]

So,in Bowerman’s case, the plaintiff did his part by accepting the offer and it was mandatory for ABTA to protect the plaintiff as otherwise he would have been at an economic loss because he relied on the latter.

My analysis of this case based on the “Economic Theory” of contracts again implies that non-enforcement of unilateral contracts will put one party in an economically weak situation without it being at fault and one of the main reasons that contracts law came into force is that to equalize the positions of two parties.

The major feature of unilateral contracts is that there is only one promise. What the promisor expects from the promisee is action/fulfillment of required promise and not a new promise of acceptance. If A has lost his bag and he puts up a notice on a board stating that “I promise to give $100 to anyone who finds and returns the bag to the owner”. After this what he expects from the reader is not to read the notice and make a new promise to him that he promises A to return his book rather he expects them to read it and find the book and return it to him. And if someone finds and returns him the book then A is obliged to pay him the promised amount. But no one is obliged to find his book.

In the above examples we have seen that the unilateral contracts are generally made to public or to the whole world, like advertisements and reward offers. But there are cases when unilateral contracts are also made to single persons like a unilateral offer may be made to an individual or specific group of persons. Thus if Ram says to Shayam, “ I will pay you $20 if you wash my car tomorrow “, Ram has made a promise , the fulfillment of which is conditional on the performance of an act by B , and the contract might well be categorized as unilateral . But if B were to reply to A’s offer by saying , “O.K.” or “Yes, I will” the contract will probably not be unilateral but fall into the bilateral category.

An example of such case is Daulia v Four MilBank Nominees [15] , in this case Daulia Ltd. wanted to buy the premises on MilBank, London from Four MilBank Nominees Ltd. , who were mortgages in possession. Formal contracts were never exchanged , but Daulia argued that they did obtain a unilateral contract by the first defendants that they would enter into a written contract of sale, if they attended Four MilBank’s offices with a draft contract on terms already negotiated and a deposit. But when Daulia Ltd.’s representative attended, Four MilBank refused to exchange. Daulia Ltd. claimed the breach of unilateral contract. In the judgment Goff L.J. discussed the issue of acceptance in case of unilateral contract and he wrote “ whilst I think the true view of a unilateral contract must in general be that the offeror is entitled to require full performance of the condition which he has imposed and short of that he is not bound, that must be subject to one important qualification, which stems from the fact that there must be an implied obligation on the part of the offeror not to prevent the condition becoming satisfied, which obligation it seems to me must arise as soon as the offeree starts to perform. Until then the offeror can revoke the whole thing, but once the oferee has embarked upon performance it is too late for the offeror to revoke its offer.” [16]

This issue of revocation of unilateral offers can more easily be understood through the example where a man A promises that he will pay $200 to another man B if he takes 50 rounds of a ground, so issue will be can he revoke his offer after B has completed his 10 rounds? The answer to the question will be that in unilateral contracts an offer is believed to be accepted as soon as the performance has started and so the offeror is no longer free to revoke the offer after the performance has started. This has been stated in Section 60 of the Indian Contract Act which talks of revocation of unilateral offers.

Also this has been observed in the judgment given in famous case of Errington v Errington And Woods. [17] The facts of the case were that a father bought a house on mortgage for his son and daughter-in-law and promised them that if they paid off the mortgage, they could have the house. They began to do this but before they had finished paying, the father died. His widow claimed the house. The daughter-in-law was granted possession of the house by the trial judge and the Court of Appeal.

Denning LJ’s decision in this case was as follows: “The father’s promise was a unilateral contract – a promise of the house in return for their act of paying the instalments. It could not be revoked by him once the couple entered on performance of the act, but it would cease to bind him if they left it incomplete and unperformed, which they have not done. If that was the position during the father’s lifetime, so it must be after his death. If the daughter-in-law continues to pay all the building society instalments, the couple will be entitled to have the property transferred to them as soon as the mortgage is paid off; but if she does not do so, then the building society will claim the instalments from the father’s estate and the estate will have to pay them. I cannot think that in those circumstances the estate would be bound to transfer the house to them, any more than the father himself would have been.” [18]

So, to summarise the key concept of what is often referred to as a“unilateral contract”,we can say that one party promises to do something in return for an act by the other party , e.g. where A issues an advertisement promising a reward of $100 to anyone who will find his lost dog. The essesnce of the transaction is that only one party, A, is obliged to do anything. No one is bound to search for the lost animal, but if B, having seen the offer, finds the dog and returns it, B is entitled to the reward. As Diplock L.J. observed in United Dominions Trust (Commercial ) Ltd v Eagle Aircraft Services Ltd. [19] “ a unilateral contract of itself never gives rise to any obligation upon the promise to do or refrain from doing anything”. [20]

So from the above examples and various arguments by judges what can be construed of unilateral contracts arising out of offers to general public is that public guarantee (or promise), by means of an advertisement, is an offer to every person who is willing to accept the terms and conditions of it. Acceptance of the offer is communicated by the consumer’s actions, thus resulting in a legally enforceable and binding contract. An advertised guarantee (or promise) is a distinct communication to every member of the public and is to be understood in its plain meaning as the public would understand it. [21] It indicates the advertiser’s intent to make an offer. Any member of the public is free to accept the offeror’s terms and conditions. Therefore, any person who consequently accepts the offer of guaranteed (or promised) results and provides consideration (either by way of monies or actions) has completed the requisite elements required to create a legally enforceable contract.

And the non-enforcement of this unilateral contract will effect both the parties, economically as well as the social working of the society will be disturbed because of the absence of reliance among parties to work together.

So based on the above arguments and examples cited I stand on the point that its very necessary to enforce unilateral contracts in order to maintain social and economic order in society on which rests the whole development of the society.