Sid DeLong on the Ubiquity of Unilateral Contracts

The Ubiquity of Unilateral Contracts
Sidney W. DeLong

Some of the most memorable moments of a course in Contracts concern unilateral contracts, where climbers of flagpoles and crossers of the Brooklyn Bridge perform a sideshow in the circus of contract law. The colorful facts assure that students will remember unilateral contracts as strange outliers consigned to what Karl Lewellyn (right) called the “freak tent” of contract law. This view is sometimes shared by modern contracts scholars, who resist the notion that a contract may unfairly bind only one of the parties. The drafters of the Second Restatement seem to have patched up the doctrinal anomalies in §§ 45 and 62 in ways that convert unilateral contracts to bilateral ones to protect both of the parties as soon as possible from the risks of untimely revocation.

Briefly stated, the Restatement’s fixes did two things: they prevented the offeror from a surprise revocation of the offer by giving the offeree an option until it could complete the performance (§ 45), and they bound the offeree by construing the commencement of performance, whenever possible, as a return promise sought by the offeror and immediately binding both parties (§ 62 (2) (Commencement of performance operates as a promise to render complete performance)). U.C.C. § 2-206 (1) (b) operates similarly (shipment in response to an order seeking prompt delivery is a promise to fulfill the order.).

The fixes may not be altogether satisfactory, however, for the usual reason that they do not match the equities in all possible cases. Thus, while the flagpole climber may now enforce the offer as an option contract once he starts up the pole, nevertheless if the offeror is deemed to be ambiguous about what constitutes acceptance, the offeror may hold the climber liable for breach if he fails to make it to the top because he will be “deemed” to have promised his performance by starting up.

Perhaps embarrassed by its anomalies, the Second Restatement of Contracts formally abandoned the use of the categories “unilateral” and “bilateral.” Reporter’s Comment § 1. But abolishing a word does not abolish a concept. We continue to encounter one-sided contracts in which only one party ever owes a duty to the other and only the other party ever has an enforceable right to performance. So, begging the post-mortem pardon of Karl Llewellyn and the drafters of the second Restatement, we continue to use “unilateral contract” to refer to any contract in which only one party ever makes a promise or has an enforceable duty of performance, usually made enforceable by some action of the other party which supplies the necessary consideration or consideration substitute.

  Nevertheless, because of their marginal position in Contracts casebooks, many Contracts professors continue to think of unilateral contracts as the exception to the rule in comparison with their more symmetrical bilateral cousins. This is a mistake. In the real world, unilateral contracts are the rule and bilateral contracts are the exception. Indeed, unilateral contracts are so commonplace that we don’t even recognize them. For example:

Every sale of goods or services on credit that is not preceded by a contract of sale made by the seller is a unilateral contract in which only the buyer has a duty of performance.

Every loan of money that is not preceded by a lender commitment creates a unilateral contract in which only the debtor has a duty of performance.

Every insurance contract in which the policyholder is never legally obligated to pay the premium is a unilateral contract in which only the insurer incurs legally enforceable duties.

Every contract of guaranty in which the lender is not under a contractual obligation to extend the guaranteed credit is a unilateral contract in which only the guarantor has enforceable duties.

Every promissory note or other instrument creates a unilateral contract in which only the maker or drawer has any legal obligations.

Every obligation to pay a credit card debt is a unilateral contract in which only the card-holder ever has an obligation owed to the other party.

Work done under every at-will employment agreement creates a unilateral contract in which the employee is never under an enforceable duty to show up for work and only the employer owes a duty of performance (payment of wages) for work already completed.

Most family bait promises, such as William Story’s promise of money for his nephew’s avoidance of vice until his 21^st birthday, are unilateral promises in substance if not in form. Bilateral family contracts have no value to the benefactors if they cannot be enforced against minors or judgment proof family members. They are better understood as reward promises that induce performance by carrots rather than sticks.

Finally, because promises enforceable under the principle of promissory estoppel described in Restatement (Second) of Contracts § 90 are “contracts,” then they are all unilateral contracts, since only one party promises and the other party merely relies.

  Only one of the two parties to such non-simultaneous exchanges is ever under a contractual duty and only the other one has a right of enforcement. Nor are unilateral contracts unique to modern commerce. Historically, unilateral contracts came first and were far more frequent than bilateral ones. Long before the recognition of bilateral contracts in actions of special assumpsit, the common counts in general assumpsit alleged unilateral contracts. The allegations in a claim for quantum meruit or quantum valebant were that plaintiff had furnished goods or services at the defendant’s request before he promised to pay for them.  There was no allegation that plaintiff was ever under a contractual duty to do so. The defendant was under a duty of payment only after the benefits had been furnished.

Professor Farnsworth, the Reporter for the Second Restatement, noted that the notion of unilateral contracts created confusion. Indeed, there comes a time in most bilateral contracts in which the exchange is half-completed. One party has performed and has no remaining duties, and only the other party has any remaining obligation. But that of course is not a unilateral contract. None of the contracts listed above represents a half-completed bilateral contract.

Remember that the test of a legal duty, the test of whether a contract is bilateral or unilateral, is whether it is legally enforceable. Thus, for example, to say that each party to an employment at will contract owes the other incidental legal duties of good faith, etc., does not establish that the contract is bilateral. The employee’s good faith performance may condition her right to wages, for example, but if the employer cannot sue her for bad faith performance, it is not a contract duty.

The reason that the reward cases seem rare is not that they are unilateral but that their formation may not exhibit the expressions of mutual assent that characterize other consensual unilateral contracts like credit sales.  Unilateral contracts also differ in the sequences of promise and performance. In some the offer precedes the performance to be followed by performance of the unilateral duty (reward cases). In others, the consideration is provided along with the offer, to be followed by performance of the unilateral duty (credit sale and loan cases.) The offer may come either from the promisor (as in the reward cases) or the promisee (as in the credit sale cases, in which the buyer is always deemed to be the offeror). There is also great variation in the length of time between the offer or promise, and the completion of the act that makes the promise enforceable.

Indeed, some of the transactions referred to by the Restatement as “reverse unilateral contract” create “contracts” in which neither party makes a promise or owes a duty to the other:

A owes B $1000, and B is in possession of A’s cow as security for the debt. B says, “If you give me your cow, you may consider the debt discharged.” Whether or not A accepts the offer, this arrangement creates no duties on either A or B. If B gives A the cow, the debt is ipso facto discharged. At no time is either party under a duty to act or refrain from acting. They have simply agreed to change their legal relationships regarding the debt and the cow.

A transaction of this sort is not a contract as traditionally defined because there is no element of futurity in it. In that respect, it is akin to a simple sale, a transfer of title for payment of a price.

One is put in mind of Ogden Nash’s lllama: If a bilateral contract is one in which both parties have duties and a unilateral contract is one in which only one party has duties, what do you call a contract in which neither party has duties.