Unilateral vs. Bilateral Contract Clause

A unilateral contract binds only the promisor until the other side performs the requested act, while a bilateral contract binds both parties the moment they exchange promises.

Reviewed by GC AI Solutions Team•Updated September 2026

Definition

A unilateral contract is an agreement in which one party makes a promise that the other party can accept only by rendering the requested performance, so no binding contract exists until that performance is rendered or begun. A bilateral contract is an agreement in which both parties exchange promises, and each promise is the consideration for the other. Both sides are bound when the promises are exchanged. The distinction determines when an agreement becomes enforceable, which party owes a duty at each stage, and whether an offer can still be withdrawn.

What It Does

For in-house counsel, the label matters when someone wants to revoke an offer and when a published program operates as an offer to anyone who performs. Restatement (Second) of Contracts section 32 treats a doubtful offer as inviting acceptance by promise or performance, so choose the structure deliberately.

A practical test: set the signature block aside and ask what the other side has promised. If the answer is nothing, and only an act earns your company's promise, the agreement is unilateral and revocation is the open question.

Fixes the moment of formation, which decides whether either side can still walk away without breaching.
Identifies who owes a duty, because in the unilateral structure only the offeror is bound and the offeree stays free to stop.
Sets the consideration analysis, since mutual promises supply consideration in a bilateral agreement while the requested act supplies it in a unilateral one.
Controls revocation, because Restatement (Second) of Contracts section 45 turns the offer into an option contract once the offeree begins the invited performance.
Decides whether the offeree owes notice of acceptance, which matters when the offeror has no other way to learn that performance happened.

Across recent SEC exhibits, the unilateral structure turns up mostly in documents nobody negotiates line by line: retention bonus letters, warranty grants, option agreements, and posted program terms that a person accepts by acting.

When You'll See It

Reward, bounty, and referral programs: These promise payment to anyone who performs the stated act. The offeree makes no return promise.

Product and manufacturer warranties: A seller promises repair, replacement, or refund after a defect and the buyer's required act.

Options, warrants, and standing offers: An option or warrant gives the holder a right to accept later, without a duty to exercise.

Retention, commission, and incentive letters: An employer promises payment if an employee stays or hits a target; the act earns it.

Services agreements, MSAs, supply agreements, and mutual NDAs: These are bilateral: both sides promise performance and bind themselves at signature.

Drafting varies most in public rewards, warranties, and incentive letters. When your company makes the offer, performance may create rights before anyone signs.

Compare the structures at five points:

Formation: Bilateral contracts form when promises are exchanged. Unilateral contracts form when the offeree performs; section 50 recognizes acceptance by performance.

Who is bound and when: Both sides owe duties in a bilateral contract. In a unilateral contract, only the offeror is bound until performance.

Consideration: Mutual promises supply consideration bilaterally. The requested act supplies it unilaterally.

Revocation: A unilateral offer may be revoked before performance begins. Section 45 creates an option contract once performance starts; _Petterson v. Pattberg_, 248 N.Y. 86 (1928), shows the earlier strict rule.

Notice of acceptance: A return promise gives notice in a bilateral contract. For goods, UCC 2-206(2) lets an offeror treat silence as lapse after a reasonable time.

For goods, UCC 2-206(1)(b) permits acceptance by prompt promise or shipment, so the seller's first act can determine formation.

Examples

Canopy Growth Corporation USA, LLC / Judy Hong

Retention Bonus LetterPromise conditioned on an actOne-Sided2024

"We are pleased to offer you a retention bonus of $150,000 USD (one hundred and fifty thousand dollars) subject to statutory deductions and withholdings (the "Retention Bonus"), if you remain employed by the Company between now and October 1, 2025 (the "End Date") ... In the event that you resign your employment between now and the October 1, 2025, you will not have earned the Retention Bonus and therefore will not be entitled to any portion of same."

Source

Greatbatch Ltd. / Electrochem Solutions, Inc.

Supply AgreementWarranty grant conditioned on notice and returnOne-Sided2024

"Greatbatch warrants that, for the one-year period commencing upon Customer's receipt of the Product, each Product sold under this Agreement will: (a) conform with the applicable Specifications; (b) be free from defects, latent or otherwise, materials, and workmanship ... Subject to the foregoing, if a Product is not as warranted and Customer notifies Greatbatch in writing and returns that Product to Greatbatch within thirty (30) days of Customer's discovery of such warranted defect, Greatbatch will, at its sole option, promptly repair or replace the defective Product or refund the purchase price of the Product."

Source

Alico, Inc. / Board of Trustees of the Internal Improvement Trust Fund of the State of Florida

Option Agreement for Sale and PurchaseOption granted for stated considerationOne-Sided2023

"Seller hereby grants to Buyer the exclusive option to purchase the real property located in Hendry County, Florida ... This Option Agreement becomes legally binding on execution of this Option Agreement, but exercise of the option is subject to approval by Buyer and is effective only if DSL gives written notice of exercise to Seller. ... The consideration for the option granted by this Option Agreement is $100.00 ("Option Payment")."

Source

SunPower Corporation / Enphase Energy, Inc.

Master Supply AgreementReciprocal purchase and sale commitmentMutual2018

"On the terms and conditions set forth in this MSA, SunPower agrees to purchase and Enphase agrees to sell to SunPower, a cumulative total of at least [redacted] MLPE Products during the Term (the "Total Purchase Commitment")"

Source

Sage Therapeutics, Inc. / Supernus Pharmaceuticals, Inc.

Mutual Non-Disclosure AgreementReciprocal confidentiality obligationMutual2025

"For their mutual benefit, the Parties wish to discuss a possible business relationship and, in connection with such discussions or as part of the resulting business relationship, if any, (collectively, the "Stated Purpose") each Party may disclose or make available to the other Party certain information which the disclosing Party desires the receiving Party to treat as confidential. ... The receiving Party agrees not to use any Confidential Information of the disclosing Party for any purpose other than the Stated Purpose or as otherwise approved in writing by the disclosing Party."

Source

Powerfleet, Inc. / David Wilson

Consultancy Services AgreementExchange of promises at signatureMutual2026

"Consultant agrees to advise Company leadership on financial, operational, and organizational matters requested by the Company's CEO or designee. ... Company shall pay Consultant fees ("Fees") in the amount of $37,410 U.S. dollars per month during this engagement. Any partial months shall be prorated."

Source

Negotiate

Offeror Positions:

You want the promise to stay under your control until you decide it has been earned.

Say in the document that the offer can be accepted only by completing the described act, so an eager return promise from the other side does not bind you early.
Define the qualifying act precisely enough to tell a completed performance from a partial one. Restatement (Second) of Contracts section 45 hands the offeree an option contract the moment they begin.
Reserve an express right to modify or withdraw the program going forward, and state what happens to performance already underway.
Require written notice of completion within a stated period, since you may otherwise never learn that someone performed and UCC 2-206(2) reaches only sales of goods.
Cap the program in the document by stating a maximum aggregate payout and a claim deadline, so a promise made to the market does not become an open-ended liability.

Offeree Positions:

You want the offer to stay open long enough for your performance to count.

Get the offer in writing with a stated open period, because an oral standing offer can be revoked before you finish.
Begin the invited performance and document the start date, since section 45 makes the offer irrevocable from that moment in most states.
Ask for a written option with separate consideration when the performance is expensive, which is what the $100 option payment in the Alico agreement above buys.
Pin down what counts as completion and who decides, so the offeror cannot redefine completion after you have incurred the cost.
Send notice of your performance even when the document does not require it, so the offeror has no room to argue the offer lapsed.

Formation language often appears as a single conditional sentence inside a warranty section, bonus letter, or program terms. GC AI's Playbooks hold the formation questions you want asked of every incoming draft, and GC AI for Word runs them inside the document while you are still marking it up.

Red Flags

A published program that promises a payment to anyone who performs, with no stated maximum and no withdrawal mechanism. Every person who begins the described act may hold an option contract under Restatement (Second) of Contracts section 45, so the aggregate exposure has no ceiling.
A “we may modify or cancel at any time” line in a program whose participants have already started performing. Courts in most states will not let a revocation reach performance already begun. The clause creates an unfounded sense of control and invites a dispute over when each participant began performing.
A warranty that conditions the remedy on notice and return but never states the clock or the delivery address. The condition still operates, so a buyer who misses an undefined deadline can lose the remedy and the seller inherits the dispute.
An offer that says acceptance comes by performance only and then asks for a countersignature anyway. The document invites both modes, which is the ambiguity Restatement (Second) of Contracts section 32 resolves in the offeree's favor by letting them choose.
A supposedly mutual agreement in which one side's only promise is to use such efforts as it deems appropriate or to perform at its sole discretion. An obligation the promisor can escape at will may fail as consideration, which can unwind the entire exchange.

Unilateral vs. Bilateral Contract Clause FAQs

What is a unilateral contract?

What is the difference between a unilateral contract and a bilateral contract?

A bilateral contract forms when both parties exchange promises, and both sides are bound at that moment. A unilateral contract forms when the offeree renders the performance the offer requested, and until then only the offeror carries a duty. The practical differences show up in revocation, because a unilateral offer can be pulled before performance starts, and in exposure, because the offeree in a unilateral arrangement owes nothing at all.

Is an insurance policy a unilateral contract?

Insurance practice treats a policy as unilateral because the insurer makes the enforceable promise to pay covered claims while the insured performs acts, principally paying premiums and reporting losses. Read from the offer and acceptance side, the premium payment is the requested act that brings the insurer's promise into force, which is why the label sits in the formation vocabulary at all. The characterization is contested in the academic literature, and Beh and Stempel argued in the Cardozo Law Review in 2010 that policies are better read as bilateral. Treat the label as the start of a coverage analysis and read the trigger, conditions, and exclusions on their own terms.

Can the offeror revoke a unilateral contract offer after the other side starts performing?

Generally no. Restatement (Second) of Contracts section 45 provides that when an offer invites acceptance by rendering a performance and does not invite promissory acceptance, an option contract is created once the offeree tenders or begins the invited performance. That option contract obliges the offeror to leave the offer open. Before performance begins the offer stays revocable, the rule the New York Court of Appeals applied in Petterson v. Pattberg in 1928. Contract law is state law, so confirm the position in the governing-law state.

Are unilateral contracts legally enforceable if only one side signs?

Yes, when the usual formation elements are present. The requested act does the work of both acceptance and consideration, so the offeree's signature is evidence of the deal while the act itself supplies the binding element. The practical risks sit elsewhere: proving the offeree knew of the offer, proving what counted as full performance, and proving the offeror had not revoked before performance began.

Related Clauses

This content is for informational purposes only and does not constitute legal advice.