Differences between an Advertisement and a Unilateral Contract

Oct 3, 2011
Frank Rappa

: Advertisements and unilateral contracts have diffe - Lauren Fisher

The overall difference between a unilateral contract and an advertisement is the manner in which it is accepted.

Under the law of contracts, the general difference between a unilateral contract and an advertisement is that the manner of accepting a unilateral contract is accomplished by the performance of the terms specified in the offer, while an advertisement is treated as merely an opening to negotiate the terms of an offer to a contract.

Mutual Assent

Formation of a valid contract, which is legally enforceable, requires mutual assent to the same terms by the parties and consideration. (“Consideration” is outside the scope of the present discussion.) Mutual assent is generally accomplished by one party making an offer to another and acceptance of that offer by the other party. (1) An offer is created by the communications—words or expressive conduct—of one party (the “offeror”) that objectively express the reasonable intent to be contractually bound by the acceptance of the other party (the “offeree”). (2)

Power of Acceptance

The offer gives the offeree the power to form a contract by an acceptance in the manner indicated by its terms. Communications that do not express the intent to be contractually bound do not constitute offers. Common examples of such communications without the requisite intent include opinions about future results, statements of present or future intent, price estimates, reserve auctions, catalogs, mass mailings, and advertisements. (2)

With respect to advertisements, courts have held that it is unreasonable to believe that the offeror intends to be contractually bound to all recipients or readers of such advertisement, except where the Power of Acceptance is unequivocally limited to the first number of persons who accept. (2) For example, a publication that reads, "HD televisions 50% off" is an advertisement. Whereas "HD televisions 50% off, limited stock of 20 units," would be an offer giving the power of acceptance to only the first 20 people who accept.

Manner of Acceptance; Generally

The nature of the offer establishes the manner of acceptance whether by a return promise (“bilateral contract”) or by actual performance of the promised act (“unilateral contract”). To understand the unilateral contract it is best to first discuss the bilateral contract. The most common type of contracts is a bilateral contracts, are generally identified by the fact that the performance of offeree’s contractual obligation requires some future act or series of acts, such examples include mortgages, loans, construction contracts. To form a bilateral contract, the terms of the offer gives the offeree the power of acceptance only in the manner of returning the promise requested in the offer, such as by a promise to perform an obligation in the future, such as a promise to make a future payment or to fulfill a future obligation—paint the offeror’s house. The failure to fulfill such promise results in breach. (3)

Unilateral Contracts

However, in the special circumstances of the unilateral contract the terms of the offer gives the offeree the power to accept the contract only by complete performance of the action(s) described. Thus, no contract is formed until the offeree renders full performance. In addition, the offeree's failure to perform or complete any such performance that he has commenced do not constitute a breach. Furthermore, the modern treatment of such circumstance is once the offeree begins to perform, the offeror must give the offeree a reasonable amount of time or the time specified in the offer in which to complete such performance. (3) For example, an offer that states, “If you fix the car in my driveway, then you can keep it”, is a unilateral contract, where its acceptance is accomplished by the act of fixing the car.