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What is a unilateral contract?

Your traditional contract is technically known as a bilateral contract. It involves a mutual exchange.

For example, you agree to work for a company. You promise to give them 40 hours of work every week. In exchange, they promise to give you a $75,000 salary every year, broken down into two-week payments. You are both promising something of value to the other party and must hold up your end of the deal to keep from breaching that contract.

With that in mind, have you ever wondered how a unilateral contract works? There are a few key differences to keep in mind.

The biggest thing is that something specific, instead of just a promise, is required. Only when that is met will the contract be honored.

A common example is when someone offers a reward for something that has been lost. If the item is found and returned, they'll pay the reward. If it's not, they're under no obligation to pay.

This is much different than a bilateral contract because the terms have to be fulfilled first. The person is not just promising to look for the lost item and attempt to find and return it, collecting a salary or hourly rate as the reward along the way. The full payout will only be made at the end.

This means that one party could work toward that end goal, fail to reach it, and not be compensated. With a bilateral contract, that party may be compensated even if he or she is not successful. This could lead to the termination of the deal going forward -- an employee who is fired for not being productive, for instance -- but that salary will still be paid up until that point.

Both of these are fairly basic contracts, but looking at the differences helps to show just how vast those differences can be and how critical it is to understand the legal implications when drafting or signing any type of agreement.

Source: FindLaw, "Contracts and the Law," accessed Sep. 08, 2017

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