Formation of a Valid Contract: Nature of a Contract

1. Unilateral Contracts

Definition: A unilateral contract is a one-sided agreement where only one party makes a promise that the other party can accept by performing an action.

Simple explanation: One person says "I will pay you if you do this task." The contract is formed when the other person completes the task, not when they promise to do it.

Key features:

• Only one party makes a promise
• The other party accepts by doing the action, not by promising to do it
• The person making the offer doesn't need to know the action is being performed
• Common examples: rewards, competitions, promotional offers

Real-life example: Jane loses her dog and puts up posters saying "£50 reward for anyone who returns my dog." This is a unilateral contract because:

• Only Jane is making a promise (to pay £50)
• Anyone can accept by performing the action (returning the dog)
• They don't need to tell Jane they're going to look for the dog—they just need to return it

Important case: Carlill v The Carbolic Smoke Ball Company Ltd (1893)

This famous case established key rules for unilateral contracts:

• A company advertised that they would pay £100 to anyone who caught flu after using their smoke ball product as directed
• Mrs Carlill used the product correctly but still caught flu
• She claimed the £100 reward
• The company argued there was no contract
• The court decided this was a valid unilateral contract—the company made an offer to the whole world, and Mrs Carlill accepted by performing the required action

Special rules for unilateral contracts:

• An offer can be made to more than one person—even to "the whole world"
• Acceptance happens through performance (doing the action), not through words
• The person doing the action doesn't need to communicate their acceptance
• The offer can sometimes be revoked (cancelled), but this gets complicated if someone has already started performing

2. Bilateral Contracts

Definition: A bilateral contract is a two-sided (reciprocal) agreement where both parties make promises to each other.

Simple explanation: Both sides agree to do something for the other. "I'll do this if you do that."

Key features:

• Both parties make promises
• Each party has obligations to the other
• This is the most common type of contract
• Acceptance is usually by a promise, not just by performance

Real-life examples:

• Buying something in a shop: You promise to pay money; the shop promises to give you the item
• Employment contract: You promise to work; your employer promises to pay you
• Rental agreement: You promise to pay rent and look after the property; the landlord promises to let you live there

The difference between unilateral and bilateral:

• Unilateral: "I'll pay you £20 if you wash my car" (only one promise; you accept by washing the car)
• Bilateral: "I'll pay you £20 to wash my car, and you agree to do it by Saturday" (two promises; you accept by agreeing, then both sides must keep their promises)

3. Collateral Contracts

Definition: A collateral contract is an additional contract that exists alongside a main contract.

Simple explanation: It's a side agreement that supports or adds to the main contract. It's like an extra promise made during the negotiation of the main contract.

Key features:

• Exists alongside a main contract
• Usually made during negotiations for the main contract
• Contains additional promises not included in the main contract
• Has its own legal force—it can be enforced separately

Real-life example: Imagine you're buying a used car:

• Main contract: You agree to buy the car for £5,000
• Collateral contract: The seller separately promises you, "This car has never been in an accident"

If you later discover the car was in an accident, you might not be able to sue under the main sale contract, but you could sue under the collateral contract because of the separate promise that was made.

Why collateral contracts matter: They allow courts to enforce important promises that were made during negotiations but didn't end up in the final written contract.