Offerors Have no Pure Incentives for Making Unilateral Offers

Unilateral and Bilateral Contracts as Scripts

Offerors have no pure incentives for making unilateral offers. From the offeror’s perspective, exchanging a promise for a promise is always more valuable than exchanging a promise for performance. The only reason why an offeror would prefer a unilateral offer is because such an offer is beneficial to the offeree, and thus more likely to be accepted than a bilateral offer. To illustrate the point, imagine the following scenario. On Monday, A decides that she wants B to mow her lawn on Friday. A can frame her offer in one of two ways: 1. I promise that if you mow my lawn on Friday, I will pay you $50. 2. If you promise to mow my lawn on Friday, I promise to pay you $50.

The Offeror’s Position in Making a Bilateral Offer When A extends a bilateral offer, she knows that one of two things will happen. The offer may not be accepted, in which case A knows on Monday that she will not receive the desired performance. In the alternative, B might accept the offer, in which case promises to perform are exchanged. Regardless of whether performance actually occurs on Friday, a bilateral contract assures A the benefit of her bargain on Monday: because she has received a promise, she is guaranteed either performance or damages for breach (imagine the going rate for lawn mowing is $100, so that expectation damages are meaningful). In this way, a bilateral contract offers security for the offeror.

The Offeror’s Position in Making a Unilateral Offer If A extends a unilateral offer instead, the contract will not be formed unless B completes performance. Up until the moment when B cuts the last blade of grass on Friday, neither party is obligated. From Monday until Friday, A does not know whether performance will occur, and has no security if B decides not to mow the lawn. Why, then, would anyone make a unilateral offer? Perhaps, for the layman, performance seems more valuable than the promise to perform. One can imagine an offeree saying, “I don’t want your promise, just mow my lawn.” Furthermore, there are certainly contracts where damages are not attractive to the offeror, who really desires performance. However, when contrasted with a bilateral contract, a unilateral contract is really no better at securing performance. On the contrary, the only difference between the offers is the security for the offeror and the risk to the offeree. Unilateral contracts are characterized as “promise for performance,” and bilateral contracts are characterized as “promise for promise,” but this is a misleading description of the bargain. In both formulations of the offer, $50 is exchanged for lawn-mowing. The only real difference between the two is the moment when the parties are contractually bound. All contracts are risk allocation devices; a unilateral contract is merely another way for parties to allocate risks. Unilateral contracts allocate the risk of non-performance to the offeror, whereas bilateral contracts allocate the risk on non performance to the offeree.

Risk Allocation or Selling Script? Because a bilateral contract offers more security to the offeror, she has no purely self-interested reason for preferring a unilateral offer to a bilateral offer. Of course, choosing the method of offer most likely to induce performance is still behavior motivated by rational self-interest. It is still the case, however, that there is nothing about a unilateral offer that is intrinsically beneficial to the offeror. If the only difference between unilateral and bilateral contracts is the manner in which they allocate risks, and if all contracts are risk-allocation devices, then the difference between these contracts is almost meaningless, as they are merely two points on a full spectrum of risk allocation. Why, then, is there so much focus on these allegedly distinct forms of contract? Perhaps something is to be found by ignoring the abstract differences and focusing instead, as Leff would, on “what actually happens in affecting exchanges,” (p.6). In other words, we should really be asking: what is the sociological or psychological difference between a unilateral and bilateral offer?

The Script As Leff explains, “anyone shaping a deal must write a script which persuasively sets up a situation in which both parties gain but neither’s gain is at the other’s expense” (p.12). Thus, an offeror, when choosing to extend either a unilateral or bilateral offer, must consider the selling script he is using. In many situations, a unilateral offer is a more persuasive script, which is why an offeror might choose to make this kind of offer despite the superior benefits to the offeror of a bilateral contract. Take, for example, the classic case of Hamer v. Sidway. A unilateral script is a better sell, here, because the nephew doesn’t want to be rushed into a deal, and doesn’t want to be exposed to the risk of breaching. Furthermore, money damages aren’t really beneficial to the Uncle, and therefore he’s willing to expose himself to the risk of non-performance in order to give his target a more enticing deal. Because the parties are family members, and because the nephew is a reluctant buyer, the Uncle smartly chooses a selling script that is all carrot and no stick. Additionally, by extending a deal with attractive risk allocation features, the Uncle is in some way offering what Leff would call “bait,” (p.138), where the seller under prices the deal in order to lure a target. At the same time, however, we must recognize that the Uncle here is not a scheming swindler, but just a practical bargainer. Because his target is a family member, he offers a script that is adapted to the relationship between the parties. In this way, the choice of offer is not a self-interested calculation, but rather a concession to the practical social dynamics between the parties: through a unilateral contract, the Uncle gets the performance he wants without scaring his target by pressuring him.