What Is a Bilateral Contract?
Let me explain what a bilateral contract is—it's an agreement between two parties where each of you agrees to fulfill your side of the bargain. Typically, this involves equal obligations or considerations from both the offeror and the offeree, though it doesn't always have to be perfectly balanced.
In more complex scenarios, like multinational trade negotiations, a bilateral contract can act as a 'side deal.' Here, both parties are part of the broader talks but might need a separate agreement just for their mutual interests.
Key Takeaways
- A bilateral contract is the most common type of binding agreement, involving concessions or obligations from both sides.
- Common examples include any sales agreement, lease, or employment contract.
- In contrast, a unilateral agreement requires only one party to commit to an obligation.
How a Bilateral Contract Works
The bilateral contract is the standard form of binding agreement you encounter most often. Each party acts as both an obligor—someone bound to a promise—and an obligee—someone to whom a promise is owed—based on the other party's commitment. You sign a contract to make the terms clear and legally enforceable.
Take any sales agreement as an example: if you're buying a car, you agree to pay the seller a set amount in exchange for the car title. The seller agrees to provide the title for that payment. If either of you fails to hold up your end, that's a breach of contract.
In essence, most of your daily transactions are bilateral contracts, whether there's a signed document or not. Business contracts are nearly always bilateral—your company provides a product or service for financial compensation, so you're constantly forming these with customers or suppliers. An employment agreement, where a company pays you a rate for specific tasks, is another clear case.
When courts assess if a contract is unilateral or bilateral, they look at whether both parties offered something specific of value—if so, it's bilateral.
Bilateral vs. Unilateral Contracts
As I've noted, a bilateral contract has reciprocal obligations, setting it apart from a unilateral contract. In a unilateral setup, one party is only obligated if the other completes a specified task—payment often comes only after that task is done.
Legally, the second party in a unilateral contract isn't required to perform the task and can't be held in breach for not doing it. But in a bilateral contract, both of you have legal obligations.
Consider a unilateral example: a contest offering $1 million for finding buried treasure. No one has to search, but if you find it, the contest holder must pay. If there's a dispute over the contract type, a court will examine the terms to see if one or both parties have obligations or concessions.
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