A contract is an agreement mutually decided by two or more parties to create a legal obligation. Business professionals usually use two types of contracts- unilateral contracts and bilateral contracts. Understanding the difference between unilateral and bilateral contracts can help business professionals conduct business deals effectively and confidently. This blog will help you distinguish between unilateral contracts and bilateral contracts.
What is a unilateral contract?
A unilateral contract is made in the way the contract is drafted. If a person wishes the contract to be a unilateral contract, it should be clear in the contract that the acceptance of an offer can only occur once the other person has performed a certain act.
Unilateral contracts occur when one party puts out an offer, which is given only after another party completes the specific performance or service they demand.
A lot of things can be a unilateral contract, for e.g. promotions or competitions. In these cases, one party (the story or the company) sets the terms of the contract and it’s usually up to the other party (participants) to decide whether they would like to compete and participate or not.
A unilateral contract example is, if you have a coffee shop and have a loyalty system where for every 5 drinks purchased, the 6th one is free. This is considered a unilateral contract as it requires the other party to perform a specific act to be completed prior to the reward being handed and is one-sided.
What is a bilateral contract?
Bilateral contracts are agreements where there is a mutual benefit for both parties involved.
A bilateral contract or agreement is a commonly found form of contract and has the below elements:
Offer and Acceptance
Consideration
Intention to be legally bound
Capacity
Legality
A bilateral contract will bind two or more parties legally on pre-decided terms and conditions. The contract is in writing and requires both parties to perform actions.
To ensure the validity of the bilateral contract, the offeror must make an offer that needs to be accepted by the offeree. It also needs to have a defined exchange of value and must have legal capacity for both parties.
Some examples of bilateral contracts include a real estate agreement or an employment agreement. The contract is signed and both entities have to fulfil certain obligations.
Types of unilateral contracts
Reward contract- As the name suggests, a reward contract is when the offeror will use a reward for individuals who meet the necessary criteria. Something as simple as a ‘Missing’ Poster for a pet with a promise of a reward to the finder can be a reward contract. Another example can be someone advertising to pay $100 to someone who can coach them for an upcoming test. A person agrees to coach and now the offeror has to pay $100 as per the advertised request. You are the only entity that came up with the reward money and no person was obliged or forced to fulfill your requirements.
Insurance contract- Insurance contracts are about insurance services. When you engage in insurance services, the company promises to pay you a certain amount if a certain event occurs. However, if that event doesn’t happen, the company is not obliged to pay you any money.
Unilateral vs bilateral contracts
An obvious difference between unilateral vs bilateral contracts is the number of parties involved.
Unilateral contracts rely on only one party to create a contract for a specified or general group of people. While bilateral contracts need at least two parties to negotiate, agree, and act upon a promise.
| Factors | Unilateral Contract | Bilateral Contract |
| Offer | It invites every person to fulfill the contractual obligation and get the reward. | It remains between the parties mutually involved in the contract. |
| Nature | The offeror fulfills the promise when the participant completes the necessary actions. | All the parties involved in the contract have to fulfill the promise. |
| Validity | The validity of the offer is set by the offeror, which they must specify clearly with the offer. | The validity and requirements of the offer are set by mutual agreement of both parties, after negotiation and consideration. Both parties know the expected timeline and validity of the contract. |
What constitutes a breach of a unilateral and bilateral contract?
A unilateral contract can be breached if the party making the offer does not fulfill their promise, even after the performance has been completed.
In a bilateral contract, a breach is considered when one party refuses to act upon its portion of the promise or prevents the other person from performing their task.
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How can I terminate unilateral and bilateral contracts?
Termination for a unilateral contract can be done in many ways. The most common way for a unilateral contract to end is by reaching its natural finish date. Another way is to place an ‘expiry date’ on unilateral contracts so the offer lasts only for a particular period. This is usually used in promotions or seasonal offers.
A unilateral contract will also terminate once the performance of its demands has been completed.
You could also potentially seek to terminate a unilateral contract early if another party has not completed the performance.
Bilateral contracts can be terminated in the following situations:
Contract end for convenience– A term of a contract may allow a party to terminate the contract at any time by notice (where there is no fault by the other party). These clauses are common in government contracts.
Contract end by agreement– A contract can end when both parties agree to end it before the work is complete.
Contract end by frustration– When a contract cannot continue for some reason beyond you or the other parties’ control and neither party is at fault. It is important to understand that a contract cannot be deliberately frustrated by either you or the hirer.
Contract end by performance– A contract can come to natural termination when the parties have done all that the contract requires of them.
Frequently Asked Questions
What is an executory bilateral contract?
A bilateral executory contract is a legally binding agreement that requires the contracting parties to carry out the performance at a future date, usually for a certain period of time. For example, joint ventures, leasing agreements, or franchise agreements.
What is an implied ancillary unilateral contract?
An implied ancillary contract or agreement is any legal agreement established in addition to a pre-existing contract. To be an ancillary agreement, the agreement must include terms relating to the original contract.
What is unilateral contract consideration?
Consideration in unilateral contracts is only guaranteed if a specific task has been performed. Only the promisor is legally bound to deliver to consideration (once the performance aspect of the contract has been satisfied).
Please note that this is general information. We are not a law firm or a substitute for an attorney or law firm. Please consult a professional before implementing any remedies, contracts, agreements, or strategies.