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What Is A Bilateral Contract? A Step By Step Guide In 2021

Bilateral Contract

Contracts are part and parcel of our day-to-day life. There are several ways of forming contracts like the unilateral contract. However, the bilateral contracts remain to be the most common in the business environment. 

In this type of contract, two parties exchange certain promises given the condition that a certain thing is provided. It can be for outcomes, supplies, or even services. This article will provide the bilateral contract definition and the elements that make it legally binding. 

Bilateral Contract Definition

Bilateral contracts are legally binding documents that are formed by exchanging mutual promises. The offer is the kind of a promise that is accepted by a counter-promise.

On the contrary, unilateral contracts only require a single party to fulfill what they promise. In the layman language, we can refer to this as meeting the end of their bargain. A bilateral contract can either be formed orally or in writing. 

The most important thing is to have the elements that are needed to form a contract to make it legally binding. Therefore, it is essential to have the mutuality of obligation in order to enforce a bilateral contract. 

Most business and personal contracts fall under the bilateral category. When you order a meal from a restaurant, buy from your favorite store, get treatment from a doctor, or check out a book from the library, you are entering into some form of bilateral contract. You promise a certain action from a certain party or individual in response to their action. 

Unilateral Contract Definition

It is also good to understand unilateral vs. bilateral contracts. In unilateral contracts, the actions are undertaken by one group or person alone. Therefore, only one person is allowed to make an agreement or promise. 

A perfect example of unilateral contracts is a reward contract. If you lose something, you can promise to offer $100 to the person who gets it. Therefore, you will only pay the amount upon the return of that item. In this contract, no single person is obligated or responsible for finding your lost item.

Other types of unilateral contract are an insurance contract. The company promises to pay a specific amount of money to the insured person only if a given event takes place. If that event does not occur, the company will not pay you anything. This forms a perfect example of a bilateral contract vs. unilateral contract.  

Similarities Between Bilateral And Unilateral Contracts 

It is possible to breach both bilateral and unilateral contracts. Breach basically refers to broken contracts as a result of failing to fulfill part or all the contract terms without a lawful or justifiable excuse. 

A perfect example of a broken contract is when one party refuses to pay the promised amount. For instance, you may argue that the person, who brought back your lost item, as stated in the example above, had stolen it hence refusing to pay. 

In a bilateral agreement, a coworker can refuse to complete his part in a job. Employees can also do things that their contract prohibits. Customers can also prevent the contractor from finishing the project or satisfying their obligation. All these are examples of broken contracts. 

If you wish to prove a unilateral or bilateral contract in court, you have to prove the criteria. This entails establishing:

  • The individual that you are challenging is responsible
  • You have suffered a loss
  • The contract was really broken 
  • The contract at hand existed 

Bilateral Contract VS. Unilateral Contract 

The basic difference between the bilateral and unilateral contract is the number of parties or individuals who promise an action. In a bilateral contract, you need a minimum of two individuals while the action is only obligated to one party on a unilateral contract. 

The second difference between the two contracts is a bit subtle because you will be looking at what is being offered. A unilateral contract is where the individual who is offering the deal promises to pay upon the accomplishment of a particular task or act. On the contrary, bilateral contracts support an upfront exchange. 

The Criteria Of Establishing The Legality Of A Contract 

There are four main elements that determine the legality of a contract. These include; 

1. Agreement 

When one party presents an offer, the other party accepts. The offers present a definite binding promise if all the terms are accepted. Offer acceptance should be indicated clearly to the party that is making the offer. In bilateral contracts, both parties have to agree to the terms. Unilateral contracts will only take effect when a particular action is done. 

2. Consideration 

The liability of price paid the promise which can be in the form of any property or liquid cash. The price should be a valuable thing but it should not necessarily be money. 

3. Intention of Creating Legal Relations 

There should be a deliberate intention of creating a legally binding contract. Therefore, both parties should understand that when they sign the contract, they are establishing a legal relationship between them. 

4. Certainty

 The bilateral contract has to be complete and sufficiently clear. The best practice would be to find templates or examples of bilateral contracts and then model your document from that. When you have certainty about your contract and need to engage a lawyer, they will dedicate a lower amount of time hence reducing your legal overheads. 


Bilateral contracts are legally binding documents that state the various promises that two individuals or parties do exchange after something is provided. The buyer and the seller do enter into a bilateral agreement. 

For example, the buyer does promise to exchange money or any other thing in the exchange of the item that he is buying. If you are not sure of how to draft a bilateral contract in a concise and clear manner, it is advisable to contact a contract lawyer. 

Both bilateral and unilateral contracts are enforceable in a court of law. The most important thing is to make sure that the terms are clear before you sign. Both parties in a bilateral contract have the duty of meeting their obligation.

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