Difference Between Unilateral and Bilateral Contracts

Explore the differences between unilateral and bilateral contracts. Find out which type suits your business needs on our blog.
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Unilateral and bilateral contracts are two common types of contracts used in various business transactions. Business people need to know the differences between these two kinds of contracts so they can handle the contract process well.

A unilateral contract involves one party making a promise or agreement to a general group of people. In this type of contract, the offer is made to the public or a specific person, and it may or may not be accepted. The acceptance of a unilateral contract is typically through the performance of a specified action. The person receiving the offer doesn’t have to do anything about it, but if they do, the person making the offer has to do what they promised in the contract.

On the other hand, a bilateral contract requires the mutual exchange of promises between at least two parties. Both parties negotiate and agree upon the terms and conditions of the contract, and both are bound by their promises. In a bilateral contract, both sides need to do what they promised for the contract to count as legally binding.

Business people need to understand these contracts well. That way, they can make sure they’re safe and lessen any problems that might come up with agreements. They should also know what to do if someone doesn’t follow the contract, and what can be done to fix things.

Related Article: What Is A Contract? Definition, Importance, And Key Terms

What is a Unilateral contract?

What is a Unilateral contract?
What is a Unilateral contract?

In a unilateral contract, one party makes a promise contingent upon the other party’s performance. In this kind of agreement, only one side has to do something once a certain thing happens. Think of it like this: when you buy insurance, you’re making a deal with the insurance company. You pay them money, and they promise to help you out if something bad happens, like if you get sick or have an accident.

But here’s the catch: the insurance company doesn’t have to do anything until that bad thing happens. So, it’s like they’re making a promise, but it only kicks in when you need it. That’s why it’s called a “unilateral” contract because only one side is making a legally binding agreement until something specific happens to trigger it.

Here, the insurer’s promise to pay is contingent upon the insured party experiencing the specified event. Before something bad happens, like an accident or getting sick, the person who bought insurance doesn’t have to do anything or pay any more money to the insurance company. But if that bad thing does happen, and the person needs help, they can ask the insurance company for help by making a claim.

Then, if the claim is valid, the insurance company has to keep its promise and give the person the benefits or money they agreed to in the insurance policy. So, the insurance company only has to do something when there’s a real problem, and the person only has to pay the insurance premiums until they need help.

In insurance contracts, one side, which is the insurance company, takes on the risk and promises to help if something bad happens. The other side, which is the person buying the insurance, doesn’t have to do anything unless that bad thing happens.

This shows that the agreement isn’t equal one side is taking a bigger risk and making a promise, while the other side just has to wait until something bad happens to get help. Understanding this difference is important, especially in insurance where managing risks and waiting for something to happen are big parts of the deal.

Can unilateral contracts be breached?

Unilateral contracts can be breached if one party fails to fulfill their obligations without the need for the other party to perform. Breach consequences may include damages or specific performance. Understanding the terms of unilateral contracts is crucial to handling breaches effectively.

In the event of a breach, consequences such as damages or specific performance may ensue, depending on the agreement’s terms and applicable laws. Understanding these nuances is crucial for effectively managing breaches, necessitating clear delineation of contract terms, proactive communication, and diligent documentation to facilitate resolution and uphold the integrity of the agreement.

Related Article: What Are Contractual Obligations? Your Master Guide

What are Bilateral Contracts?

What are Bilateral Contracts?
What are Bilateral Contracts?

Bilateral contracts involve mutual exchange where both parties make promises. Each party is both an offeror and an offeree, creating reciprocal obligations. In bilateral agreements, the promises are the consideration.

They form a binding contract once accepted. Understanding the specific tasks or actions each party must perform is crucial. Examples of bilateral contracts include sales contracts and employment agreements. Breaching such contracts can lead to legal action seeking remedies like specific performance or damages.

Understanding the Mutual Exchange Principle

The mutual exchange principle in contract law underpins bilateral contracts, emphasizing the essential concept of consideration between parties. This principle stipulates that each side must offer something of value to the other, creating a mutual obligation to act.

In unilateral contracts, one side makes a promise for something to happen, while in bilateral contracts, both sides have to agree to do something specific. This fundamental principle ensures fairness and equality in contractual relationships. Understanding this principle is crucial for navigating the intricacies of bilateral agreements.

Common Scenarios Involving Bilateral Contracts

To illustrate common scenarios involving bilateral contracts, a prevalent example is a purchase agreement in business contracts. When one party promises to sell a product or service and the other agrees to pay a specified amount, both parties are bound by mutual obligations.

Another scenario is an employment contract where one party undertakes to provide services while the other promises compensation. These agreements often showcase the mutual exchange principle, emphasizing equal obligations and benefits for all involved parties.

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Navigating the Complexities of Bilateral Contract Breaches

Navigating the Complexities of Bilateral Contract Breaches
Navigating the Complexities of Bilateral Contract Breaches

Remedies for breach of contract play a critical role in navigating the complexities of bilateral contract breaches. Understanding the role of damages and specific performance is essential in resolving disputes.

In bilateral contracts, both parties have mutual obligations, making breach situations intricate. Legal advice can guide parties on the appropriate steps to take when facing a breach of contract. Ensuring adherence to the terms of the contract is crucial in managing potential breaches professionally and informatively.

Remedies for Breach of Contract

In case of a breach of contract, there are several remedies available to the injured party. When someone breaks a contract, they might have to pay money to make up for any losses, do exactly what they promised in court, or sometimes, both sides can agree to cancel the contract and not have to do anything. The choice of remedy depends on the circumstances of the breach and the nature of the contract involved.

The Role of Damages and Specific Performance

In contract law, the role of damages and specific performance is pivotal in addressing breaches. Damages aim to compensate the injured party financially, whereas specific performance requires the breaching party to fulfill their contractual obligations as agreed. These remedies serve to uphold the enforceability of contracts and ensure that parties honor their legal obligations. Understanding the nuances of damages and specific performance is essential for effectively navigating contract disputes and seeking legal recourse when contract breaches occur.

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Comparative Analysis: Unilateral and Bilateral Contracts

Comparative Analysis: Unilateral and Bilateral Contracts
Comparative Analysis: Unilateral and Bilateral Contracts

Similarities:

Mutual Agreement: Both bilateral and unilateral contracts involve the formation of a binding agreement between parties. In both cases, there must be an offer from one party and acceptance from another to establish a valid contract.

Creation of Binding Contract: In both types of contracts, a binding agreement is created once acceptance occurs. This means that once the terms of the contract are agreed upon, both parties are legally obligated to fulfill their respective obligations.

Requirement of Offer and Acceptance: Like bilateral contracts, unilateral contracts also require an offer to be made by one party and acceptance by another. While in bilateral contracts, both parties exchange promises, in unilateral contracts, acceptance is indicated by the performance of the specified act.

Legal Enforceability: Both types of contracts are legally enforceable, provided that all the essential elements of a contract are present, including offer, acceptance, consideration, and legality of purpose.

Differences:

Number of Obligated Parties: Bilateral contracts involve two or more parties, each of whom is obligated to fulfill promises made to the other party or parties. Unilateral contracts involve only one party who is legally obligated to fulfill the agreed-upon terms, while the other party is not obligated until they perform the specified act.

Nature of Obligation: In bilateral contracts, both parties are bound by mutual promises to perform specific tasks or provide something of value. In unilateral contracts, only one party is bound by a promise, while the other party’s obligation is contingent upon their performance of a specified act.

Offer and Acceptance Dynamics: Bilateral contracts require an offer from one party and acceptance from the other party to create a binding agreement. Both parties exchange promises. Unilateral contracts involve an offer from one party, but acceptance is indicated by the performance of the specified act by the other party.

Equal vs Unequal Obligations:

In bilateral contracts, obligations are typically equal between the parties, as each party makes promises to the other. In unilateral contracts, obligations are unequal, with only one party being legally obligated until the other party performs the specified act.

Risk Allocation: Bilateral contracts distribute risk more evenly between the parties, as both are obligated to perform. Unilateral contracts often place more risk on the party making the promise, as their obligation is triggered by the other party’s performance.

Choosing the Right Contract Type for Your Needs

When picking between a unilateral contract, where only one side has to do something, and a bilateral contract, where both sides have to do things, think about what you need. Evaluate the nature of the agreement, your risk tolerance, and the desired level of control.

Unilateral contracts work well for straightforward tasks where only one side has to do something, while bilateral contracts are better for complicated deals where both sides benefit. It’s important to know the details of each contract type to make sure your legal rights and responsibilities match what you want to achieve in your business.

Related Article: What is Contract Management Software?

Contract Drafting Tips for Clearer Agreements

Contract Drafting Tips for Clearer Agreements
Contract Drafting Tips for Clearer Agreements

To ensure clarity in agreements, include precise language outlining each party’s obligations. Define terms explicitly to avoid misinterpretation. Clearly state the conditions and requirements for fulfilling the contract.

Utilize bullet points or numbering for easy reference. Consider consulting a law firm specializing in contract law to review and provide advice on the agreement. Use contract management software to streamline the drafting process and ensure accuracy. Regularly update contracts to reflect any changes in the parties’ obligations or the requested actions.

Essential Clauses in Unilateral Contracts

In unilateral contracts, essential clauses typically include clear specifications of the requested action, the obligation of the party making the offer (offeror), and the conditions under which the offer can be accepted. These clauses outline the exact task or action required from the offeree, ensuring precise terms for acceptance. Additionally, in unilateral contracts, there’s usually a deadline for finishing the task that’s requested. If the job isn’t done on time, legal action might start.

Must-Have Provisions in Bilateral Contracts

Bilateral contracts should include essential provisions to ensure clarity and protection for all parties involved. It’s important to have clear rules to keep everyone safe and make sure everyone knows what to do. This includes saying exactly what needs to be done, who’s doing what, when things need to be done, and how payments will work.

Also how to fix problems, keep things private, and when the contract can finish. These rules help to lower risks and make a good plan for managing the contract well. Making sure these things are clear in bilateral agreements can stop arguments and problems, making the business run better and keeping things legally safe.

Related Article: Master Contract Generation : A Comprehensive Guide

Frequently Asked Questions

 

What Makes a Unilateral Contract Different from a Bilateral Contract in Legal Terms?

In legal terms, a unilateral contract involves one party making a promise that is accepted through performance, while a bilateral contract requires mutual promises from both parties. The key distinction lies in the obligation to perform: unilateral – one-sided, bilateral – mutual.

Which type of contract is more common?

Bilateral contracts are generally more common in everyday transactions because they involve mutual promises and obligations, providing more certainty for both parties

Can a bilateral contract turn into a unilateral contract?

In some cases, a bilateral contract can become a unilateral contract if one party has already fulfilled its obligation, leaving only one party with an outstanding obligation.

Conclusion

Bilateral contracts mean both sides have to do something they promised. Unilateral contracts mean only one side has to do something after the other side performs a specific action. If there’s a problem with a bilateral contract, like one side doesn’t do what they promised, the other side might get money or make them do what they promised.

When picking between these contract types, think about what you need and how clear the agreement is. Using technology for making contracts is changing how things work in the future. Whether it’s about insurance or what happens if there’s a problem, understanding unilateral contracts is important. Look into these differences more to make sure your contracts match what you want and the rules.

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