Understanding Bilateral Contracts: What They Are and How They Work
A bilateral contract is an agreement between two parties where each side commits to fulfilling their part of the bargain. These agreements often involve mutual obligations or considerations between the offeror and the offeree, though variations exist.
In complex scenarios, such as multinational trade negotiations, a bilateral contract might function as a specialized “side deal” tailored to the specific interests of the two involved parties.
Key Takeaways
- Bilateral Contract: The most prevalent type of binding agreement, involving reciprocal concessions or obligations from both parties.
- Common Examples: Sales agreements, leases, and employment contracts typify bilateral agreements.
- Unilateral vs. Bilateral: Unlike bilateral contracts, unilateral agreements demand an obligation from only one party.
How Bilateral Contracts Work
Bilateral contracts are the backbone of numerous binding agreements. Both parties act as obligors and obligees in each other’s promises. A signed contract ensures that the terms are clear and legally enforceable.
Everyday Transactions
Most of our daily transactions fall under bilateral agreements—sometimes formalized in writing, often just understood mutually. For example, in a car sale, the buyer agrees to pay a certain amount in exchange for the car title, while the seller commits to providing the title after payment. Failure by either side to fulfill their part results in a breach of contract.
Business Contracts
Businesses predominantly engage in bilateral contracts, exchanging products/services for financial compensation. An employment agreement highlights this: a company promises to pay an employee for performing tasks, embodying the bilateral agreement principle. When determining the nature of a contract, courts typically examine if both parties offered something of value, certifying the contract as bilateral.
Bilateral vs. Unilateral Contracts
While bilateral contracts involve reciprocal obligations, unilateral contracts stand in contrast. In a unilateral contract, only one party commits to an obligation contingent upon the other party completing a specific task. For instance, a contest offering a $1 million treasure hunt prize ensues no binding hunt requirement on participants. However, once the treasure is found, the contest creator must deliver the prize.
In legal scrutiny, courts judge the obligation nature of a contract, ensuring clarity on whether one or both parties have actionable responsibilities.
Related Terms: Obligor, Obligee, Unilateral Contracts, Breach of Contract, Employment Agreement.
References
- Cornell Law School, Legal Information Institute. “Bilateral Contract”.
- Cornell Law School, Legal Information Institute. “Unilateral Contract”.
