Bilateral contracts are the most common type of contract, and businesses enter into these forms of contract almost daily.
But what actually is a bilateral contract, and when are they used? This Juro explainer covers definitions, examples, and more.
Bilateral contract definition
Bilateral contracts are binding agreements between at least two people or groups, with one party promising to do something for the other, as long as they also complete another action. They create binding obligations on both sides with consequences for both in case of non-performance.
Any sales contract is bilateral – in fact, most business contracts are. Let’s take a contract for the sale of a house as an example. When you sell your home you’re promising to hand over the title to the other party. And in exchange, they’ll pay you the price of the house. This means that consideration has been provided by both contracting parties.
How do you know if a contract is bilateral?
You can identify a bilateral contract easily by checking how many parties have made promises within it. If two or more parties are agreeing to fulfil obligations under the contract, it will likely be a bilateral contract, rather than a unilateral one.
Example of a bilateral contract
To better understand what a bilateral contract looks like in practice, let’s discuss some common examples of a bilateral contract.
One example is where a vendor has promised to provide a business with certain goods in exchange for a set fee. There are two promises that have been made in this scenario, one on the part of the vendor who is offering to provide and deliver these goods, and another on the part of the purchaser, who is promising to pay the agreed fee either before or after these goods have been received.
If either the vendor fails to deliver the goods, or the purchaser fails to pay for them, the bilateral contract will have been breached. This is because, within a bilateral contract, both parties are legally obligated to fulfil their promises to one another.
An employment contract is another example of a bilateral contract. This is because the employer promises to pay an employee a certain amount of money for the completion of certain tasks.
In this example, there are two promises made within the relationship: the first is to complete the allocated work or tasks, and the second is to compensate the employee for this work. If either party fails to deliver on these promises, there will likely be a breach of contract. As a result, contracts with freelancers and contractors typically fall within the scope of a bilateral contract, too.
What most people don’t realize is that we enter into bilateral contracts almost every day, whether we’re ordering food in a restaurant or purchasing clothes from a retail store. If a transaction involves multiple parties making a promise to one another, it’s probably a bilateral contract.
Why are bilateral contracts useful?
Bilateral contracts are advantageous since they typically safeguard the individual interests of both parties to a contract. This is because both the offeror and offeree have made promises to one another, so both parties will receive some form of benefit in exchange for fulfilling their own obligation.
Not only does this incentivize the fulfillment of these obligations, but it also makes the contract fairer as there’s been a mutual exchange of promises.
How is a bilateral contract different from a unilateral contract?
The main difference between a bilateral contract and a unilateral contract is that, within a bilateral contract, at least two of the parties are making a promise under the agreement. This is distinct from unilateral contracts where only one party makes this promise.
Still confused? Don’t worry. We’ve created a more detailed explanation of the specific differences between unilateral vs bilateral contracts.
Are bilateral contracts enforceable?
Bilateral contracts will be enforceable so long as the agreement has met the basic contract requirements. These include that there has been an offer made and accepted, that there’s satisfactory consideration and that the parties to the contract all have contractual capacity.
If all of these elements are present, a bilateral contract is legally enforceable and can usually be relied on in court.
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