Unilateral vs bilateral contract: what's the difference?

Explainer
July 7, 2022
min

What's the difference between a bilateral contract and a unilateral contract, and which do you need? Let's explore in this quick explainer.

Unilateral vs bilateral contracts: what’s the difference?

In a unilateral contract only one party agrees to do something. And in a bilateral contract, both (or all) parties agree to do something. That's the short answer.

That’s it. We can all go home. 

Only kidding, sorry. It’s actually a bit more complicated than that. Let’s have a closer look at both. So first of all - what is a unilateral contract?

What are the main differences between unilateral and bilateral contracts?

1. How many people are making a promise

One of the biggest differences between a bilateral contract and a unilateral contract is the number of people or parties promising to do something. Bilateral contracts involve at least two people who are obligated to do something, while unilateral contracts only have one. This means that only one party is legally bound within a unilateral contract. 

That’s why most business contracts are bilateral contracts, as they usually involve a transaction of some sort between parties, each with their own concrete obligations. 

2. When an exchange can happen 

In bilateral contracts parties can make an exchange upfront, while in unilateral contracts, the party offering the deal only promises to pay (or whatever) when a certain action is complete. 

Consider the example of an advert for a reward in exchange for finding a lost dog. It’s unlikely that the dog owner will pay this reward to an individual before the dog has been found, particularly since there’s no guarantee that they will find it. 

3. When they’re used

Unilateral contracts are very much the exception in the world of business contracts because they don’t guarantee something will be completed – e.g. if you offer a reward for your missing dog there’s no guarantee someone will bring them back. 

Contracts are key to the recognition of revenue in modern businesses, which almost always constitutes consideration for an action being completed in a bilateral contract.

Unilateral vs bilateral contract - which do you need?

It completely depends on the situation, and who you want to enter into a contract with. Legally speaking both unilateral and bilateral contracts have the same standing – they can both be broken, or ‘breached’, and they’re both enforceable in court. So if something goes wrong with either type you’ll have to prove that:

  1. there was a contract in the first place
  2. that contract was broken
  3. you suffered a loss as a result of the contract being broken
  4. the person you’re challenging was responsible for that breach.

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