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?
Unilateral contract definition
Unilateral contracts involve only one person or group – called the ‘offeror’ – making a promise to do something. A good example of a unilateral contract is if you, for example, lose your dog (sorry). You put an ad in the local paper with a reward for anyone who returns Rover to you.
By offering that cash, you’re offering a unilateral contract. It doesn’t put an obligation on anyone to do anything except you – you’re promising to pay an amount of money to someone who brings your beloved family pet home.
Insurance contracts are another example of unilateral contracts – when you take out, say, home insurance, the company promises to pay you a specific amount of money if something happens to your home. If the fire or flood or plague of locusts (or similar) doesn’t happen, they don’t have to pay.
So far, so good. So now - what is a bilateral contract?
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.
So, what’s the difference again?
Put simply, 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.
There are other, more subtle, differences too. 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.
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 is almost always 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:
- there was a contract in the first place
- that contract was broken
- you suffered a loss because of the contract being broken
- the person you’re challenging was responsible for that breach.
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