What is a bilateral contract?
A bilateral contract is a legally enforceable agreement between two parties in which each party promises something to the other. Both sides make commitments: one party is obligated to perform its promise and simultaneously is the recipient of the other party’s promise.
Key elements (short definitions)
– Offer and acceptance: One party proposes terms; the other accepts them.
– Consideration: Each side gives or promises something of value (money, goods, services, a promise).
– Mutual obligations: Both parties have duties they must perform to fulfill the contract.
– Enforceability: When these elements are present, the agreement can be enforced in court if breached.
How bilateral contracts work — plain language
In a bilateral contract both sides exchange promises up front. For example, a buyer promises to pay a seller a specified price, and the seller promises to transfer ownership of the item. Either side can usually be required by law to perform their promise; failure to do so may constitute a breach.
Common settings
– Sales agreements (cars, property, consumer goods).
– Employment agreements (employer pays wages; employee performs duties).
– Supplier and service contracts between businesses.
– Complex transactions sometimes include a separate “side deal” between the same two parties that addresses a specific shared interest.
Roles (legal terms)
– Obligor: the person who is bound to perform a contractual duty.
– Obligee: the person entitled to receive performance from the obligor.
Bilateral vs. unilateral contracts — the difference
– Bilateral contract: Each party promises something and both are legally obliged to perform.
– Unilateral contract: Only one party promises to pay or perform, and that promise is triggered only if someone else completes a specified act. The person who could perform the act is not legally required to do so; if they don’t, they have not breached a contract.
Example to illustrate the difference
– Bilateral: Seller promises to transfer a car title; buyer promises to pay $8,000. Both are obligated.
– Unilateral: An offer to pay $1,000 to whoever returns a lost dog. No one is required to look for the dog; if someone returns it, the offeror must pay.
Checklist: How to tell if an agreement is bilateral
1. Are there two parties exchanging promises?
2. Does each party commit to perform a specific act or provide specific value (consideration)?
3. Is there clear acceptance of the offer by the other party?
4. Are the promises mutual and dependent on each other?
5. Would a court, using the contract language, likely find both parties bound?
If you answer yes to most items, the contract is likely bilateral.
Worked numeric example (simple car sale)
1. Agreement: Buyer agrees to pay $8,000; seller agrees to transfer the car title and deliver the vehicle.
2. Performance timeline: Buyer pays within three business days; seller hands over title on delivery.
3. If buyer fails to pay $8,000 on the agreed date, the seller can claim breach and seek remedies (e.g., keep the car, demand payment, or sue for damages), subject to the contract’s terms and governing law.
4. If seller fails to transfer the title after receiving payment, the buyer can claim breach and pursue remedies (e.g., specific performance or damages), again subject to the contract and applicable law.
Practical notes and assumptions
– The exact remedies and enforceability depend on contract language and local law.
– Not all everyday exchanges are written; oral bilateral contracts can be enforceable, but proof can be harder.
– Courts often look to whether both parties exchanged specific value when deciding if a contract is bilateral.
Further reading (reputable sources)
– Investopedia — Bilateral Contract: https://www.investopedia.com/terms/b/bilateral_contract.asp
– Cornell Law School, Legal Information Institute — Bilateral Contract: https://www.law.cornell.edu/wex/bilateral_contract
– Cornell Law School, Legal Information Institute — Unilateral Contract: https://www.law.cornell.edu/wex/unilateral_contract
Educational disclaimer
This explainer is for general educational purposes and does not constitute legal or financial advice. For guidance about a specific contract or dispute, consult a qualified attorney or other professional.