Bilateral and unilateral contracts are two types of legally-binding agreements that are distinguished by the number of parties they involve, as well as other differences. Also known as two-sided contracts, bilateral contracts are contracts that obligate two parties to perform certain tasks. They are more common than unilateral contracts and are considered the only true contracts in the U.S. Unilateral contracts, on the other hand, are agreements in which only one party is required to fulfill contractual obligations.

What Is a Contract?

Whether it is bilateral or unilateral, a contract is something that many people come across in their daily lives, even though they may not be aware of it. A contract is a spoken or written agreement between two parties to fulfill obligations that are legally enforceable. Through a contract, the relationship between the parties involved is regulated since it includes the duties, rights, and other terms to which they have mutually agreed upon. If either party breaches the agreement, he or she may face legal consequences.

While the main difference between a bilateral contract and a unilateral contract lies in the number of parties involved, there are other factors that separate the two. Understanding the differences between these two types of contracts can help you navigate such legal matters with more confidence.

What Is a Bilateral Contract?

When people talk about contracts, they are usually referring to bilateral contracts. In a bilateral contract, each party is both an obligee (the one to whom an action or resource is owed) and an obligor (the one who is bound to perform). In the U.S., only bilateral contracts are regarded as true contracts.

In order for agreements to be legally enforceable, there must be some record showing that all parties have agreed to the terms. Such a record usually takes the form of a written and signed contract. A bilateral contract requires both contracting parties to enter into a legally-binding agreement to perform a certain action. Like a unilateral contract, a bilateral contract must include the following elements:

  • Promisor's offer
  • Promisee's acceptance of the offer
  • Consideration (such as money)
  • Both parties' legal capacities
  • Other lawful terms

What Is a Unilateral Contract?

Unlike a bilateral contract, a unilateral contract requires only one person or group to undertake an action. It allows only one party to make a promise or agreement. Once the promise is made, it is open and available to everybody until someone undertakes the action, which is a requirement that leads to the fulfillment of the promise.

One example of a unilateral contract is a reward contract. An offer of reward is legally enforceable because it only comes from a single party, who is the promisor. The promisee, who performs the action specified by the promisor, only receives the reward upon completion of the action. In general, an advertisement cannot be considered an offer to everybody. However, the court may sometimes regard an advertisement that contains specific language as an offer.

Comparing Bilateral and Unilateral Contracts

Both bilateral and unilateral contracts can be broken. Also known as a breach of contract, the breaking of a contract stems from one party's failure to fulfill any contractual term without a legal, justifiable excuse. An example of a breached unilateral contract is a situation where the party who has promised to give out a reward following the completion of an act refuses to do so. A bilateral contract can also be broken. One example of a breach of a bilateral contract is when an employee performs an act that is prohibited under his or her employment contract.

Whether you are trying to enforce a unilateral or bilateral contract in court, you must be able to establish the following:

  • Existence of the contract
  • Breach of the contract
  • Loss has incurred
  • The defendant is responsible for the loss

The main difference between a unilateral contract and a bilateral contract is that the former involves only a promisor while the latter involves a promisor and a promisee. Unlike a unilateral contract, in which the promisor promises payment in exchange for a completed task, a bilateral contract allows for an upfront exchange. Since a unilateral contract does not guarantee the completion of the task, it is almost never used in the business world.
