Unilateral vs. bilateral contracts: differences, and examples
Ever noticed how life is full of little agreements? You promise to pay for pizza, and the delivery guy promises to bring it piping hot. Boom—bilateral contract! But what if someone offers a free pizza to the fastest runner in town? That’s a unilateral contract. Contracts are everywhere, from everyday deals to corporate empires, shaping how promises are made and kept. Contracts — because shouting 'pinkie swear!' isn’t legally binding. This article breaks down unilateral and bilateral contracts in plain English with practical examples and a sprinkle of fun. So grab a slice (on us—if you win the race), and let’s dig in!
What is a unilateral contract?
When you think of a unilateral contract, picture a one-sided conversation—except, instead of talking to yourself, you’re making a promise to whoever decides to take you up on it. A unilateral contract involves one party making an offer that promises something in return for the performance of an act by another party. No action required from the other party until they decide to accept the offer by performing the requested task. Easy enough, right?
The key characteristics of unilateral contracts include:
Open offers: a unilateral contract often remains open to a broad audience rather than being directed to a specific person or group. This makes it particularly suited for situations where the offeror seeks action from anyone willing to perform the required task.
No immediate obligations: until the requested act is performed, the offeror remains the only party bound by any obligation. For the offeree, there’s no risk in deciding not to engage.
Revocability: a unilateral offer can usually be revoked at any time before the requested action is completed. However, laws in some jurisdictions prevent revocation once the offeree has begun substantial performance. For example, if a mountain climber is halfway up a climb to claim a reward, revoking the offer might not be legally permissible.
The benefits of unilateral contracts lie in their simplicity and efficiency. They’re highly effective when one party needs to incentivize specific actions without entering into complex negotiations. For businesses, this structure works perfectly for campaigns, such as offering rewards or discounts upon completing a particular task. Offerees also benefit from the flexibility of engaging only if they want to, as they bear no obligation to act unless they choose to perform.
Challenges and considerations
However, the challenges are just as significant, and here are some of them:
Ambiguity: a unilateral offer must be crystal clear about its terms and conditions. Vague language can lead to disputes, especially if the offeree believes they’ve completed the requested action but the offeror disagrees.
Dependency on performance: the contract hinges entirely on whether the offeree chooses to perform. This uncertainty can make unilateral agreements less predictable compared to bilateral ones.
Time-limited offers: many unilateral offers include deadlines or expiration dates, adding a layer of urgency but also potential for disputes if the timeframe is not clearly communicated.
What is a bilateral contract?
A bilateral contract, on the other hand, is where the rubber meets the road in the world of contracting. It involves two parties making promises to each other. Imagine a situation where you shake hands on a deal—both of you have to hold up your ends of the bargain for the deal to go through.
Picture a scenario where a business owner signs a contract with a supplier. The business owner agrees to pay a certain amount, and the supplier agrees to deliver a set amount of goods. This mutual exchange of promises forms the crux of a bilateral contract. Each party has an obligation that is enforceable by law, making these contracts particularly popular in day-to-day business transactions.
Bilateral contracts, therefore, usually include the following characteristics:
Mutual obligations: in a bilateral contract, both parties have obligations that arise as soon as the contract is formed. These obligations are enforceable by law, providing security for both sides.
Defined terms: bilateral agreements often include detailed terms, including timelines, conditions, and remedies for breach, making them ideal for complex transactions.
Immediate formation: once both parties agree to the terms, the contract becomes binding. No further action (like performance) is required to enforce the obligations.
Their primary benefit is predictability—both parties know exactly what is expected, with detailed terms to mitigate misunderstandings. This makes bilateral contracts ideal for business transactions, employment agreements, and long-term collaborations. Since the obligations are legally binding from the moment the contract is formed, both sides enjoy a framework for seeking remedies in case of breach.
Challenges and considerations
That said, bilateral contracts come with their own set of challenges.
Complexity: the detailed nature of bilateral contracts can make them time-consuming to negotiate and draft, especially in cases involving multiple parties or intricate terms.
Equal risk: unlike unilateral contracts, both parties assume risk. If one party fails to meet their obligations, the other may face financial or operational consequences.
Enforcement costs: if a dispute arises, enforcing a bilateral contract can require litigation or arbitration, which may involve significant time and expense.
Key differences between unilateral and bilateral contracts
Understanding the distinctions between unilateral and bilateral contracts is crucial for selecting the right type of agreement based on your needs. These differences go beyond mere legal definitions and affect how obligations are created, accepted, and enforced, as well as the risks involved. Here's a detailed breakdown of their key differences.
Number of promises
Unilateral contracts involve a single promise. Only the offeror—the person or entity making the offer—is bound to fulfill their obligation, and only if the offeree performs the requested action. For example, if you offer a reward for finding your lost dog, you only need to pay if someone returns your pet. This simplicity can make unilateral contracts more straightforward, but it also makes them less common in business transactions, as they don’t provide mutual security.
Bilateral contracts, by contrast, involve an exchange of promises. Both parties are legally obligated to fulfill their respective roles. For instance, if a car buyer promises to pay $20,000, and the dealer promises to deliver the car, both parties are bound to perform. This dual commitment makes bilateral contracts the backbone of most commercial and personal agreements, offering predictability and protection for both parties.
Acceptance
Unilateral contracts are accepted by performance. There’s no need for a signature or verbal agreement. The act of fulfilling the offer—for example, finding the lost dog or winning a contest—constitutes acceptance. The offeror is then legally obligated to honor the promise. This makes unilateral contracts flexible and attractive in situations where the offeror wants to leave the offer open to anyone who can fulfill the task. However, because acceptance hinges solely on performance, disputes can arise over whether the offeree fully met the requirements.
Bilateral contracts are accepted through mutual agreement. This could involve signing a contract, shaking hands, or verbally agreeing on terms. The contract becomes enforceable as soon as both parties commit. This formal process ensures that both sides have clarity about their obligations, reducing the potential for misunderstandings or disputes down the road.
Obligations
Unilateral contracts place the obligation solely on the offeror. Until the offeree completes the requested action, they have no legal responsibilities. This one-sided nature simplifies matters for the offeree but can make things riskier for the offeror, who may need to pay out unexpectedly or deal with disputes over the fulfillment of the terms.
In bilateral contracts, both parties have clearly defined obligations. Each party must fulfill their end of the agreement, and failure to do so can result in legal consequences. This shared responsibility encourages accountability and ensures that both sides have a vested interest in the contract’s success. However, it also means that any breach can trigger legal disputes, which may require resolution through courts or mediation.
Risk factors
Unilateral contracts carry more risk for the offeree. If terms are unclear, or the offeror doesn’t honor their promise, the offeree’s efforts could go unrewarded. For example, someone returning a lost dog might face resistance from the owner in fulfilling the reward. On the flip side, the offeror risks being bound to pay once the performance is complete, regardless of circumstances or their intent.
Bilateral contracts distribute risks more evenly. Both parties face consequences if they fail to uphold their promises, which often encourages better adherence to the agreement. However, the shared risks also mean shared responsibilities for resolution if a dispute arises. For example, in a sales agreement, a supplier might risk delays in payment, while the buyer risks not receiving the goods on time.
Examples of unilateral contracts
Imagine someone loses their pet and offers a $500 reward for its return. The person making this offer, the offeror, is bound to pay the reward only if someone finds and returns the pet. The offeree has no obligation to act but can accept the contract simply by performing the task of returning the pet. This arrangement exemplifies the simplicity of unilateral contracts, where the offeror is legally bound to honor their promise once the terms are fulfilled.
Contests and competitions are another example. A company announces a photography contest with a $1,000 prize for the best nature photograph. Participants are under no obligation to enter, but if they do and their submission wins, the company must pay the prize. Until someone fulfills the contest criteria and wins, the contract remains open. This type of contract is popular for marketing purposes, as it invites broad participation without obligating the offeror to act until the terms are met.
And of course, a cheeky little suprise! Your insurance policies will also likely be a unilateral type of contracts. For instance, a car insurance company promises to compensate for damages in case of an accident, provided that the policyholder has paid their premiums. The policyholder has no obligation beyond paying their premiums and filing a claim when an accident occurs. The insurer, however, must fulfill its promise as long as the claim falls within the policy's terms. This one-sided promise aligns with the essence of unilateral contracts.
Examples of bilateral contracts
Consider the purchase of a house. The buyer agrees to pay a specified price, and the seller agrees to transfer ownership of the property. Both parties have clear obligations—one to pay and the other to deliver the property deed. This mutual exchange of promises is legally binding, ensuring that both sides fulfill their commitments. Sales agreements like this are foundational to the real estate industry and many other business transactions.
Employment contracts are another example. When an employee signs a job offer, they agree to provide specific services, such as managing accounts or designing products. In turn, the employer agrees to pay a salary, provide benefits, and meet other contractual terms. Both parties are legally obligated to fulfill their roles—failure by either party could lead to legal consequences. This type of contract ensures clarity and fairness in professional relationships.
Imagine hiring a contractor to renovate your home. The homeowner promises to pay a fixed fee, while the contractor agrees to complete the renovation within a set timeframe - they enter into a service agreement. Both parties have mutual obligations: the contractor must deliver quality work as specified, and the homeowner must pay on time. These agreements are enforceable and protect both parties from disputes over scope or payment.
When to use unilateral vs. bilateral contracts
The choice between these two contract types boils down to the nature of the agreement and what you hope to achieve.
Use unilateral contracts when:
You’re offering a reward for specific performance (like returning a lost item or achieving a contest milestone).
You need flexibility, with no obligation until someone performs the required action.
You’re launching public promotions or competitions.
Use bilateral contracts when:
Both parties need to clearly define and agree on obligations upfront.
You want the certainty that both sides are legally bound from the start.
The transaction involves continuous obligations, such as ongoing payments or regular deliveries.
Considering venturing into these waters? A strong understanding of unilateral and bilateral contracts is crucial for navigating the contract lifecycle management process. Speaking of navigating complexities, Enty offers an intuitive platform to streamline contract management effectively!
Legal implications of both contract types
Contracts are more than just words on paper—they’re legally enforceable tools with specific implications.
Unilateral contracts:
Enforceability: a unilateral contract becomes enforceable once the act is completed.
Breach: failing to provide the promised reward could lead to legal consequences.
Bilateral contracts:
Enforceability: a bilateral contract is binding from the moment promises are exchanged.
Remedies for breach: if one party fails to deliver on their promise, the other party can seek legal remedies such as monetary damages, specific performance, or even contract rescission.
Final thoughts
Contracts aren’t just legal mumbo jumbo—they’re practical tools that bring structure and security to our everyday lives. Whether you’re creating incentives with a unilateral agreement or locking in mutual obligations with a bilateral one, the choice of contract depends on your goals and the level of commitment required. Both types have their perks and pitfalls, but understanding the differences empowers you to navigate negotiations and legal landscapes confidently. Ready to take your contract knowledge to the next level? With Enty’s contract management tools, you can craft, customize, and streamline agreements (and much more) with ease—turning complexity into simplicity.
