Bilateral and unilateral describe how a contract is accepted. A bilateral contract exchanges promises; a unilateral offer invites acceptance by performing the requested act. Both involve more than one person—the distinction is not the headcount.
What is a Bilateral Contract?
Definition: A bilateral contract exchanges a promise for a promise. Each party undertakes an obligation.
Example: A seller promises to convey a property, and a buyer promises to pay the agreed price, subject to their purchase contract’s terms. The exchange of promises makes the agreement bilateral.
For another real estate example, California DRE explains that an exclusive-right-to-sell listing is bilateral because the seller’s compensation promise is exchanged for the broker’s promise to use diligence and best efforts. See its agency reference chapter.
What is a Unilateral Contract?
Definition: A unilateral offer promises something in return for performance of a requested act. The recipient does not accept merely by promising to act.
Example: A reward offer promises payment to someone who performs the stated task.
Unilateral contracts appear more often than you may think; one of the most common instances is a reward contract. Imagine you’ve lost your cat, Coco. You place an advertisement online offering a $250 reward to the person who returns Coco. By providing a reward, you’re offering a unilateral contract.
No finder has promised to search for Coco. If someone accepts the offer by returning Coco as requested, the reward must be paid. See the similar lost-dog example in California DRE’s contract reference chapter.
What’s the Difference Between Bilateral and Unilateral Contracts?
For the exam, remember: bilateral = promise for a promise; unilateral = promise for performance. In the reward example, both people ultimately do something, but only the reward-giver made a promise.
How are Bilateral and Unilateral Contracts Alike?
Either type can create enforceable obligations if the applicable contract requirements are satisfied. A party’s failure to meet an enforceable obligation without a legal excuse can be a breach.
The breach of a contract happens when a failure to fulfill any term of a contract without a legal excuse occurs.
Breach of contracts is pretty self-explanatory in bilateral contracts. For an example of a breached bilateral contract, just imagine this – Let’s say you own a company and hire a bunch of employees. Most of them are great except for one pesky one. This one employee you catch sleeping on the job, which is explicitly forbidden on his contract! This would be an example of a bilateral contract being breached.
In the Coco example, suppose someone returns the cat in accordance with the $250 reward offer. The offeror cannot satisfy that payment obligation by paying only $100. Merely finding the cat without meeting the offer’s return requirement is different.
