Bilateral Contracts vs Unilateral Contracts

Bilateral Contracts vs Unilateral Contracts Image

Contracts are used personally and professionally. The two types of contracts are unilateral and bilateral. The difference between the two is in the number of parties involved. In a unilateral contract, only one party makes a promise, while in a bilateral contract two parties make promises. Today we are going to cover the full definitions of both and more.

What is a Bilateral Contract?

Definition: A bilateral contract is an agreement between two or more parties. Most business and personal contracts fall into this category.

Example: Bilateral contracts are very common. You’ve probably took part in one within the last week. Every time you buy groceries, go to the doctors, or even subscribe to Netflix, you are taking part in a bilateral contract.

Traditionally, when people discuss contracts they are talking about bilateral contracts. Someone promises a certain action to another party in response to another party’s action. It’s a two way street.

What is a Unilateral Contract?

Definition: A unilateral contract is a contract in which only one party makes a promise to perform an action.

Example: An insurance contract or a reward contract are both examples of unilateral contracts.

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.

Your promise to pay for anyone returning your cat is a single promise. You’re the only person who has taken any action in this contract because no one is specifically responsible for finding your cat, it’s completely optional.

What’s the Difference Between Bilateral and Unilateral Contracts?

The difference between bilateral and unilateral contracts is the number of parties promising an action. In a unilateral contract, only one party makes a promise, while in a bilateral contract two parties make promises.

How are Bilateral and Unilateral Contracts Alike?

Both bilateral and unilateral contracts have some similarities. First and foremost, both contracts are enforceable in court. The other similarity is both contracts can be broken, also known as a breach of contract.

The breach of a contract happens when a failure to fulfill any term of a contract without a legal excuse occurs.

Breach of contracts are 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.

For a great example of a breached unilateral contract, let’s use our example from way earlier. Let’s say you post online offering a $250 reward to the person who returns your cat, Coco. Let’s say someone finds Coco, but you only are willing to give the finder $100. This is a breach of contract because you made a promise of a $250 reward.

Author:
Zackary Smigel is a real estate professional with a love for teaching, based out of Pittsburgh, PA. He's had the opportunity to work with some of the brightest minds in real estate and has spent years learning how to become a successful agent.