Bilateral Contract: Everything You Need to Know
In a bilateral contract, two parties each promise to perform an act in exchange for something else. It is the most prevalent type of contract. 3 min read
In a bilateral contract, two parties each promise to perform an act in exchange for something else. It is the most prevalent type of contract. When most people think of contracts, they are thinking of bilateral contracts. In the reciprocal agreement, each party is agreeing to offer something and to get something in return, such as offering money in exchange for a service. For a bilateral contract to be legally binding, there has to be a record that the terms were agreed upon by all parties, which usually comes in a signed document.
How to Create Legal Bilateral Contracts
In order for a contract to be legally binding, it must contain four required elements:
- Agreement, or the offer accepted by both parties
- Consideration, or the price paid for the agreement
- Intention to create legal relations, or the understanding that the contract will be legally binding
- Certainty, or a clear and complete contract
Legal detriment in a contract comes from a promise from one party to do something that the party hasn't previously been legally bound to do. Legal detriment establishes consideration, motive, cause, or benefit and causes a party to enter a contract. It is a required part of the contract.
Courts typically determine if a contract is bilateral or unilateral by identifying if both parties provided consideration and when they did so. Both parties are bound to a bilateral contract as soon as they exchange promises.
For example, if a person offered to drive their neighbor's children to school three days a week in exchange for the neighbor driving the children to school the other two days, a bilateral contract would be created as soon as both people agreed to the arrangement. However, if the person offered the neighbor $20 to drive their children to school, it would create a unilateral contract that only binds the neighbor offering the service to the arrangement until the other neighbor drives the children.
When to Use a Bilateral Contract
Bilateral contracts can cover many different subjects, including selling goods. When real estate is sold, a buyer is contractually bound to pay the seller a specific amount of money in order to get the property, and the seller agrees to hand over the property in exchange for a certain amount of money. A breach of contract happens if either party doesn't follow through on their promise.
In a bilateral contract, two parties agree to each do something. Elements of a bilateral contract include:
- Offer by the promisor
- Acceptance by the promisee
- Consideration for the offer, usually money
- Of legal capacity, or that both parties are of sound mind
- Lawful terms
Business contracts are almost always bilateral because businesses provide a service or product in exchange for money from their suppliers or customers. Contracts for employment and job offers are also bilateral because a company agrees to give an employee a specific salary for performing certain tasks.
Bilateral contracts are important for small businesses, especially those in the retail industry. Every sale is a bilateral contract. The business agrees to provide a service or item to a customer in exchange for an agreed-upon price. The buyer agrees to pay the amount in exchange for the good or service. Every sale is a textbook example of a bilateral contract with a mutual exchange of promises. However, each bilateral contract is different. In order for a business to stay in operation, it must create contracts not only with customers as it makes sales, but also with other businesses and suppliers.
Bilateral vs. Unilateral
In our modern world, courts don't often distinguish between bilateral and unilateral contracts and believe an offer can be accepted either with a promise to perform the agreed-upon action or by actually performing the action. In fact, courts often rule that unilateral contracts become bilateral contracts once the action is performed. Some courts interpret all contracts as bilateral contracts if there isn't clear evidence the parties intended to create a unilateral contract. If there is any doubt, courts will assume the contract was bilateral with the promise to perform an action in exchange for something else. The bottom line is that most courts have moved away from stringent application of unilateral and bilateral contracts, and instead look at each contract on an individual basis.
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