Unilateral vs Bilateral: Everything You Need to Know
When discussing unilateral versus bilateral, you are often referring to the type of contract that is being signed by multiple parties. A contract is defined as a written or spoken agreement between the two parties that is enforceable under the law.3 min read
When discussing unilateral versus bilateral, you are often referring to the type of contract that is being signed by multiple parties. A contract is defined as a written or spoken agreement between the two parties that is enforceable under the law. Through the use of these contracts, the rights, duties, responsibilities, and related terms in the agreement are all clearly defined and understood. If these agreements are breached or not followed by either party, they could be found liable under a court of law.
When creating your contract, there are two primary types of contracts that you can choose from: unilateral and bilateral. There are some primary differences between the two types of contracts and key factors that each includes. Both types of contracts are used on a regular basis, so you may come across them in both your personal and daily business life. When it comes to unilateral and bilateral contracts, some key factors are:
- Both types of contracts are protected under the law
- Courts tend to favor bilateral contracts
- Both types of contracts should be put in writing to make sure they are enforceable
What Is a Unilateral Contract?
A unilateral contract by definition is a contract that involves action taken by one group or one person alone. In contract law, for a contract to be considered unilateral, it can only allow for one person to make the agreement. The promise the one party makes will be considered available and open until someone takes action. The promise will then be fulfilled once a person has acted on it.
A unilateral contract is where an obligation or promise is made without there being a promise of performance from the other party. While the originating party may have made a promise, they may not be obligated to perform on it unless the second party decides to act. Therefore, the unilateral contract does not become binding until one of the parties accepts.
There is no requirement that the offeree must notify the offerer that the agreement has been accepted. The offeree's performance will be treated as the acceptance, price, and consideration of the offer. A prime example of a unilateral contract is that of insurance. An insurance company makes a promise to pay for damages if an accident occurs, as long as the insurance premiums have been paid. The insured does not have to pay unless they want to take advantage of the service, at which point paying the premium would constitute acting on the contract.
This is the primary difference between unilateral and bilateral agreements. A unilateral agreement is an open-end agreement offered by one party that requires acceptance to start, where a bilateral contract is a contract where both sides have made promises.
Examples of a Unilateral Contract
You can see examples of unilateral contract agreements in business situations, as well as everyday life. Some examples of a unilateral contract include:
- Offers of reward for a lost pet or item
- Insurance premiums where the insurance will pay for a loss if you pay your premiums
- A real estate broker agreement where they agree to sell a property for a commission rate, therefore, the pay is not determined until a purchase action is made
What Is a Bilateral Contract?
A bilateral contract is a contract that is entered into by at least two groups of people where both parties in the contract will make promises. There are elements in a bilateral contract that are similar to those in a unilateral contract, such as:
- The promisor's offer
- The promisor's acceptance of the offer
- Consideration of what can support the offer
- The legal capacity of both parties
In a bilateral contract, parties will agree to a number of things, including:
- The time frame in which delivery will occur
- Description of the product or services being delivered
- What happens if either party fails to keep up their end of the contract
- What constitutes a breach of contract
- What steps will be taken if a default occurs
In a bilateral contract, if either party fails to perform their end of the agreement, the nonperforming party will be considered to be in breach of contract. In essence, a bilateral contract is constructed of a promise in exchange for a promise.
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