What is the Difference Between Bilateral and Unilateral Contracts: Everything You Need to Know
What is the difference between bilateral and unilateral contracts? It’s essentially that a bilateral contract is an agreement between two parties, in that both parties are expecting to honor some type of deliverable, whereas a unilateral contract is when only one party is expected to complete a deliverable. 3 min read
What is the difference between bilateral and unilateral contracts? It’s essentially that a bilateral contract is an agreement between two parties, in that both parties are expecting to honor some type of deliverable, whereas a unilateral contract is when only one party is expected to complete a deliverable. Understanding the deeper specifics of each type of contract can be crucial for knowing the type of contractual relationship into which you may be entering.
The truth is, most of us are entering into contracts almost every day (usually bilateral contracts) whether we are fully aware of it or not, as they are a part of normal living, both professionally and personally. As such, it is important to take note of the fact that contracts can be either written or oral; oral contracts, while often times more difficult to enforce, are still legally recognized, and failure to honor either a written or oral contract is still considered to be a breach of contract.
More on Bilateral Contracts
A bilateral contract is the most common type in both business and personal relationships. Common examples include:
- Real estate contracts, wherein the buyer agrees to pay a certain amount for the home, and upon doing so, the seller completes their end of the agreement by selling said home.
- Every time you make a purchase from a store or restaurant, as the agreement is that you will receive your merchandise or meal in exchange for payment.
- Anytime you go to see your doctor, as you receive treatment in exchange for payment. Even if you have health insurance that covers the cost of the doctor’s visit, it is still a bilateral contract, as the agreement is that the insurance company will provide payment to the doctor, provided you have been keeping your policy up-to-date by paying your premium
- Utilities such as phone, gas, and electricity services in that the respective company provides you with the appropriate service and in turn, you pay the company a certain amount each month for said service.
Bilateral contracts are generally quite clear as to the expectations of each party: payment in exchange for goods or services is the most common example. Many times, particularly in the case of shopping or dining out, the contract is oral or implied, as opposed to written.
More on Unilateral Contracts
As the name implies, a unilateral contract holds only one person or party responsible for honoring the terms and conditions of a contract. Additionally, a unilateral contract may exist between two people or parties, or it can be a contract that a person or party is extending to the public at-large. For example, if you see a poster offering a reward to whomever returns a lost kitty, that is an example of a unilateral contract. The reason being is that no one specific individual or party is responsible for returning the missing cat; rather, the only person who has a specific obligation is the person who is offering the reward.
Another example of a unilateral contract exists with insurance companies. A car insurance company is only obligated to pay the insured party a certain amount of money in the event of a situation that is spelled out within the terms and conditions of the contract (in this case, a car accident). If the insured is never in a car accident, then the insurance company is not obligated to provide payment to the individual.
Additionally, it is often wise to cite a specific time period under which the unilateral agreement is valid. For example, if you are searching for your missing pet, you may want the poster to indicate the reward is only valid until a certain date, whereas in the case of the insurance company, the contract will most likely stipulate that the insurance policy is only in effect until a certain date (usually based upon when the next payment is due).
In the case of unilateral contracts, the obligated party must actually perform the activity, not just have a promise to do so. For example, if you have found the missing kitty, you must actually take it to the owner before they are obligated to pay you the reward. Simply calling the owner and saying “I found your cat” is not sufficient reason for you to be provided payment.
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