Legal Implications of Unilateral and Bilateral Contracts

Legal Implications Of Unilateral And Bilateral Contracts

Bilateral and unilateral contracts are two distinct types of contractual agreement based on their nature and legal enforceability. Keep reading for a comprehensive of both.

Contracts open the door to fruitful business collaborations. It helps companies to stay on track with responsibilities, rights, and consequences. They mainly use two types of agreements to create legal obligations with parties; unilateral and bilateral contracts. 

As the name suggests, a unilateral contract involves a single party making a legal promise. On the other hand, bilateral agreements consist of two or more parties agreeing on a set of terms and conditions. Each comes with its own set of specifications, contract law, and benefits. Businesses can better navigate their needs if they have a solid grasp of the legal implications of both contract types. So here’s a detailed breakdown of unilateral and bilateral contracts, their similarities, differences, and enforceability. 

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What are unilateral contracts?

In a unilateral contract, one party makes an assurance or an offer. The offeree must fulfill their promise only if the other party completes the specified act or performance. Unlike traditional methods of approval and signing, in a unilateral contract, the acceptance is demonstrated through the actual performance of the requested act. In other words, the offeror's promise becomes legally binding only when the offeree completes the required action.

For instance, if a party offers a reward for finding their lost dog. No one is obligated to search for the dog, but if they find it and return it to the owner, the offeror is legally bound to provide the promised reward. The principle of "a promise for an act" is the foundation of unilateral contracts. Perform is the method of acceptance. The agreement becomes enforceable when the offeree follows through with the act.

Reward-based contracts: They are a specific type of unilateral contract in which an offeror promises a reward or incentive in exchange for the completion of a specific act or achievement by the offeree. The offeree has the option to accept the offer by performing the required act, and upon completion, they become eligible for the reward.

Contest or Sweepstakes: In many contests or sweepstakes, participants are often required to perform a certain action, such as filling out an entry form or submitting creative work. The offeror promises a prize or reward to the selected or randomly chosen participant who meets the specified criteria. By entering and completing the required action, the participant accepts the offer and becomes eligible for the prize if they are selected.

Performance-Based Contracts: Contracts that involve performance-based payments or incentives can also be unilateral. For example, a contract between an artist and a record label may state that the artist will receive a specific bonus payment if their album sells a certain number of copies. The artist's completion of the album and the subsequent sales performance serve as acceptance, and the record label becomes obligated to pay the bonus if the sales target is met.

Insurance Contracts: Insurance policies can be considered unilateral contracts. The insured party pays the premium, which is their consideration, and the insurer promises to provide coverage in the event of a specified loss or occurrence. The insurer's promise is activated upon the occurrence of the specified event, such as an accident, illness, or property damage, and the insured can then claim to receive the benefits outlined in the policy.

What are bilateral contracts?

In a bilateral contract, both parties commit to keeping their promises to one another. The commitment made and kept by the parties forms the basis of the agreement, imposing obligations on both parties.

In a bilateral contract, parties communicate assent through an acceptance statement or conduct that indicates an intention to be bound by the contractual agreement. All the parties involved negotiate and agree upon the terms and conditions for the business partnership. 

A written bilateral contract is legally enforceable under the respective contract law of their jurisdiction. Thus, they are obligated to perform their promises under the agreement. There may be legal and financial repercussions if either party breaches the contract by failing to fulfill their obligations. 

Employment Contract: When a person is hired for a job, an employment contract is often formed. The employer promises to provide compensation and benefits in exchange for the employee's promise to perform specific work duties and abide by company policies. Both the employer and the employee have made promises to each other, creating a bilateral contract.

Lease Agreement: In a lease agreement, a landlord (offeror) promises to provide the tenant (offeree) with the right to occupy a property for a specified period, while the tenant promises to pay rent and follow the terms of the lease. Both parties have made mutual promises, forming a bilateral contract.

Service Contracts: Contracts for services, such as hiring a contractor to renovate a house or engaging a photographer for an event, are bilateral. The service provider promises to perform the agreed-upon services, and the client promises to pay the agreed-upon compensation for those services.

Partnership Agreement: When two or more individuals enter into a partnership to operate a business together, they typically create a partnership agreement. The partners make mutual promises regarding their roles, responsibilities, and the sharing of profits and losses. The partnership agreement establishes a bilateral contract between the partners.

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What distinguishes bilateral from unilateral agreements?

Unilateral and bilateral contracts differ in several key aspects, including the nature of the promises, acceptance, and the parties' obligations. Here are the main distinctions between the two:

  1. Promise Structure:

   - Unilateral Contract: In a unilateral agreement, a single party makes a promise The offeror offers a reward or promises something upon the completion of a specified act by the offeree. The offeree has the option to accept by performing the requested act. Until the act is completed, there is no binding contract.

   - Bilateral Contract: In a bilateral contract, both parties make promises to each other. Each party is both an offeror and an offeree, exchanging mutual promises. Both parties are obligated to perform their respective promises upon acceptance, creating reciprocal obligations.

  1. Acceptance:

   - Unilateral Contract: Acceptance in a unilateral contract is demonstrated through the performance of the requested act by the offeree. The act of performance serves as acceptance, and the contract becomes binding only when the act is completed. Until then, the offeror is not obligated to fulfill their promise.

   - Bilateral Contract: Acceptance in a bilateral contract is typically communicated through an acceptance statement or conduct that indicates an intention to be bound by the contract. It can be a verbal or written acceptance or acceptance through conduct. Once acceptance is communicated, the contract becomes binding on both parties.

  1. Obligations:

   - Unilateral Contract: In a unilateral contract, the offeror is the only party initially obligated to fulfill their promise. The offeree has the option to choose whether or not to perform the requested act and accept the offer. If the offeree completes the act, the offeror becomes obligated to fulfill their promise.

   - Bilateral Contract: In a bilateral contract, both parties have immediate obligations to perform their respective promises upon acceptance. Both parties are bound by the terms of the contract and must fulfill their obligations.

  1. Control:

   - Unilateral Contract: The offeror holds most of the control in a unilateral contract. They have the power to specify the conditions of the performance and can accept or reject the performance based on their satisfaction.

   - Bilateral Contract: In a bilateral contract, both parties have equal standing. They negotiate and agree upon the terms of the contract, and neither party holds unilateral control over acceptance or performance.

Understanding these differences is essential for determining the rights, obligations, and enforceability of a contract based on its structure, promises made, and acceptance method.

Are unilateral and bilateral contracts legally valid?

Both unilateral and bilateral contracts can be legally valid and enforceable, provided they meet the requirements of contract law. The validity of a contract, regardless of its type, depends on the presence of essential elements such as offer, acceptance, consideration, legal capacity, legal purpose, and mutual assent.

Unilateral contracts can be legally valid if the offeree performs the requested act, which serves as acceptance, and the offeror is then obligated to fulfill their promise. Once the act is completed, a binding contract is formed, and the offeror's promise becomes enforceable.

Bilateral contracts can also be legally valid when both parties make promises to each other and there is a mutual exchange of consideration. Acceptance is typically communicated through an acceptance statement or conduct that demonstrates an intention to be bound by the contract. Once acceptance occurs, the contract becomes binding on both parties, and they are obligated to fulfill their respective promises.

Conclusion

Bilateral contracts involve mutual promises and reciprocal obligations between both parties, while unilateral contracts involve one party making a promise and seeking performance from the other party. Acceptance in bilateral contracts is through mutual assent, whereas in unilateral contracts, acceptance is demonstrated through the performance of the requested act.

Each party is simultaneously an offeror (promisor) and an offeree (promisee) in a bilateral contract. In unilateral contracts, the offeror holds most of the control, as they can choose the conditions for the performance and have the power to accept or reject it based on their satisfaction. On the other hand, the offeree can decide whether or not to perform the requested act and accept the offer. 

Disclaimer: The information provided on this website is not intended to be legal advice; rather, all information, content, and resources accessible through this site are for purely educational purposes. This page's content might not be up to date with legal or other information.
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Written by Deepti Gopimohan

As a creative content writer, Deepti has spent years assisting brands to share their unique voice with audiences, complying with the latest marketing trends and strategies. Her educational background in Literature & Journalism has helped her research and publish content for diverse industries & mediums.
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Reviewed by Naveen K P

Naveen, a seasoned content reviewer with 9+ years in software technical writing, excels in evaluating content for accuracy and clarity. With expertise in SaaS, cybersecurity, AI, and cloud computing, he ensures adherence to brand standards while simplifying complex concepts.

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