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What's the Difference Between Bilateral and Unilateral Contracts?

What is a bilateral contract?

Bilateral contracts are the quintessential contract: an agreement between two or more people where all parties promise to perform--or not perform--and agreed upon action.

 

An easy example of a bilateral contract is a standard employment agreement. In such an agreement both parties negotiate terms and, when they come to an agreement, the new employee promises to come to work and her employer promises to render the agreed compensation. Both parties are bound to the agreement and failure of either, by not showing up to work or not making good on a paycheck, would be a breach of contract.

 

What is a unilateral contract?

A unilateral contract is a contract that can only be accepted through performance.

 

One of the most common instances is a reward contract. Pretend you've lost your dog. You place an advertisement in the newspaper or online offering a $100 reward to the person who returns your missing pooch. By offering the reward, you're offering a unilateral contract. You promise to pay should anyone fulfill the obligation of returning your dog. You're the only person who has taken any action in this contract, as no one has assumed responsibility for finding your dog.

 

 

Another common example of a unilateral contract is with insurance contracts. The insurance company promises it will pay the insured person a specific amount of money in case a certain event happens. If the event doesn't happen, the company won't have to pay.

 

How are bilateral and unilateral contracts alike?

Both unilateral and bilateral contracts can be breached. Consider the term 'breach' synonymous with 'break.' This means breach of contract can be defined as a broken contract, stemming from failure to fulfill any term of a contract without a justifiable, lawful excuse.

 

Common examples of broken unilateral contracts might include any situation in which the person promising the pay in exchange for a completed act refuses. For example, if you offer $100 for the return of your dog, but then refuse to pay because you think the person who brought the dog back stole him, you'd likely be in breach of contract because you broke your word about the payment. Bilateral contracts can also be breached. A bilateral contract might be broken if a coworker refuses to complete his or her portion of a job; when an employee does something prohibited by his or her job contract; or even when a customer prevents the contractor from satisfying the obligation or finishing the project at hand.

 

You also need to prove the same criteria should you decide to enforce a bilateral or unilateral contract in court. In each situation, you need to establish:

  • The contract existed.

  • The contract was broken.

  • You suffered a loss.

  • The person you're challenging was responsible.

 

What's the difference between bilateral and unilateral contracts?

At first glance, the most obvious difference between bilateral and unilateral contracts is the number of people or parties promising an action. Bilateral contracts need at least two, while unilateral contracts only obligate action on one part.

 

The other differences might be a bit more subtle. Look at what's being offered. In unilateral contracts, one offering the deal promises to pay when a certain act or task is complete, but bilateral contracts allow for an upfront exchange.