This article is written by Mandira Patra, Heritage law college, 5th year BALLB student during on internship at Le Droit India.
Keywords
- Contract
- Agreements
- Offer
- Consideration
- Acceptance
- Unilateral contracts
- Bilateral contract
What is a Contract?
The Contract Act defines a contract as “an agreement enforced by law”. A compromise between two parties with obligations or duties that both parties must fulfill is called an agreement. When such an agreement is become legally binding, it is referred to as a contract.
Introduction:
Contracts are the backbone of business transactions, defining the agreements that businesses make with customers, employees, vendors, partners, and others. Businesses rely on two main types of contracts—unilateral and bilateral. Understanding these two distinct contract types is essential for anyone who must navigate the complex landscape of business and legal agreements. In this blog post, we’ll explore the key characteristics and common uses of unilateral and bilateral contracts to help you make informed decisions about your contract management processes.
In general, binding contracts involve three main aspects:
- An offer—a promise by the offeror to take a specified action
- Consideration—something of value promised by the offeror in exchange for a desired action by the offeree
- Acceptance—the agreement of the offeree to accept the terms of the offer
These elements operate slightly differently in unilateral contracts than they do in bilateral contracts.
Unilateral contracts
What is a Unilateral Contract?
A unilateral contract is an agreement where only one party makes a legally enforceable promise to perform a specific action or provide a benefit to another party. In this type of contract, the offeror (the party making the promise) is the only one bound by the agreement. The offeree (the party to whom the offer is made) is not required to respond or promise anything; acceptance only occurs through performance.
Example of a Unilateral Contract
For example, imagine your company promotes a contest asking its social media followers to post pictures of themselves using your product and promises a reward for the winning post. No one is obligated to post such a picture, but your company is obligated to follow the advertised terms of the contest and award the promised prize using the selection procedure described in the offer.
In unilateral contracts, performance by the offeree is construed as acceptance of the terms of the agreement. When an offeree relies on the offer in performing the requested action, the offeror becomes bound by its own contract terms. Failure to meet those terms amounts to breach of the unilateral contract.
Key characteristics of unilateral contracts include:
- One-sided obligation: Only the offeror is legally bound by the promise made in the contract.
- Acceptance through performance: The offeree accepts the contract by completing the specified task or meeting the stated conditions rather than through a formal agreement or signature.
- No negotiation: Unilateral contracts are typically presented as “take it or leave it” offers, with no room for negotiation or modification by the offeree.
- Open offers: In many cases, unilateral contracts are open offers that can be accepted by anyone who fulfills the specified requirements, rather than being directed at a specific individual or entity.
Understanding the nature of unilateral contracts is essential for effective contract management, as these agreements require different strategies and considerations compared to bilateral contracts.
Bilateral contract
What is a Bilateral Contract?
A bilateral contract, on the other hand, involves promises from both parties and obliges each to perform the promised actions. This is what typically comes to mind when people think of a contract: a promise in exchange for a promise. An example of this can be seen managing multiple suppliers.
Example of a Bilateral Contract
For example, a contract to procure goods from a supplier involves obligations on both sides: the supplier r must supply the goods as described, and the buyer must pay the specified price in exchange for those goods. When a buyer signs the sales contract, this indicates acceptance of the offered goods and a promise to pay the consideration it describes.
If either party fails to meet the obligations described in a bilateral contract, the other can sue for breach of contract.
In contrast to a unilateral contract, a bilateral contract is an agreement where both parties make legally binding promises to each other. Each party to the contract agrees to perform a specific action or provide a benefit in exchange for the other party’s promise to do the same. This mutual exchange of promises creates obligations for both sides, and either party can be held liable for breach of contract if they fail to fulfil their commitments.
Bilateral contracts are the most common type of agreement in business relationships. For example, in a purchase agreement, the buyer promises to pay a specified amount of money in exchange for the seller’s promise to deliver a product or service. Both parties are obligated to perform their respective duties under the terms of the contract.
Another bilateral contract example is an employment agreement. The employer promises to pay a salary and provide benefits, while the employee promises to perform their job duties and comply with company policies. This exchange of promises creates a binding contract between the employer and employee.
In the real estate industry, bilateral contracts are prevalent. In a real estate purchase agreement, the buyer promises to pay a specified price for a property, and the seller agrees to give the ownership of the property to the buyer in return. Both parties have obligations to fulfill under the contract. The roles and obligations of parties in a bilateral contract are clearly defined within the agreement itself. Each party must perform their promised action or provide the agreed-upon benefit to fulfill their contractual obligations. Failure to do so can result in a breach of contract, which may lead to legal consequences such as damages or specific performance.
What’s the difference between unilateral vs. bilateral contracts?
1.The difference between a unilateral and bilateral contract lies mainly in the number of parties who make a promise.
- In a unilateral contract, one party makes a promise in exchange for a specific action from another party. Here, only one party is legally bound.
- In contrast, a bilateral contract involves mutual promises between two parties. Both parties are legally obligated to fulfill their promises.
2.Real-world examples of unilateral and bilateral contracts
A classic example of a unilateral contract is a reward offer. Suppose you offer a reward for finding your lost puppy. You are the only one making a promise – to pay the reward to whoever finds your dog. The person who finds your puppy is not legally bound to search, but chooses to act in hopes of earning the reward.
An employment agreement, on the other hand, is a common type of bilateral contract. You agree to work for an employer, and the employer agrees to pay you. Both you and the employer have obligations that you must fulfil.
3.How to recognize a unilateral contract
Look for a one-sided promise: In a unilateral contract, only one party commits to an obligation, usually in exchange for an action rather than a promise.
Action-based: Unilateral contracts typically involve a specific action to be completed, like finding a lost item or completing a task.
No obligation for the second party: The other party is not legally bound to perform the action but does so voluntarily, often incentivized by the promise.
4.How to recognize a bilateral contract
Look for mutual: In a bilateral contract, you and another party will commit to obligations. For instance, in a sales agreement, one party promises to deliver goods, and the other promises to pay.
Agreement-based: Bilateral contracts are based on agreements between parties. Each party agrees to perform certain duties or services, not just complete a specific action.
Obligations for both parties: In a bilateral contract, both parties are legally bound by their promises. Once you make an agreement, each party has specific contractual obligations to fulfil.
5.How to enforce a unilateral vs. bilateral contract
Enforcing unilateral and bilateral contracts presents unique challenges, and requires specific strategies tailored to each type.
Enforcing a unilateral contract
Unilateral contracts entail distinct hurdles due to their one-sided nature. Enforcing unilateral contracts proves challenging as they hinge on one party’s promise without reciprocal obligations. Verifying completion of specific actions, upon which unilateral contracts are contingent, can also be complex, leading to disputes over fulfilment.
Enforcing a bilateral contract
Addressing disputes arising from bilateral contracts requires careful navigation. Encourage parties to resolve disputes amicably through mediation or negotiation, focusing on mutually beneficial solutions. If negotiation fails, consider formal dispute resolution methods like arbitration or litigation to ensure legal compliance and fair outcomes.
Conclusion
Unilateral contracts involve a one-sided promise, while bilateral contracts require mutual promises from both parties. Recognizing these distinctions helps businesses choose the appropriate contract type, manage obligations, and mitigate risks.
Contract Lifecycle Management solutions can help organizations streamline processes, improve collaboration, and ensure compliance. By leveraging CLM software, businesses can optimize their contract management practices and drive success.
