Individuals and businesses get into contracts on a daily basis for multiple reasons. Depending on the requirement, different types of contracts such as unilateral contracts and bilateral contracts are drafted by businesses. Such documentation helps in clearly establishing contractual obligations of the parties.
In a unilateral contract, only one party promises to perform obligations without getting a reciprocal assurance from the other party. Whereas a bilateral contract is created where both the parties mutually agree to the terms and conditions and promise to perform their obligation.
Knowing the difference between the commonly used unilateral and bilateral contracts can help you navigate through the entire deal term with much more confidence and better understanding.
Keeping a record of such business contracts is important but it is also crucial to know the types of contracts you must enter into. How it affects your legal obligations? What will be your responsibilities? Can the contract be revoked
What is a unilateral contract?
This is a business contract where the document is drafted by one party – the offeror. The offer is made to the general public or can be specific to a few people. But the other party to the contract i.e., the offeree, is in no way obligated to act upon such offer. But when the offeree fulfills the ask, the offeror needs to act pursuant to the contract and fulfill their party’s promise.
One thing to know about unilateral contracts is that just acting upon the offer won’t be considered as acceptance of the offer. Only when the offeree completes the task as mentioned in the agreement that the contract will be accepted. This will oblige the offeror to return promise as specified in the contract.
These contracts are used in cases where the offeror is willing to pay for the specified act.
The most common example of a unilateral contract is a reward contract for a lost pet. You see a flyer of a lost dog, with a promised reward of $100 to whoever returns the lost dog to their owner. Here the offeror promises a reward of $100 to the offeree only upon the completion of the task (i.e., to find the dog) and not just for acting upon the offer.
Another example of a unilateral contract can be an insurance contract. Here the insurance company promises to pay a specified sum of money only if the agreed-upon event occurs. If the event does not happen, then the company is not obligated to pay.
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Can unilateral contracts be revoked?
Revocation of unilateral contracts can happen anytime before the promisee starts performing the obligation. Whether or not the contract can be revoked after the performance has started depends on the action specified by the promisor.
- If the contract is a performance type – where for example the promisor offers $500 to anyone who climbs thirty floors – and the promisee acts upon it, then the contract cannot be revoked.
- If the contract is reward type – like the lost pet flyer – the contract can be revoked before the task is completed as long as the promisor conveys the revocation of the contract.
The older business law allowed revocation of performance type contract even after the promisee acted upon it. But that does not hold true anymore. Once the performance starts and the obligee fulfills the task, then payment needs to be made, or else it will be a breach of contract by the promisor.
|Key takeaways –|
1. Unilateral contracts are one-party contract – one party is obligated to fulfill the promise
2. Enforceable by contract law
3. Works best with open requests or optional offers
4. Can be revoked under specific circumstances
What is a bilateral contract?
A bilateral contract is an agreement between two parties. The terms and conditions of this business contract are agreed upon after consultation from both the parties. The exchange of value is based on the mutual promises made during the negotiation phase.
Bilateral agreements are the most common contract type where both the parties promise to perform their contractual obligations. All business contracts are mostly bilateral.
For example – A real estate agreement where you get into a contract with a real estate company to buy a house. Here both the parties have certain obligations to fulfill. The company needs to provide you a house as per your requirement and in return, you pay them a fixed amount of money to purchase it.
Here are some key elements that make a valid bilateral contract –
- The promisor’s offer
- Acceptance of the offer from the promisee
- Exchange of value or consideration
- Acceptable legal capacity of both the parties
- These elements are also applicable for unilateral contracts for it to be enforceable in the court of law
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These elements are also applicable for unilateral contracts for it to be enforceable in the court of law.
Some examples of bilateral contracts are –
Click here to learn from a step by step guide of how you can automate the drafting process of bilateral contracts like NDA.
|Read more –|
1. Essential elements that make a valid contract
2. What is a valid contract? Know its elements and benefits
3. Contract management software – an ultimate guide
Difference between a unilateral and bilateral contract
The most basic difference between a unilateral and bilateral contract is the reciprocal obligation from both parties. This is the basic foundation of these two types of contracts.
|Basis||Unilateral contract||Bilateral contract|
|Party’s promise||Only one party (the offeror) is obligated to fulfill the promise.||The contract is based on the mutual promise of both the parties to full the obligations.|
|Offer||This contract presents open requests and optional offers to anyone who is willing to perform.||An offer in a bilateral contract is extended by one party specifically to the other party.|
|Clarity||Communication via unilateral contract is difficult as the offeree is not known or fixed. Thus there are higher chances of confusion.||On the other hand, bilateral contracts have better clarity, where the obligations of both parties are listed clearly.|
|Time||The offeror presenting the unilateral offer must specify the time period for which the offer is valid.||Bilateral contracts have set timelines agreed by both parties – to deliver the requirements and make payments on the due date.|
How are unilateral and bilateral contracts alike?
There might be many differences but these two contracts also are similar in a few things. Some of the similarities are –
- Both the contracts are considered to be legally binding and are enforceable in the court of law
- There is a promise and consideration element in both the contracts
Unilateral contract vs bilateral contract – which is better?
Both unilateral and bilateral contracts are enforceable in the court of law but bilateral contracts are more widely used from a business perspective. It is because bilateral contracts safeguard the interest of both the offeror and offeree and create a sense of confidence as all the provisions are negotiated, discussed, and agreed upon by both parties.
Whereas unilateral contracts might have the risk of the offeror not fulfilling their promise. That is why unilateral contracts are widely used for informal agreements such a notice for a lost wallet or lost pet, etc. Selecting one as better would be unfair but it could be said that bilateral contracts are preferred more over unilateral contracts when it comes to formal business dealings.
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Unilateral and bilateral contracts – DIY
Understanding contracts is one thing but drafting them is another challenge. It includes different terms and multiple clauses that have to be incorporated in order to make it valid and enforceable.
|Read more –|
1. A Complete Guide on How to Write the Perfect Business Contract
2. Sales Contracts Guide – Contract Types and Parts of a Contract
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