Bilateral contracts are commonly used in most day-to-day transactions and such most consumers are familiar with this type of transaction. Some of the most basic examples of bilateral contracts in everyday life include the purchases you make at your local store, paying for services at the doctor’s office, or purchasing a book from the bookstore among other transactions. The underlying principle for such transactions is that you agree to pay for a reciprocal action by the recipient such as the doctor’s treatment services.
Each of the parties to a bilateral contract is both the obligor (an individual who is obligated to another) by its contractual promise as well as the obligee (an individual to whom another individual is bound) by the other person’s contractual promise. For such a contract to be legally enforceable, it is typically documented in the form of a contract signed by both parties agreeing to the terms stipulated in the contract.
Comparison between Bilateral and Unilateral Contracts
The main difference between a bilateral contract and a unilateral one is that in a unilateral contract only one of the parties is required to fulfil their obligations, while the other party can choose not to perform their obligations if they do not want to. Such contracts can only be enforced by the obliged party if the obligor decides to do their part, but the obliged party cannot force the obligor to perform their specified duties.
To help clarify how unilateral contracts work, let’s use the example of party A who offers a reward to anyone who finds and returns the family dog that has strayed from their home and is lost. In this scenario, party A is obligated to give the reward to a party B, if B finds the dog and decides to return the dog to party A. However, party B has not promised to find and return the dog, which makes this a one-sided contract that is not legally binding on party B as it is on party A.
Most business transactions utilize bilateral contracts that are legally enforceable as opposed to unilateral contracts that cannot be legally enforced on one of the parties. Another common type of unilateral contract is most insurance contracts, which obligate the insurance company to award specific benefits to their customers, if they pay their premiums in a timely manner. However, the insurance customers have no legal obligation to pay their insurance premiums and can easily opt out of the insurance contracts.
The Concept of a Consideration
In cases where parties to a contract have disagreed on whether the contract was unilateral or bilateral, the courts have used the concept of a consideration to determine the type of contract. In a bilateral contract, both parties promise something valuable as a consideration, while in a unilateral contract, only one of the parties promises something valuable as a consideration.
A unilateral contract immediately becomes a bilateral contract if the promisee starts to perform some of the actions outlined in the unilateral contract.