Bilateral Contract

Bilateral Contract: Definition, How It Works, and Examples

Definition

A bilateral contract is a legally binding agreement between two parties in which each party makes a promise or assumes an obligation to the other. Both sides exchange consideration (something of value), creating reciprocal duties that are enforceable by law.

Key takeaways

• The most common form of contract; most sales, leases, and employment agreements are bilateral.
• Each party is both an obligor (bound to perform) and an obligee (entitled to another’s performance).
• A breach occurs if either party fails to fulfill its obligations.
• Courts look at whether both parties offered something specific of value when determining whether a contract is bilateral.

How a bilateral contract works

In a bilateral contract, each party promises to perform an act or provide consideration in return for the other party’s promise. Contracts may be written or oral; signing a written contract makes the agreement clearer and easier to enforce but is not always required.

Common situations:
* Sales agreements: buyer promises payment; seller promises delivery or title transfer.
Employment agreements: employer promises wages; employee promises to perform specified duties.
Business transactions: suppliers promise goods or services; buyers promise payment.
* “Side deals”: in complex negotiations (for example, multinational trade), parties may enter separate bilateral agreements covering specific shared interests.

If one party does not perform as promised, a breach of contract has occurred and legal remedies may be available.

Bilateral vs. unilateral contracts

The key distinction is reciprocity of obligation:
* Bilateral contract — both parties make enforceable promises to one another.
* Unilateral contract — only one party makes a promise that becomes enforceable only when the other party completes a requested act.

Example of a unilateral contract: a reward offer (e.g., $1 million to anyone who finds buried treasure). No one is obligated to search; if someone finds the treasure, the offeror must pay. In contrast, a bilateral contract would impose mutual obligations on both parties.

When the nature of an agreement is disputed, courts examine the contract’s terms to determine whether both parties assumed enforceable obligations.

Conclusion

Bilateral contracts form the foundation of most commercial and personal transactions because they involve mutual promises and reciprocal duties. Understanding whether an agreement is bilateral or unilateral helps clarify each party’s obligations and the available remedies if performance fails.

Sources

• Cornell Law School, Legal Information Institute — “Bilateral Contract”
• Cornell Law School, Legal Information Institute — “Unilateral Contract”