Contracts are an essential part of business. They help in securing business and avoiding risks both personally and professionally. We come across numerous unilateral and bilateral contracts in our daily lives and even deal with them without knowing that they are contracts. Learning the difference between each kind of contract will help us to handle our legal matters efficiently. Unilateral contracts involve one party that takes action and will be obligated to pay after the second party has completed their action. On the other hand bilateral contract involves both parties who are legally bound by each other to take action and thus they have to fulfill their promises.

The rest of this article article unilateral contract vs bilateral contract explains the terms unilateral contract and bilateral contract in more detail

Definitions and meanings

Unilateral contract

Unilateral contract is a one-sided contract that involves only one action carried out by only one party. The party may involve an individual person or a group of persons. In a unilateral contract the party is known as the offeror. He makes a promise in exchange for an action. This action will be taken by the second party that is called the offeree. Legally, unilateral contracts comprise of only one person who has to make a promise or agreement.

If the offeree acts on the offeror’s promise, the offeror is legally obligated to carry out the terms of the contract. It should be kept in mind that an offeree is not obligated to carry out the desired action because no return promise has been made by him to the offeror. After an offeree has fulfilled the required action, it becomes compulsory on the offeror to complete his promise.

There are many different examples of unilateral contract in our daily life, lets observe one of them. Someone’s pet has gone missing. So he places an advertisement in the newspaper or online regarding his pet and announces a $100 award. By offering the reward, he is offering a unilateral contract.  If anyone finds the missing pet then that person receives the award. The offeror is obligated by law to carry out the final action that was mentioned in the advertisement which is a unilateral contract. He is the only person who has taken any action in this contract. It should be kept in mind that, no one is specifically responsible or obligated to finding his lost pet, but can carry out the search voluntarily.

Another common example of unilateral contract without reward is of an insurance company. An open contract exists between the buyer and the seller. The insurance company offers to pay the insured person a specific amount of money in case a certain event takes place. If the event doesn’t happen, the company will not be obligated to pay. These are the terms of the unilateral contract.

Bilateral contract

When we think about contracts the first thing that comes to our mind is a bilateral contract. Unlike unilateral contract a bilateral contract is an agreement between two parties in which each side agrees to fulfill his or her side of the promise. Thus there are two parties concerned. Each party is both an obligator and an obligee. An obligator refers to the person upon whom it is compulsory to perform an action. An obligee is a person on whom another party is obligated.

Lets look at an example of a bilateral contract. Each and every sales agreement is a bilateral contract because the customer is obligated to pay a certain amount and gets purchased materials in return. The store owner, on the other hand, is obligated to provide sold materials and will receive cash from the customer immediately or on some future date.

Similarly, this type of contract is established when you order a meal at a restaurant, receive relieving treatment from your doctor or purchase anything. In all of these scenarios, a person promises a certain action to another person or party in response to that person or party’s action.

Difference between unilateral and bilateral contract

The main points of difference between unilateral and bilateral contract are listed below:

1. Meaning

The literal meaning of the unilateral contracts is of a one-sided contract.Whereas the literal meaning of a bilateral contract is two-sided.

2. Involved parties

Only one party is obligated to carry out the agreement terms in unilateral agreements. In bilateral agreements two parties are obligated to carry the agreement terms.

3. Obligated parties

There is only one party present in unilateral contract who is legally bound to carry out a specific set of actions. In bilateral contract both parties are obligated to carry out the specific set of actions as mentioned in the contract.

4. Examples

One example of unilateral contracts can be when the government pays compensation money when a citizen faces a serious loss.  On the other hand, an example of bilateral contract is when an employee starts working for a company and signs a contract where the tenure is specified.

5. Time required

In unilateral contracts there are no strict deadlines. In fact, the offeror may extend the time period any time since they are the only ones in obligation. In a bilateral contract strict deadlines are present which are agreed by the parties at the beginning of the contract.

6. Contract becomes active

Since the unilateral contract is one-sided the contract is not active at the moment the offeree starts the action, but instead the contract activates when the offeree completes the action. On the other hand, a bilateral contract activates at the time of signing the agreement.

7. Number of promises

In unilateral contract a promise is done in return of an action. In a bilateral contract, two promises are done; a promise done in return of a promise.

Unilateral contract vs bilateral contract– tabular comparison

A tabular comparison of unilateral contract and bilateral contract is given below:

Unilateral contract vs Bilateral contract
It is a one-sided open contract. It is a two sided contract.
Involved Parties
One party has to fulfill obligation Both parties need to fulfill their obligations.
Government pays compensation money for a loss. Employee gets employment and signs a contract.
Time required
There are no strict deadlines. Deadlines are strict
Contract becomes active
The contract activates when the offeree completes the action. Contract activates at the time of contract
Number of promises
Promise is done in return of an action A promise is done in return of a promise.

Conclusion – unilateral contract vs bilateral contract

It may be concluded from the explanations mentioned above that a bilateral contract by definition has mutual obligations between the two parties that makes it distinct from a unilateral contract. In a unilateral contract, one party is legally bound to abide by the contract terms, only when the other party completes a specific task or a specific event occurs. It means that mostly in a unilateral contract the first party issues a cash reward on completion of the second party’s task.

It is to be kept in mind that both contracts can be breached, whether it’s a bilateral contract or a unilateral contract. Breach of contract means a broken contract. The broken contract comes from a failure to fulfill any term of a contract without a justifiable, lawful excuse.This is the main reason why learning about contracts are helpful in securing and protecting yourself and your business.