What is a bilateral contract and how is it used?

Dive into this examination of bilateral contracts in comparison to unilateral contracts so that you’ll have a better idea of their meaning, when they’re used, and how they can offer value.

It’s likely you’ve heard the terms bilateral contract and unilateral contract before — but what does each really mean? Read on for the ultimate — and brief — guide to understanding the difference between the two.

What’s a bilateral contract?

A bilateral contract is a binding agreement between two parties where both exchange promises to perform and fulfill one side of a bargain. This contract type is one of the most common binding agreements used because it turns both parties into what is known as an “obligor” — in other words, a person or party that is bound to another.

Bilateral contracts are so commonly used that it is often interchanged with the term sales contract. Within the bilateral contract, if an obligor fails to meet their end of the deal, then they’ve breached the contract (and of course, vice versa).

What’s the difference between unilateral and bilateral contracts?

A unilateral contract and a bilateral contract are legally binding agreements that promise a result — so, what exactly is the difference between them? We’ve laid it out below.

With unilateral agreements, one person or organization becomes the offeror and extends an agreement to another to perform an act or a service in order to receive whatever was promised. In other words, the onus is only on one party to fulfill — there is no promise between parties.

Bilateral contracts, as the name suggests, demand that two parties both have set promises, agreements, and requirements. If either fails to provide, that’s considered a breach of contract.