Bilateral Contract


Also found in: Dictionary, Thesaurus, Medical, Financial.
Related to Bilateral Contract: quasi contract, unilateral contract, executed contract

Bilateral Contract

An agreement formed by an exchange of a promise in which the promise of one party is consideration supporting the promise of the other party.

A bilateral contract is distinguishable from a unilateral contract, a promise made by one party in exchange for the performance of some act by the other party. The party to a unilateral contract whose performance is sought is not obligated to act, but if he or she does, the party that made the promise is bound to comply with the terms of the agreement. In a bilateral contract both parties are bound by their exchange of promises.

Both parties to a bilateral contract make promises. With respect to the promise in issue, the party making the promise is the promisor and the other party is the promisee. The legal detriment incurred by the promisee consists of a different promise by him or her to do something or refrain from doing something that he or she was not previously legally obligated to do or to refrain from doing. This legal detriment constitutes consideration, the cause, motive, or benefit that induces one to enter into a contract. Consideration is an essential component of a contract.Traditionally, courts have distinguished between unilateral and bilateral contracts by determining whether one or both parties provided consideration and at what point they provided the consideration. Bilateral contracts were said to bind both parties the minute the parties exchange promises, as each promise is deemed sufficient consideration in itself. Unilateral contracts are said to bind only the promisor and do not bind the promisee unless the promisee accepts by performing the obligations specified in the promisor's offer. Until the promisee performs, he or she has provided no consideration under the law.

For example, if someone offered to drive you to work on Mondays and Tuesdays in exchange for your promise to return the favor on Wednesdays and Thursdays, a bilateral contract would be formed binding both of you once you provided consideration by accepting those terms. But if that same person offered to pay you $10 each day you drove him to work, a unilateral contract would be formed, binding only upon the promisor until you provided consideration by driving him to work on a particular day.

Modern courts have de-emphasized the distinction between unilateral and bilateral contracts. These courts have found that an offer may be accepted either by a promise to perform or by actual performance. An increasing number of courts have concluded that the traditional distinction between unilateral and bilateral contracts fails to significantly advance legal analysis in a growing number of cases where performance is provided over an extended period of time.

Suppose you promise to pay someone $500.00 to paint your house. The promise sounds like an offer to enter a unilateral contract that binds only you until the promisee accepts by painting your house. But what constitutes lawful "performance" under these circumstances? The act of beginning to paint your house or completely finishing the job to your satisfaction?

Most courts would rule that the act of beginning performance under these circumstances converts a unilateral contract into a bilateral contract, requiring both parties to fulfill the obligations contemplated by the contract. However, other courts would analyze the facts of each case so as not to frustrate the reasonable expectations of the parties. In neither of these cases are the legal rights of the parties ultimately determined by the courts by applying the concepts of unilateral and bilateral contracts.

In still other jurisdictions, courts have simply expressed a preference for interpreting contracts as creating bilateral obligations in all cases where there is no clear evidence that a unilateral contract was intended. The rule has been stated that in case of doubt an offer will be presumed to invite the formation of a bilateral contract by a promise to perform what the offer requests, rather than the formation of a unilateral contract commencing at the time of actual performance. The bottom line across most jurisdictions is that as courts have been confronted by a growing variety of fact patterns involving complicated contract disputes, courts have shifted from rigidly applying the concepts of unilateral and bilateral contracts to a more ad hoc approach.

Mutuality of obligation must exist in an enforceable bilateral contract, and this involves the concept of reciprocity. A cannot enforce B's promise unless A's promise entails a legal detriment, and B can enforce A's promise only if B's promise involves a legal detriment.

If a minor enters a bilateral contract with an adult that is unenforceable due to the minor's age, the adult party cannot assert absence of mutuality as a defense if the minor sues to enforce the contract. This principle applies to any situation where the law grants a particular party a privilege to avoid a contract because of his or her status.

Further readings

Boyer, Paul S. 2001. Oxford Companion to United States History. New York: Oxford Univ. Press.

Jolls, Christine. 1997. "Contracts as Bilateral Commitments: A New Perspective on Contract Modification." Journal of Legal Studies 26 (January): 203-237.

Cross-references

Performance; Promise; Reciprocal; Unilateral Contract.

bilateral contract

n. an agreement in which the parties exchange promises for each to do something in the future. "Susette Seller promise to sell her house to Bobby Buyer and Buyer promises Seller to pay $100,000 for it." This is distinct from a "unilateral contract" in which there is a promise to pay if the other party chooses to do something. "I'll pay you a $1,000 if you'll stop smoking." These are basically academic differences which are only important in the rare instance in which one person has acted in anticipation that the other will have obligations as well. (See: contract, unilateral contract)

See: mutual understanding

BILATERAL CONTRACT, civil law. A contract in which both the contracting parties are bound to fulfill obligations reciprocally towards each other; Lec. Elem. Sec. 781; as a contract of sale, where one becomes bound to deliver the, thing sold, and the other to pay the price of it. Vide Contract; Synallagmatic contract.

References in periodicals archive ?
The model considered includes power purchase options via bilateral contracts, spot market purchases and low self-generation option.
According to the notation developed in [19], GD represents a square matrix of bilateral contracts.
Williston noted that, at the beginning of the twentieth century, courts were looking for clear promises on each side in order to find a bilateral contract.
The ERC has effectively denied the motion of TMI that its procurement of replacement power to DLPC may just be treated as "an option" in their bilateral contract.
The two presidents agreed to intensify work on drafting the text of a new bilateral contract between the two Balkan states.
In Switzerland, TSOs are complaining about the bilateral contract signed between France and Italy concerning capacity allocation procedures between the two countries to the detriment of Switzerland.
The market development contract is a bilateral contract so we should sit down and discuss issues first with Uniwide, the mayor said during his weekly media briefing.
As long as power cooperatives would activate all their independent power producers, also known as the embedded bilateral contract supply, things would get better for December, he said.
Power Unit 2's scheduled shutdown was extended, thus exposing the Company to high replacement power cost for its bilateral contract.
The Wholesale Energy Market ("MEM") is divided in two sectors: the Bilateral Contract Market (long term) and the Energy Exchange, Bolsa (short term).
This includes bilateral contract and cash flow reconciliation.
By now we are already aware that Therma Mobile, a generation company, was instructed by Meralco to sell at P62 per kilowatt hour at WESM even if the bilateral contract between the two parties is for only P8.

Full browser ?