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 ?
Bilateral contracts generate in general the following special effects, applicable in principle to the carriage contract too, which is considered to be a bilateral contract: a) the rule of simultaneous performance--mutual obligations of the parties have to be simultaneously executed.
The proposed model is based on the determination of prices for bilateral contracts from optimizing hydropower resources available and seeking profit maximization of the power company.
In the following judgment, the Dubai Court of Cassation classified the relationship between a Brokerage Agency and the investor as an agency created via agreement subject to the general statutory provisions governing bilateral contracts, and the provisions governing commercial agencies set out in the UAE Commercial Transactions Law.
According to Williston: Doubtless wherever possible, as a matter of interpretation, a court would and should interpret an offer as contemplating a bilateral rather than a unilateral contract, since in a bilateral contract both parties are protected from a period prior to the beginning of performance on either side--that is from the making of the mutual promises.
Cereals traders say India has held talks with Kazakhstan to secure a bilateral contract for wheat, after New Delhi was forced to import the grain in the past two years, but added that it was unclear if any deal had been signed.
Lebanese government officials on April 25, 2007, faulted delays on negative politics in Damascus and on new terms of the bilateral contract signed in Cairo earlier.
#YOU have entered into a bilateral contract so you must pay the sum agreed and they must do the work agreed.
Prices in the various electricity exchanges, which serve as guides for bilateral contract prices, should not represent the "true" price of electricity.
The signing of the contract will follow the successful conclusion at the end of March of negotiations between the Tokyo company and Kuwait to renew their bilateral contract.
Bilateral Contract - Contracts will be required and will be crucial to the settlement of future disagreements.
For newcomers to the field, a derivatives instrument is a bilateral contract or payments-exchange agreement whose value is measured by the value of one or more underlying instruments, reference points or markets.
Under this provision, if pursuant to a bilateral contract, an option is granted by a corporation to purchase its tax consolidated subsidiary that otherwise would be deemed exercised under the option rule, the actual sale date is used as the change date if it occurs within one year of the option date.

Full browser ?