Unilateral vs. Bilateral Contract: Definition & Key Examples

What’s the difference between a unilateral vs. bilateral contract?

The fundamental distinction between unilateral and bilateral contracts lies in the number of parties making promises. As Samuel Williston, the renowned Harvard Law professor and contract law authority, explained in his seminal work The Law of Contracts: “A vital distinction in contracts exists between those where each party promises some performance and those where only one party promises performance, the consideration from the promisee being actually given” (chestofbooks.com, 2024).

In a unilateral contract, only one party makes a promise in exchange for a specific action from another party. In this arrangement, only the party making the promise is legally bound to perform.

In contrast, a bilateral contract involves mutual promises between two parties, creating legal obligations for both to fulfill their respective commitments.

Understanding this distinction is crucial for effective contract management software implementation, as it affects how agreements are structured, executed, and enforced.

The evolution of contract theory

Before diving deeper into the practical applications, it’s worth noting the historical context of these contract types. According to the Legal Information Institute at Cornell Law School, “bilateral contracts differ from unilateral contracts because both parties agree to perform an action, compared to a unilateral contract in which only one party agrees to perform and is thus legally bound to perform their promise” (law.cornell.edu, 2024).

This distinction has evolved through centuries of legal development. As noted by legal historian Morton Horwitz, contract law has undergone significant transformation, particularly in how courts view the balance of power between contracting parties (erisa-experts.com, 2015).

Modern contract lifecycle management software systems now incorporate these theoretical distinctions into their functionality, enabling proper classification and management of various agreement types.

Real-world examples of unilateral vs. bilateral contracts

Unilateral contract examples

A classic example of a unilateral contract is a reward offer. Imagine you’ve lost your dog and post flyers offering a $100 reward for its return. In this scenario, you’re the only party making a promise—to pay the reward to whoever finds your dog. The person who eventually finds your pet wasn’t legally obligated to search but chose to act with the expectation of receiving the promised reward.

Attorney Ronna L. DeLoe explains: “Unilateral contracts require one party to make a promise. The contract isn’t complete until someone performs it” (legalzoom.com, 2023). This performance-based acceptance is a hallmark of unilateral agreements.

Other common unilateral contract examples include:

1. Insurance policies: The insurer promises to pay under certain conditions
2. Contest prizes: Businesses offer rewards for specified achievements
3. Real estate listings: Brokers earn commissions only after successful sales

These examples show how unilateral contracts operate in everyday business through contract automation software implementations.

Bilateral contract examples

By contrast, bilateral contracts involve mutual promises and obligations. An employment agreement exemplifies this type: you agree to work for an employer, and they agree to pay you. Both parties have specific duties they must fulfill.

Weber Law points out: “Bilateral contracts are the most common type of contract and involve mutual exchanges of promises between parties” (weber.law, 2024). These mutual obligations form the foundation of most business relationships.

Common bilateral contract examples include:

1. Employment contracts: Employee works, employer pays
2. Purchase agreements: Buyer pays, seller delivers goods
3. Service contracts: Provider delivers service, client pays fees
4. Lease agreements: Tenant pays rent, landlord provides property use

Many of these contracts are managed through sophisticated contract managment software platforms that track mutual obligations and performance metrics.

How to recognize a unilateral contract

Identifying a unilateral contract requires attention to specific characteristics:

Look for a one-sided promise

The defining feature of a unilateral contract is that only one party makes a commitment. As explained by UpCounsel legal experts: “In legal terms… a unilateral contract by definition is a contract that involves action taken by one group or one person alone” (upcounsel.com, 2024).

Action-based acceptance

Unilateral contracts are completed through performance rather than promise. The other party accepts by completing the requested action, not by making a return promise.

No obligation for the second party

The non-promising party has no legal obligation to perform and only becomes involved in the contract if they choose to complete the requested action.

These characteristics are increasingly important to understand as procurement contract management software becomes more sophisticated in analyzing and categorizing agreement types.

How to recognize a bilateral contract

By contrast, bilateral contracts have their own distinctive features:

Look for mutual promises

In a bilateral contract, both parties make promises that serve as consideration for each other. As Cornell Law School’s Legal Information Institute explains: “One party’s promise serves as consideration for the promise of the other” (law.cornell.edu, 2024).

Agreement-based relationship

Unlike unilateral contracts that are based on performance, bilateral contracts are founded on mutual agreements between parties to perform specific duties.

Obligations for both parties

Both parties in a bilateral contract are legally bound by their promises from the moment the contract is formed, regardless of whether they’ve begun performance.

Modern contract repository software platforms often categorize agreements based on these distinctions to facilitate proper management and enforcement.

Comparative analysis: unilateral vs. bilateral contracts

The following table provides a comprehensive comparison of unilateral and bilateral contracts across various dimensions, highlighting their key differences, similarities, and practical applications:

Feature	Unilateral Contracts	Bilateral Contracts
Definition	Agreement where only one party makes a promise in exchange for a specific action	Agreement where both parties exchange mutual promises
Number of promises	One party promises something	Both parties make promises to each other
Formation	Complete when the requested action is performed	Complete when promises are exchanged
Acceptance method	Performance of a specified action	Express agreement (verbal, written, etc.)
Legal obligations	Only the offeror is legally bound	Both parties are legally bound
Timing of enforceability	Only after performance by the offeree	Immediately after promises are exchanged
Revocability	Revocable until performance begins	Revocable only until acceptance occurs
Consideration	The act performed by the offeree	The mutual promises exchanged
Common examples	Rewards, contests, insurance policies	Sales agreements, employment contracts, leases
Primary business use	Marketing promotions, contingent rewards	Ongoing business relationships, services
Risk allocation	Risk primarily on offeror	Risk shared between parties
Remedies for breach	Damages, specific performance (rare)	Damages, specific performance, injunctions
Landmark cases	Carlill v. Carbolic Smoke Ball Co. (1893)<br>Leonard v. Pepsico (1999)	Hamer v. Sidway (1891)<br>Stilk v. Myrick (1809)
Most common industry use	Insurance, marketing, contests	Business-to-business, employment, sales
Contract management focus	Performance tracking, proof of completion	Mutual obligation tracking, compliance

This comparison illustrates how these contract types serve different purposes in business and legal contexts. While unilateral contracts excel in scenarios requiring performance-based acceptance, bilateral contracts provide the foundation for most ongoing business relationships where mutual obligations are essential.

The legal foundation: offer and acceptance

Both unilateral and bilateral contracts require valid offers and acceptances, but they function differently in each type.

Unilateral contracts: offer and performance

In unilateral contracts, the offer is typically open-ended until someone performs the requested action. The classic case illustrating this principle is Carlill v. Carbolic Smoke Ball Co. [1893], where a company advertised a £100 reward to anyone who used their product as directed but still contracted influenza.

Justice Lindley of the Court of Appeal famously stated: “Read the advertisement how you will, and twist it about as you will, here is a distinct promise expressed in language which is perfectly unmistakable” (australiancontractlaw.info, 2024). When Mrs. Carlill used the product as directed but still fell ill, the court held that she had accepted the offer through performance and was entitled to the reward.

Bilateral contracts: offer and mutual promises

In bilateral contracts, acceptance occurs when the other party makes a return promise. Once both parties have exchanged promises, a binding contract exists—even before any performance begins.

These fundamental concepts are embedded in the functionality of legal contract management software systems, which help organizations track when valid contracts have been formed.

How to enforce a unilateral vs. bilateral contract

Enforcing these different contract types presents unique challenges requiring specific strategies.

Enforcing a unilateral contract

Unilateral contracts can be challenging to enforce due to their one-sided nature. As explained by Rocket Lawyer: “A unilateral contract is enforceable when someone chooses to begin fulfilling the act demanded by the promisor” (rocketlawyer.com, 2023).

Key challenges include:

• Verifying that the specified action was properly completed
• Determining whether the action meets the exact requirements set forth in the offer
• Establishing that the action was taken in response to the offer, not for other reasons

To address these challenges, clear documentation of the offer terms and performance evidence is essential, particularly when using contract analytics software to track compliance.

Enforcing a bilateral contract

Bilateral contracts present different enforcement challenges. According to legal experts at LegalZoom: “Either party who fails to perform under a bilateral contract will breach the contract” (legalzoom.com, 2023).

Effective enforcement strategies include:

• Negotiation and mediation to resolve disputes amicably
• Arbitration as a less costly alternative to litigation
• Litigation when other methods fail to achieve resolution

Contract compliance management software platforms can help organizations monitor performance and identify potential breaches before they escalate to disputes.

When to seek legal advice

Consulting legal counsel becomes essential in certain situations:

• Complex contract disputes involving multiple obligations
• High-value agreements with significant financial implications
• Ambiguous contract terms requiring professional interpretation
• Potential legal action for contract breaches

Early legal consultation can often prevent costly disputes and preserve business relationships, which is why many organizations integrate legal review processes into their contract lifecycle management software.

Legal remedies for contract breaches

When a contract is breached, the law provides several remedies to the non-breaching party. These remedies differ somewhat between unilateral and bilateral contracts due to their structural differences.

Compensatory damages

The most common remedy in both contract types is compensatory damages, designed to put the injured party in the position they would have been in had the contract been performed.

According to Miller Law, “Compensatory damages are the primary remedy for breach of contract and are designed to make the non-breaching party whole” (millerlawpc.com, 2024). These damages typically include direct costs, lost profits, and other foreseeable losses.

Specific performance

In cases where monetary damages are insufficient, courts may order specific performance, requiring the breaching party to fulfill their contractual obligations.

This remedy is more common in bilateral contracts involving unique property or services, where financial compensation alone would not adequately address the harm. For example, in a bilateral real estate purchase contract, a court might order the seller to complete the sale rather than simply pay damages.

Liquidated damages

Many contracts, especially in healthcare contract management software implementations, include liquidated damages clauses that specify a predetermined amount to be paid in case of breach.

These provisions are particularly valuable when the actual damages from a breach would be difficult to calculate. As noted by Miller Law, “Liquidated damages might be a specific sum, such as the amount of the earnest money on a purchase contract, or they could depend on a formula, such as a certain amount of money for each day a deadline is not met” (millerlawpc.com, 2024).

Injunctions

In some cases, courts may issue injunctions to prevent a party from taking certain actions that would violate a contract. This remedy is more common in bilateral contracts with ongoing obligations, such as non-compete agreements or confidentiality clauses.

Contract reformation or rescission

When issues arise from contract formation rather than performance, courts may reform the contract to reflect the parties’ actual intentions or rescind (cancel) the contract entirely, returning the parties to their pre-contract positions.

This remedy applies to both unilateral and bilateral contracts but operates differently based on the contract structure. For unilateral contracts, as noted in Investopedia, “remedies for a mistake include contract reform where the contract is changed or a new contract is started, or full contract cancellation” (investopedia.com, 2024).

Practical tips for unilateral vs. bilateral contract negotiations

Whether you’re crafting a unilateral or bilateral agreement, these best practices will enhance your contract management:

Communication is key

Maintain open and clear communication throughout the negotiation process. As noted in the Mydock365 Blog: “Businesses can better navigate their needs if they have a solid grasp of the legal implications of both contract types” (mydock365.com, 2023).

Clear communication helps all parties understand their obligations and reduces the likelihood of disputes.

Precision in language

Draft contracts with precise, unambiguous language that clearly articulates each party’s rights and responsibilities. Samuel Williston emphasized in his legal writings that “[t]he modern law rightly construes both acts and words as having the meaning which a reasonable person present would put upon them in view of the surrounding circumstances” (law.jrank.org, 2024).

Using clear, straightforward language helps prevent misunderstandings and disputes over contract interpretation.

Flexibility in negotiations

Remain open to negotiation and be willing to compromise on non-critical terms. This approach fosters goodwill and can lead to more sustainable business relationships.

Adherence to timelines

Establish and honor clear timelines and deadlines throughout the contract process. This practice maintains momentum and prevents negotiations from stalling.

Legal expertise

Consult legal professionals to ensure contracts comply with relevant laws and regulations. As contract law evolves, staying current with legal requirements becomes increasingly important.

Documentation

Maintain comprehensive records of all contract negotiations and agreements. Documentation provides critical evidence if disputes arise later.

Many organizations now implement these best practices through best contract lifecycle management software platforms that standardize processes and ensure consistent application of contract principles.

The impact of digital transformation on contract types

The digital transformation has significantly changed how businesses handle both unilateral and bilateral contracts. Electronic signatures, automated workflows, and AI-powered contract analysis have streamlined the contracting process.

According to a study by Aberdeen Group, organizations using electronic contract management solutions experience:

• 83% faster contract completion times
• 55% lower document error rates
• 37% reduced operational costs

These improvements apply to both unilateral and bilateral contracts, though each presents unique opportunities for optimization through technology.

Implementing contract management software pricing strategies should account for the volume and complexity of both contract types your organization typically processes.

Frequently asked questions about unilateral and bilateral contracts

Conclusion: mastering the art of effective contracting

Understanding the distinctions between unilateral and bilateral contracts is essential for effective business operations. Each type serves important functions in different contexts, and knowing when to use each can help you craft more effective agreements.

As you develop your contract management strategy, consider these key takeaways:

1. Bilateral contracts are most appropriate for ongoing business relationships where mutual performance is expected.
2. Unilateral contracts work well for situations where you want to incentivize specific actions without obligating anyone to perform.
3. Clear, precise language is crucial for both contract types to prevent disputes and ensure enforceability.
4. Proper documentation and evidence collection are vital, especially for unilateral contracts where performance must be verified.
5. Digital contract management solutions can streamline processes for both contract types, reducing errors and accelerating completion.

By applying these principles and leveraging modern contract management software demo opportunities to explore technological solutions, you can enhance your organization’s contracting capabilities and build stronger, more profitable business relationships.

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