A bilateral contract is a legally binding agreement between two parties where each party agrees to perform an act in exchange for the other party’s act. This type of contract is characterized by mutual promises: each party’s promise serves as sufficient consideration to support the other party’s promise.
How Bilateral Contracts Work
In a bilateral contract, both parties are obligors, owing an obligation to the other, and obligees, entitled to receive the benefit of the other’s obligation. The mutual exchange of promises in bilateral contracts means that both parties are committed to fulfilling their duties as specified in the contract terms.
Elements of a Bilateral Contract
- Offer: One party offers a specific responsibility or service.
- Acceptance: The other party accepts the offer by agreeing to the terms.
- Consideration: Both parties exchange something of value.
- Mutuality of Obligation: Both parties are bound to perform under the contract.
- Competence and Capacity: Both parties must have the legal capacity to enter the contract.
- Legality: The subject matter of the contract must be legal.
Examples of Bilateral Contracts
Example 1: Employment Agreement
An employment contract is a classic example of a bilateral contract. The employer promises to pay the employee a salary in exchange for the employee’s services.
Example 2: Sales Agreement
When you purchase a car from a dealership, the dealership promises to transfer the ownership of the car to you, and you promise to pay a specified amount of money for the car.
Special Considerations
Enforceability
To be enforceable, a bilateral contract must meet the criteria of formation:
- Clear terms: The contract must spell out the details explicitly.
- Voluntary consent: Both parties must agree to the contract voluntarily without duress.
- Legal purpose: The contract’s obligations must not involve illegal actions.
Breach of Bilateral Contract
A breach occurs when either of the parties fails to deliver on their promise. Remedies for breach typically include:
- Specific performance: A court order requiring the breaching party to fulfill their end of the bargain.
- Damages: Monetary compensation for losses incurred due to the breach.
Historical Context
Bilateral contracts have existed for centuries, evolving with commercial practices and judicial precedents. The principles governing these contracts have been shaped significantly by English common law and various statutory laws in different jurisdictions.
Applicability and Comparisons
Bilateral vs. Unilateral Contracts
In a unilateral contract, only one party promises to perform an act if the other party completes a task. For example, a reward contract where one promises to pay if the other finds a lost item.
Bilateral vs. Executed Contracts
An executed contract is one that has been fully performed on both sides, whereas bilateral contracts focus on future performance where obligations are yet to be fulfilled.
Related Terms
- Contract: A legally enforceable agreement between parties.
- Consideration: Something of value exchanged between parties in a contract.
- Offer and Acceptance: Fundamental components of contract formation.
FAQs
What is a bilateral contract?
Are bilateral contracts legally binding?
Can a bilateral contract be broken?
References
- Restatement (Second) of Contracts, American Law Institute.
- “Contract Law”, Ewan McKendrick, Oxford University Press, 9th Edition.
- Uniform Commercial Code, Article 2: Sales.
Summary
A bilateral contract is essential in various legal and business transactions, defined by mutual obligations and enforceable promises. Understanding its components, how it works, and its historical context can help parties create robust agreements and navigate potential disputes effectively.
