What is a Bilateral Contract?

A bilateral contract is an agreement, usually in writing, that involves the exchange of promises between two parties who consent to do something at a future date or time. For example, if party A agrees to give party B a basket of apples in exchange for a basket of oranges, a bilateral contract is formed the moment both parties formally agree. This is known as consideration, a necessary component of such a legal agreement. The party delivering on a promise is the promisor and the party receiving the delivery on a promise is the promisee.

The distinction between bilateral and unilateral contracts sometimes is not readily recognized by people who are not legal professionals. Unilateral contracts are binding only on the promisor until a promisee consents to fulfill the requests delineated in the promisor's offer. The term "consideration" denotes acceptance of an obligation that results in the making of a promise according to the specifics of a contract. When a bilateral contract is under-written, no consideration exists until both parties have agreed to the promises stated by the document. This differs from a unilateral contract for which immediate consideration is provided only by the promisor.

If a promisor agrees to pay a specified amount of money for products, services, or a combination of the two, his or her agreement to compensate is his or her consideration. Only if a provider of the products or services agrees to accept the contractual payment terms can it be said that there is consideration on the part of the promisee. The majority of courts would tend to rule that such an example would legally convert what was a unilateral contract into a bilateral contract. Other courts may not make similar judgments due to the inconsistencies that may arise when attempting to apply the concepts of unilateral and bilateral contracts.

Some legal agreements cover the provision of a product or services that may have to be rendered over long periods of time and perhaps in various stages. For example, if a promisor agrees to monetarily compensate a promisee for painting his car, the question of when the conversion from a unilateral to a bilateral contract occurred may be disputed. One court may rule that consideration was provided by both parties at the time the promisee agreed on the price. Another court may judge that there can be no true conversion until the painting is completed to the satisfaction of the promisor. If the promisor cannot be satisfied or claims dissatisfaction in order to elude contractual obligations, consideration must be made for the fair treatment of the promisee.

The previous questions are only some of the legal questions that are usually asked about contracts. It is generally considered a good idea for both parties to familiarize themselves with the possible options they may have in the case of a breach of contract or a dispute. Consultation with an attorney prior to signing any contract may help to avoid future disagreements.