Get into the depths of bilateral contracts, understand how they work, differentiate from unilateral contracts, and explore every detail at Vakilsearch.
What Is a Bilateral Contract?
At its core, a bilateral contract is an agreement between two parties where each party promises to perform or refrain from performing a specific act. It’s essentially a two-way street. Both parties are bound to uphold their end of the bargain, ensuring that the transaction is mutual and reciprocal.
For example, in a typical sales agreement, a seller promises to deliver goods in exchange for a payment from the buyer. The buyer, on the other hand, promises to make that payment upon receiving the said goods. This mutual exchange of promises forms the essence of a bilateral contract.
How a Bilateral Contract Works
For a bilateral contract to work, it needs to fulfil certain criteria:
Offer and Acceptance: The initiation of a bilateral contract starts with an offer from one party and its acceptance by another. This establishes the intent of both parties to enter into an agreement.
Consideration: Every bilateral contract requires consideration. This simply means something of value exchanged between the parties. It can be money, goods, services, or even a promise to refrain from doing something.
Legality: The subject matter of the bilateral contract should be legal. Contracts formed on illegal acts or intentions are void and unenforceable.
Capacity: Both parties entering into the contract should have the capacity to do so. They must be of legal age and sound mind.
Mutual Assent: Both parties should understand and agree upon the terms of the contract. Any form of miscommunication or misunderstanding can nullify the contract.
Once these elements are met, the becomes enforceable, which means if any party defaults, the other can seek remedies through legal avenues.
Bilateral vs. Unilateral Contracts
While bilateral contracts involve mutual promises from both parties, unilateral contracts differ fundamentally. In a unilateral contract, only one party makes a promise, while the other party accepts by performing a particular act.
To illustrate, consider a reward offer for a lost pet. The person offering the reward promises to pay upon the return of the lost pet. The individual who finds and returns the pet doesn’t make any promise but instead performs the act of returning the pet to claim the reward. Such contracts are termed unilateral as the promise is one-sided.
Key Differences:
Promise vs. Performance: Bilateral contracts focus on mutual promises, while unilateral contracts are centered on an act or performance.
Acceptance: In bilateral contracts, acceptance is signified by a return promise. In unilateral contracts, acceptance is signified by the completion of the requested act.
Breach: In bilateral contracts, a breach can occur if either party fails to uphold their promise. In unilateral contracts, there’s generally no breach as long as the promisor fulfils their end once the act is completed.
Conclusion
Bilateral contract play a vital role in today’s business world, forming the foundation for countless transactions and agreements. They differ from unilateral contracts, emphasising mutual promises rather than a single-sided promise followed by an act. As with all contractual relationships, understanding the nuances and ensuring all elements are met is crucial for enforceability and the smooth conduct of business.
FAQs on Bilateral Contract
What are the basic elements of a bilateral contract?
The fundamental elements include offer and acceptance, consideration, legality, capacity, and mutual assent.
Is a bilateral contract legally binding?
Yes, provided it meets all the required criteria like legality, capacity, and mutual assent. If any party defaults, the aggrieved party can seek legal remedies.
How is a bilateral contract formed?
It is formed through an offer from one party, acceptance by the other, and the exchange of something of value (consideration). Both parties should understand and agree upon the terms, ensuring the contract's legality and enforceability.
Other Important Topics:
