What is a Bilateral Contract?

The "bi" in bilateral may lead you to believe it's simply an agreement between two people—but that's common in most contracts. What truly makes a contract bilateral is the mutual exchange of promises, where both parties are obligated to fulfill their part of the agreement.

Understanding bilateral contracts is crucial as they form the foundation of most business relationships and transactions. This knowledge helps you make informed decisions, protect your interests, and minimize risks.

In this article, you'll learn the key attributes of bilateral contracts, how they differ from unilateral contracts, their legal implications, and strategies to improve their enforceability, helping you take on business transactions confidently.

What is a Bilateral Contract?

A bilateral contract involves the mutual exchange of promises between two parties, where each party agrees to perform an obligation. Here's how it can help your business:

• Mutual Obligations Create Security: Since mutual promises bind both parties, they provide legal and operational security. Each party knows the other is obligated to perform specific duties.
• Clear Terms and Expectations: Bilateral contracts define obligations, timelines, and expectations, minimizing the risk of misinterpretation.
• Risk Management: They help businesses manage risk by detailing how responsibilities are shared and how disputes will be handled.
• Predictability: With established terms, you can confidently plan business operations, increasing overall efficiency.

Bilateral Contract Examples

Some common business contracts that involve mutual promises and obligations include:

Employment agreement

The employer agrees to provide the employee with compensation (salary, wages, or other benefits) and, often, certain working conditions, such as a safe workplace or specific work hours. The employee agrees to perform specific job responsibilities or tasks outlined in the contract, adhering to company policies and standards.

Sales contract

The seller agrees to deliver goods or services to the buyer according to the agreed-upon terms like quality, quantity, delivery timeline, and any applicable conditions for returns or cancellations. The buyer agrees to pay the specified amount in return for the goods or services.

Real estate agreement

The seller agrees to transfer ownership of the property to the buyer according to the terms of the contract (e.g. at a specified price, within a certain timeframe, and with a clear title). The buyer agrees to pay the purchase price and fulfill other conditions outlined in the contract, such as securing financing, obtaining inspections, and making deposits.

Partnership agreement

A partnership agreement is a type of bilateral contract in which two or more individuals (or entities) agree to work together and share responsibilities, profits, and liabilities in a business venture. The agreement outlines obligations and expectations, such as one partner providing the startup capital, and the other agreeing to manage day-to-day operations, ensuring that commitments are legally binding.

Healthcare contract

This contract is between a healthcare provider (doctor, hospital, or clinic) and a patient or the patient’s insurer. The provider agrees to offer medical services (treatment, diagnosis, procedures) to the patient, ensuring standard care in line with medical regulations. The patient, or the patient’s insurance provider, agrees to pay for the services rendered according to the terms of the contract like co-pays, deductibles, or full payment for uninsured patients.

What is the Difference Between a Unilateral and Bilateral Contract?

As mentioned in the introduction, contracts involve two parties, so a unilateral contract doesn't mean only one person is involved. Instead, it means only one party makes a promise, and the other party isn’t obligated to act.

For example, a property owner might promise to pay a real estate agent a commission only if the agent finds a buyer. The agent isn’t required to find one, but if they do, the owner must pay. If no buyer is found, the owner owes nothing.

In this case, only the property owner has made a promise and is bound by it. No legal obligation exists until the agent finds a buyer. The seller can revoke the contract before the performance, but once the agent finds a buyer, the contract becomes irrevocable, and the commission is due.

In unilateral contracts, partial or full performance signifies acceptance. Whereas, in bilateral contracts, acceptance is typically a return promise, which, under UCC 2-206, can occur in various forms, including:

• Verbal acceptance
• Actions that imply acceptance
• Shipping goods in response to an order
• Silence, in certain situations where it reasonably indicates acceptance

Are Bilateral Contracts Enforceable?

Bilateral contracts are enforceable as long as they meet essential legal elements:

• Offer: Clear proposal by one party to enter into a contract, outlining specific terms. The offer must be definite and communicated to the other party.
• Acceptance: This occurs when the other party agrees to the terms of the offer, either verbally, in writing, or through actions that show consent.
• Consideration: Something of value exchanged between the parties, such as money, services, or goods. It ensures that both sides have a stake in the contract.
• Mutual Intent to Create a Legal Bond: Both parties must intend for the contract to be legally binding, meaning they understand the agreement and the legal consequences of not fulfilling their obligations.

With these elements in place, if one party fails to deliver, the other party can take legal action to enforce the contract or seek damages.

How to Improve the Enforceability of Bilateral Contracts With Contract Creation Software

While you can create bilateral contracts manually, contract automation tools like Docupilot offer features that enhance the creation and management process, ultimately supporting better enforceability.

Here’s how these features help:

Reduce human error through automation

If you create repetitive contracts with minimal variations, copying, and pasting can lead to mistakes that may invalidate the agreements. Docupilot reduces this risk by auto-filling templates.

You can simply create templates with pre-approved terms and conditions, add dynamic fields for specific data, and connect data sources like HubSpot, Airtable, or Google Forms. Docupilot then extracts the necessary data to complete the template.

By reducing errors, there’s less chance of misinterpreting the contract terms, improving enforceability in disputes.

Track revision with version control

Contracts often undergo multiple changes during the negotiation phase before both parties reach a mutual agreement. Mismanagement can lead one party to assume a change was accepted while the other maintains the original terms, resulting in conflicting evidence that complicates enforcement.

However, using a tool with version control allows you to track and manage every change, including when and by whom the changes were made. This ensures transparency by preventing unnoticed alterations and providing definitive proof of which version of the contract was agreed upon for legal recourse.

Ensure safe and accessible document storage

Without the contract, both parties may have different recollections of the agreement, leading to disputes over obligations and rights. In addition, a lack of evidence can weaken your position in court, making it harder to seek damages or enforce obligations.

Contract management software like Docupilot provide cloud-based, centralized storage to prevent loss and ensure easy retrieval of your contracts anytime, anywhere. It also offers search functionality, allowing you to quickly find contracts and present your evidence, no matter the size of your archive.

Creating Legally Enforceable Bilateral Contracts

Bilateral contracts are the most common and secure type of business agreement because both parties have obligations and are legally bound by them. This mutual commitment fosters trust, reduces the risk of disputes, and allows you to confidently make business plans, knowing you can rely on the other party’s performance or take legal action if they fail to meet their obligations.

Using contract automation tools like Docupilot can further enhance the enforceability of these agreements.Docupilot can help reduce errors, track changes using version control, and store and retrieve your contracts anytime. Real-time collaboration ensures smoother negotiation of terms, helping avoid potential disputes.

To create your first bilateral contract with Docupilot, sign up for a 14-day free trial now.