Unilateral vs Bilateral Contract: What are the Key Differences

May 29, 2025
7:43 pm

6 min read

Every deal begins with a contract. But not all are alike

Whether it is hiring a freelance designer or closing a high-stakes business partnership, there’s one thing at the heart of it all: a contract. It’s what turns a conversation into a commitment. What gives words their weight.

But here is what many overlook, not all contracts follow the same rules.

There are two main types you should know unilateral contract and bilateral contract. And understanding the difference is not just legal trivia. It’s practical knowledge that shapes how agreements are made and honoured in the real world.

A bilateral contract is formed through the exchange of mutual promises between two parties, whereas a unilateral contract becomes legally binding only when one party completes a specific action in response to an offer.

In this article, we will explore the key differences between unilateral vs bilateral contract.

What Are Unilateral contracts?

A unilateral contract involves one party making a promise that becomes legally binding only when the other party completes the requested task.

The party making the promise does not require a promise in return they only expect the other party to perform the specified task. The contract becomes effective only when the requested action is carried out. This type of contract is common in situations like rewards or contests, where the promised benefit is given after the action is completed.

Clear opportunities through one-sided offers
In a unilateral contract, one party sets a clear promise that becomes active when the other party completes the task. This creates flexible opportunities without pressure to commit upfront.
Action leads to guaranteed rewards
These contracts are results-focused once the action is done, the reward is earned. For example, a manufacturing company might offer $1,000 to anyone who reports a product safety issue. It encourages proactive participation and benefits both sides.
Widely used in reward-driven programs
Unilateral contracts are perfect for promotions and incentive programs. For instance, In IT industry, a company might offer $2,000 for finding a security bug. These offers drive engagement and reward real contribution.

Key Features of a Unilateral Contract

One-sided promise: A one-sided promise involves only the offeror making a commitment.

Acceptance by performance: Acceptance by performance means the offeree agrees by finishing the requested action completely.

No obligation to perform: The offeree is not obligated to act but will not receive any benefit unless they perform.

Formation upon completion: The contract is formed only when the offeree completes the performance.

Example contexts: Rewards, contests, insurance claims.

Recommended Read: Contract Lifecycle Management Best Practices

What Are Bilateral Contracts?

A bilateral contract involves a mutual exchange. Both parties make a promise and are legally bound to fulfill it. This is the most common form of contract used in business, whether it’s selling a product, offering a service, or entering a partnership. Each party has clear responsibilities and benefits from the agreement.

Example of bilateral contracts,

Sales Agreements When a customer agrees to buy a car at a fixed price, they commit to making the payment, while the dealership agrees to deliver the vehicle. This mutual exchange of promises forms a bilateral contract, giving both parties clear expectations, legal protection, and peace of mind throughout the transaction.
Employment Contracts
An employer offers a salary and benefits, while the employee agrees to take on specific job responsibilities. Both parties commit to clearly defined actions and expectations, forming a legally binding contract that protects the rights of each side and promotes a stable, professional working relationship.
Residential Lease Agreements
In a rental contract, the landlord offers a property for the tenant to live in, while the tenant agrees to pay rent on a regular basis. Both parties take on clear responsibilities, creating a balanced and legally binding bilateral agreement. This mutual commitment helps avoid misunderstandings, protects the interests of both sides, and promotes a smooth and dependable rental experience.
Service-Based Agreements
When a company partners with a manufacturer, both parties agree on product specifications, delivery schedules, and payment terms. The manufacturer produces and delivers the goods, while the client provides compensation in return. This mutual exchange of promises forms a bilateral contract, which brings clarity, sets clear expectations, and protects both sides leading to smoother operations and stronger, long-term business relationships.

Key Features of a Bilateral Contract

Two-sided promises: Both parties make binding promises.

Mutual obligations: Each party agrees to perform a duty.

Acceptance by promise: Acceptance by promise occurs when the contract is formed through the exchange of commitments between the parties.

Formation upon exchange: The contract is formed immediately upon agreement.

Example contexts: Sales agreements, service contracts, leases.

Unilateral vs Bilateral Contract: The Key Differences

Point of Difference	Unilateral Contracts	Bilateral Contracts
Number of Promise	Only one party makes a promise. The agreement depends on the other party performing a task or action voluntarily.	Both parties make promises. Each side agrees to do something as part of the contract.
How It’s Accepted	The contract is only accepted once the other party finishes the required task. No verbal or written agreement is needed from them.	The contract is accepted when both parties agree to the terms, usually through a clear promise or written contract.
Use in Business	Common in reward-based tasks, open offers, or promotional programs. Not used in everyday transactions.	Frequently used in business deals, supplier agreements, client work, and hiring processes.
Risk Level	There is more responsibility on the party making the promise, especially if the other party chooses not to respond or complete the task.	Risk is shared more evenly between both parties because they commit to clear roles and timelines.
Point of Legal Commitment	It is considered legally binding only after the other party successfully completes the required action	It becomes binding once both parties mutually exchange promises to fulfill their obligations.
Consideration	The act carried out by the offeree serves as the consideration that makes the agreement valid.	The agreement is based on the promises that both parties give to each other.
Formation Period	A contract is established only once the act is fully completed.	A contract is formed at the very point when both parties mutually agree and commit to their promises.
Example in Practice	A software company offers a $1,000 reward to anyone who finds and reports a bug. The obligation rests solely with the company until an individual completes the required action.	An IT service contract where a client agrees to pay for server maintenance, and the company agrees to deliver it monthly.

When Should You Use Unilateral vs. Bilateral Contracts?

Choosing between a unilateral vs bilateral contract really depends on the situation and what you want to achieve. The key is understanding the type of contract obligation involved and how certain the performance of that commitment is.

When to Use a Unilateral Contract

Use a unilateral contract when you intend to motivate a specific action without creating any prior obligation for the other party. In this type of contract, a promise of reward or benefit is offered only upon the successful completion of the specified task, with no reciprocal promise required before performance.

In essence, the offer remains open, and acceptance occurs solely through the performance of the requested act. Until that performance takes place, the offeree is not legally bound.

Common examples of unilateral contracts include:

Reward offers (e.g., “A financial incentive will be granted to the employee who first implements a process improvement that increases production efficiency by at least 10%.”)

Competitions where a prize is granted to whoever completes a task first

Insurance payouts contingent upon the occurrence of a covered event

When to Use a Bilateral Contract

A bilateral contract, on the other hand, involves a mutual exchange of promises. Both parties agree to certain obligations, which makes the agreement binding immediately after the promises are made.

The agreement is finalized when both parties mutually commit to their respective obligations, without requiring either party to act first.

Typical examples include:

Sales contracts, in which one party agrees to supply products while the other commits to providing payment, serve as a classic example.

Employment contracts, where an employee agrees to work and the employer agrees to pay salary

Rental contracts, in which both the property owner and the tenant agree to specific obligations, serve as a common example of mutual commitment.

Similarities Between Unilateral vs Bilateral Contract

Although unilateral vs bilateral contract differ, they share important features that help us understand how contracts work.

1) Legally Enforceable Commitments
When correctly established, both unilateral vs bilateral contract create obligations that the legal team recognizes and protects. This implies that each party is obligated to carry out their agreed-upon duties or commitments as outlined in the contract.

2) The Offer
This implies that each party is legally obligated to carry out the duties or promises outlined in the agreement. This initial proposal sets the foundation for the agreement and invites the other party to respond.

3) Acceptance as a Crucial Step
Both contract types require the other party to accept the offer. While acceptance in a unilateral contract occurs through performing the requested action, in bilateral contracts, acceptance is expressed through exchanging promises. This difference in how acceptance is shown is important but does not change the fundamental need for agreement.

4) Exchange of Value (Consideration)
A valid contract requires something of value to be exchanged. In unilateral contracts, this often involves completing an act, while bilateral contracts rely on mutual promises. This mutual exchange, referred to as consideration, is a crucial element that upholds the validity of a contract. This rule applies the same way to both unilateral vs bilateral contract.

5) Capacity and Lawful Purpose
For any contract to be binding, the involved parties must have the legal ability to enter into agreements, and the contract’s purpose must be lawful.

6) Risk of Breach
Both contract types carry the risk that one party might not meet their agreed-upon duties. If this occurs, the other party has the right to ask for a solution or payment for the broken agreement.

Why Knowing Unilateral vs Bilateral Contract Is Essential

Understanding the difference between unilateral vs bilateral contract is crucial for any business. Knowing which contract applies in various situations helps you avoid misunderstandings, reduce the risk of disputes, and protect your business interests.

1) Managing Risks
As per small business association of Michigan, nearly 60% of small businesses experience disputes with their vendors or suppliers. A lot of these conflicts arise from vague or badly written agreements.

Understanding the differences between unilateral vs bilateral contract helps you create agreements that clearly define each party’s obligations, reducing the chance of conflict.

2) Financial Impact of Contract Disputes
Contract-related disputes are not just inconvenient, they can be costly. Contract disputes can account for up to 9% of a company’s annual revenue. For small businesses, this can mean a significant loss that affects cash flow, growth, and overall stability. Knowing the difference between unilateral vs bilateral contract types that fit your business scenario allows you to minimize risks and protect your bottom line.

3) Clear Responsibilities Lead to Smoother Operations
Whether your agreement requires a one-sided action (unilateral) or mutual promises (bilateral), clarity is key. When both parties understand their duties clearly, it fosters trust and prevents misunderstandings. This leads to more efficient business dealings and stronger professional relationships.

4) Faster Decision-Making
Being familiar with unilateral vs bilateral contract differences enables quicker negotiation and decision-making. When you know what to expect from a unilateral vs bilateral contract, you can draft and review agreements with confidence, saving valuable time and avoiding costly delays.

5) Strengthens Business Relationships
Clear, well-created contracts contribute to positive business relationships by reducing disputes and enhancing cooperation. This not only helps retain vendors and suppliers but also builds your reputation as a reliable and professional partner.

Role of CLM 365 in Improving Contract Handling

CLM 365 simplifies contract handling for businesses through its user-friendly and straightforward design. Its centralized dashboard allows teams to manage, monitor, and collaborate on contracts from one place without confusion. With strong security features built into every step and accreditation from Microsoft, CLM 365 offers a reliable and organized way to manage contracts confidently.

Conclusion

Understanding the differences between unilateral vs bilateral contract is essential for anyone involved in legal or business transactions. That clarity helps you avoid confusion, reduce disputes, and build stronger working relationships.

Ready to handle contracts in a smarter, more organized, and secure way? CLM 365 is built to support efficient and reliable process.

Frequently Asked Questions

What is more common, unilateral or bilateral?

In contrast, bilateral contracts are more frequently used in day-to-day business and personal agreements. These contracts are built on the exchange of mutual commitments, where each party agrees to fulfill specific duties.

What are the advantages of a unilateral contract?

Unilateral contracts are designed to prompt action by offering a clear reward or benefit once a specific task is completed. This type of contract works well in scenarios like contests or public offers, where the responsibility of the party making the promise only begins after the other party performs the required act.

What is an unilateral contract with an example?

A unilateral contract is an agreement where one party makes a promise that becomes enforceable only when the other party completes a specific action. For instance, a business may offer a reward to any contractor who delivers a solution that meets certain specifications. Payment is made only after the work is successfully finished.