Bilateral v. Unilateral Contracts

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Contracts are an important part of every business. They help business owners keep things organized and running smoothly. Contracts provide certainty for both parties around key terms, like what type of services will be provided by each party, the cost of those services, and the duration of the relationship. 

In the U.S., contracts can be written or verbal, but in order to be enforceable, they generally must have three elements: (1) an offer made by one party; (2) acceptance of that offer by another party; and (3) the exchange of something of value (called “consideration”).

There are many different types of contracts and the structure of a contract can vary depending on the industry or the terms of the deal. Two common types of contracts are bilateral contracts and unilateral contracts. 

What is a Bilateral Contract?

A bilateral contract is a contract where both parties are required to perform. Performance can be providing services to the other party, delivering goods, or simply delivering payment to the other party. Many common contracts are bilateral contracts. For example, the contract to buy or lease a car is a bilateral contract–you (the buyer) agree to make payments to the owner of the car and the owner (the seller) agrees to deliver the car to you. A contract does not need to be bilateral in order to be enforceable. Some contracts are unilateral and are just as valid. 

What is a Unilateral Contract?

A unilateral contract is a contract where only one of the parties is required to perform. A common unilateral contract is a unilateral non-disclosure agreement (also called a “confidentiality agreement”). Under this type of contract, one party agrees to keep certain information confidential and to not disclose that information to any third-parties. Non-disclosure agreements can also be bilateral (also called “mutual”) where both parties agree to keep certain information confidential. Whether a unilateral or bilateral non-disclosure agreement should be used just depends on the circumstances. Do both parties want the other party to keep information confidential? Are the parties exchanging sensitive information or is the flow of information only in one direction? These types of considerations can determine whether to use a unilateral or mutual non-disclosure agreement. Another type of unilateral contract is an event release or waiver you might receive when attending a sporting event or participating in a risky activity. One party agrees to waive their rights to bring claims against the other party in exchange for the ability to attend the event or participate in the activity. 

It can take some work to draft and manage contracts with clients, but they are important tools in the toolbox of small business owners. If you can create a few contract templates for your business, and establish a system to manage the flow of contracts, you’ll be in a great position to build a strong, successful business.

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