Unilateral vs. Bilateral Contracts: Meaning, Differences & Examples

Introduction

Contracts form the backbone of legal and commercial relationships. From simple daily transactions to complex corporate agreements, contracts define rights, duties, and remedies. Among the various classifications of contracts, unilateral and bilateral contracts are two of the most fundamental yet often misunderstood concepts in contract law.

Understanding the difference between unilateral and bilateral contracts is crucial for law students, legal professionals, businesses, and even individuals entering everyday agreements. This blog provides a comprehensive explanation of unilateral and bilateral contracts, their meaning, legal characteristics, real-world examples, and key differences, with reference to general principles of contract law and the Indian Contract Act, 1872.

Unilateral vs. Bilateral Contracts

What Is a Contract?

Under Section 2(h) of the Indian Contract Act, 1872, a contract is defined as an agreement enforceable by law. A valid contract generally requires:

• Offer

• Acceptance

• Lawful consideration

• Free consent

• Competent parties

• Lawful object

Based on how obligations are formed and performed, contracts can be classified into unilateral and bilateral contracts.

Meaning of a Unilateral Contract

A unilateral contract is a contract in which only one party makes a promise, and the other party accepts the offer by performing a specific act rather than by making a return promise.

In simple terms, a unilateral contract involves:

• One-sided promise

• Acceptance through performance

• Obligation arises only after the act is completed

The promisor is bound only when the promisee performs the required act.

Key Features of a Unilateral Contract

1. One-Sided Obligation – Only one party is legally bound to perform.

2. Acceptance by Conduct – Acceptance occurs through action, not words.

3. Performance-Based – The contract is completed once the act is performed.

4. No Mutual Promises – There is no exchange of promises at the outset.

Examples of Unilateral Contracts

1. Reward Offers

A common example is a reward advertisement:

“₹50,000 reward for anyone who finds my lost dog.”

The person offering the reward is bound only if someone finds and returns the dog. No one is obligated to search for the dog.

2. Insurance Contracts

Insurance contracts are often cited as unilateral in nature. The insurer promises to compensate for loss upon the occurrence of a specified event, while the insured is not legally bound to make a claim.

3. Public Advertisements

Offers made through public advertisements, such as cashback offers or prize competitions, are classic unilateral contracts where acceptance occurs through performance.

Meaning of a Bilateral Contract

A bilateral contract is a contract in which both parties make mutual promises to each other. Each party is both a promisor and a promisee.

In a bilateral contract:

• Promises are exchanged

• Obligations exist on both sides

• Acceptance occurs through a return promise

Most commercial and personal contracts fall under this category.

Key Features of a Bilateral Contract

1. Mutual Obligations – Both parties are legally bound.

2. Exchange of Promises – Each promise serves as consideration for the other.

3. Immediate Formation – The contract is formed as soon as promises are exchanged.

4. Executory Nature – Performance may occur at a future date.

Examples of Bilateral Contracts

1. Sale of Goods

When a buyer agrees to purchase goods and the seller agrees to deliver them for a price, both parties make binding promises.

2. Employment Contracts

An employer promises to pay salary, and the employee promises to perform work. Both parties are legally obligated.

3. Lease Agreements

A landlord promises to provide possession of property, and the tenant promises to pay rent.

Difference Between Unilateral and Bilateral Contracts

Basis	Unilateral Contract	Bilateral Contract
Number of promises	One promise	Two mutual promises
Acceptance	By performance	By promise
Obligation	One-sided	Two-sided
Formation	After performance	On exchange of promises
Common examples	Rewards, insurance	Sale, employment, lease

Legal Position Under the Indian Contract Act, 1872

Although the Indian Contract Act does not explicitly define unilateral or bilateral contracts, these concepts are derived from Sections 2(a) to 2(e), which deal with offer, acceptance, and promises.

Indian courts have consistently recognized unilateral contracts, especially in cases involving reward offers and public advertisements. The famous case of Carlill v. Carbolic Smoke Ball Co. is often cited to explain the enforceability of unilateral contracts through performance.

Advantages and Disadvantages

Unilateral Contracts

Advantages:

• Simple and flexible

• Useful for public offers

Disadvantages:

• Uncertainty until performance

• Limited control over acceptance

Bilateral Contracts

Advantages:

• Clear obligations

• Predictability and enforceability

Disadvantages:

• Requires mutual consent

• More complex documentation

Importance of Understanding the Difference

Knowing whether a contract is unilateral or bilateral helps in:

• Drafting legally sound agreements

• Identifying rights and liabilities

• Determining breach and remedies

• Avoiding contractual disputes

For businesses and legal professionals, this distinction plays a vital role in risk management and compliance.

Conclusion

Unilateral and bilateral contracts are foundational concepts in contract law. While unilateral contracts rely on performance for acceptance, bilateral contracts are built on mutual promises. Both serve different legal and commercial purposes.

A clear understanding of their meaning, features, and differences empowers individuals and organizations to enter into agreements confidently and lawfully. Whether it is a simple reward offer or a complex business transaction, recognizing the type of contract involved is essential for legal clarity and enforceability.

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Frequently Asked Questions (FAQs)

1. Is a unilateral contract legally enforceable in India?

Yes, unilateral contracts are legally enforceable once the promised act is fully performed, provided all essential elements of a valid contract are present.

2. Which type of contract is more common in business transactions?

Bilateral contracts are more common in business transactions as they involve mutual promises and clearly defined obligations.

3. Can a unilateral contract be revoked?

A unilateral contract can generally be revoked before performance begins, but not once the promisee has started performing the act.