bilateral contract
A bilateral contract is a contract in which both parties in the agreement exchange promises to perform a specific action. Essentially, each party has an obligation to perform in a bilateral contract. One party’s promise serves as consideration for the promise of the other. As a result, each party is an obligor on their own promise and an obligee on the other party’s promise. Bilateral contracts are the most common type of a legally binding agreement.
Business transactions such as sales contracts in which the buyer promises to pay the agreed price and the seller promises to deliver the agreed goods are a common example of bilateral contracts. In this example, the buyer and the seller obligate themselves reciprocally, so that the obligation to pay the price is correlative to the obligation to deliver the goods. Other examples of bilateral contracts include employment contracts, leases and warranties .
Bilateral contracts differ from unilateral contracts because both parties agree to perform an action, compared to a unilateral contract in which only one party agrees to perform and is thus, legally bound to perform their promise.
[Last reviewed in October of 2024 by the Wex Definitions Team ]
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