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What Is a Bilateral Contract?

A bilateral contract is a binding agreement between 2 parties who agree to fulfill the obligations of such an agreement and at which time, deliver the promised goods or services. The parties involved in a bilateral contract are the promisor, the party that is to deliver on the agreed promise, and the promisee, the party that receives that which was agreed upon in the promise.

Unlike a unilateral contract which is contingent on a promisee performing an act before a promisor delivers the agreed upon promise, a bilateral contract involves both parties making promises. The promisee makes a promise to act or to refrain from acting something that he or she was not obligated to do so until the agreement. This is referred to as a consideration and is the most crucial component of a contract, whether bilateral or unilateral. Accordingly, the courts differentiate between a bilateral contract and a unilateral contract by ascertaining if 1 party provided a consideration or if both parties did.

The moment that the parties involved in a bilateral contract formally agree upon delivering their respective promises, this is considered as consideration and binds both parties to the promises he or she has agreed to fulfill.

When a promisor makes a promise of a good or service in exchange for monetary compensation from a promisee, it can be said that this agreement is a unilateral contract. However, if a promisor makes a promise of a good or service in exchange for a promise of a good or service from the promisee, it is said to be a bilateral contract.

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