Types of Contract | Bilateral and Unilateral
- A Level, BTEC National
- AQA, Edexcel, OCR
Last updated 27 Aug 2021
There are two types of contract, depending upon the nature of the consideration that is exchanged, contracts are identified as either bilateral or unilateral.
A bilateral contract is an agreement between two parties whereby they each promise to perform an act in exchange for the other party's act.
A bilateral contract is therefore an exchange of promises that both parties will act. This is a typical example of a contract where one party offers to pay money and the other party offers to pass over ownership of an item of property e.g. sale of a car.
EXAMPLE: ANNIE’S CHOCOLATE BAR
If Annie walked into a shop and wanted to buy a chocolate bar, she would select from the choice in the shop and walk up to till. When she presents the chocolate bar to the cashier, she is making an offer to pay money for the item, when the cashier accepts the money, they accept her offer. The contract is formed at this point, there has been an exchange of promises, Annie to pay and the cashier to provide the item. The obligations are synonymous with the formation
A unilateral contract is not an exchange of promises, but rather one party, known as the offeror, makes a promise (usually to make payment) in exchange for a specified act by another party. The offeree enters into the contract and accepts the offer, by the act.
EXAMPLE: BENNY’S BISTRO
If Benny opened up a new restaurant in the city centre and advertised clues with a statement saying ‘There are 4 golden tickets hidden in local parks. If you find the ticket and bring it to the restaurant on opening day you will be given a free three course meal with a bottle of wine’. Benny has made a unilateral offer, he would be contractually obliged to provide the free meal and wine if customers attended on that day and presented the ticket
It is important to note that contracts can be entered into by a wide range of legal parties, not just individual persons. For example, machines can enter into contracts, companies, advocates / representatives, lawyers on behalf of clients, governments, councils and other organisations all have the capacity to enter into legally binding agreements.
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