Bilateral contract: Definition, Example and Related Terms

A bilateral contract is a type of agreement where both parties involved make mutual promises to each other. In other words, each party agrees to fulfill certain obligations in exchange for the other party's commitments. This form of contract is extremely common in business dealings and is the foundation of most commercial agreements.

For example, in a sales agreement, the seller promises to deliver a specific product or service, while the buyer promises to pay a certain amount of money for it. Both parties have made promises to each other, which are enforceable under the terms of the contract.

Bilateral contracts are essential because they create mutual obligations that ensure both parties have something to gain and something to lose. This balance of obligations can help prevent disputes and misunderstandings.

It's worth noting that in a bilateral contract, the enforceability of one party’s promise is often contingent on the fulfillment of the other party’s promise. This is a key feature that distinguishes bilateral contracts from unilateral contracts, where only one party makes a promise.

Understanding and crafting bilateral contracts is a crucial skill for contract managers, as it involves negotiating terms that are equitable and ensure mutual benefit. Regularly reviewing these contracts can help identify any changes needed to adapt to evolving circumstances and maintain the integrity of the agreement.