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Bilateral Contract (Definition: What It Is And How It Works)

What is a Bilateral Contract?

What is the difference with a unilateral contract?

What are the essential elements you should know!

Keep reading as we have gathered exactly the information that you need!

Let’s dig into our civil law knowledge and contracts!

Are you ready?

Let’s get started!

What Is A Bilateral Contract

A bilateral contract is a type of contract where both contracting parties obligate themselves towards one another in exchange for a benefit.

Essentially, the contract is said to be “bilateral” or “bi-directional” suggesting that both parties to the contract promise to exchange performance of some kind.

As such, the same contracting party is both the right to receive the execution of the other party’s performance (obligee) but must also perform its own obligation in favour of the other (obligor).

There are millions of contracts being signed every day.

Businesses enter into contracts to advance their mission and individuals enter into contracts to acquire personal goods or get services.

No matter the reason, when two parties enter into a contract, they are each looking to achieve a benefit, an advantage, or acquire something of value.

For example, if Suzanne wishes to ride a bicycle but does not own one, she may want to purchase a bicycle and in exchange give up some money that she had worked for.

When a contract for the purchase of a bike is entered into, Suzanne gives up something of value (money) in exchange for something of value to her (a bike).

This is a bilateral contract where both Suzanne (the buyer) and the seller derive benefit in trading the bike for a certain sum of money. 

Bilateral Contract Definition

Every jurisdiction may have a unique way of qualifying a bilateral contract.

In Quebec, the Civil Code of Quebec, in article 1380, defines a bilateral contract as follows:

A contract is bilateral “when the parties obligate themselves reciprocally, each to the other, so that the obligation of one party is correlative to the obligation of the other”

As you can see from this legal definition, a bilateral is one in which:

  • A contract between at least two parties
  • The parties have mutual obligations to one another
  • The obligations of the parties are correlative to one another 

According to the Cornell Law School’s Legal Information Institute, under the common law regime, a bilateral contract is defined as:

A bilateral contract is a contract in which both parties exchange promises to perform. 

This definition is quite similar to the definition in Quebec’s civil system where each party exchanges a promise to perform an obligation in favour of the other.

How To Form A Bilateral Contract

The formation of a bilateral contract follows the contract laws applicable in the jurisdiction where the contract is formed.

For example, a contract formed in Quebec must follow the contract formation elements required by Quebec laws whereas a contract formed in New York will need to follow the contract formation elements of New York.

In Quebec, a bilateral contract (or any contract for that matter) is formed when:

  • An offeror makes a legally binding offer
  • The offeree accepts the offer made
  • The parties have legal capacity to contract
  • The object of the contract is legal 
  • The contract has cause 

Article 1385 of the Civil Code states that a contract is formed:

by the sole exchange of consents between persons having capacity to contract, unless, in addition, the law requires a particular form to be respected as a necessary condition of its formation, or unless the parties subject the formation of the contract to a solemn form. It is also of the essence of a contract that it have a cause and an object.

As you can see, under Quebec laws, a bilateral contract is formed when:

  • Parties had legal capacity to contract
  • There is an exchange of consent (offer and acceptance)
  • It has a cause
  • It has an object

A “cause” is the reason that the parties are motivated to enter into a contract such as a seller looking to sell a car and a buyer looking to buy a car.

An “object” is the objective intended to be achieved by the contract such as the sale of a car.

Bilateral Contract Example

Let’s look at a few examples of bilateral contracts to illustrate the concept.

The most notable bilateral contract is a contract of sale or purchase agreement.

In a contract of sale, the seller must deliver a good or product to the buyer who must pay the negotiated price.

In this case, the seller is entitled to receive the proceeds of the sale and is obligated to deliver the goods.

On the other hand, the buyer is entitled to receive the delivery of the goods and is obligated to pay the purchase price.

Another example of a bilateral contract is an employment contract.

In an employment contract, the employer obligates itself to pay the employee a salary in exchange for the employee’s services.

On the flip side, the employee obligates himself or herself to render competent services in exchange for a salary.

Here are other examples of bilateral contracts:

  • Sale of a house
  • Sale of a car 
  • Sale of goods
  • Lease agreement 
  • Service agreement

Bilateral Contract vs Unilateral Contract

What is the difference between a bilateral contract and a unilateral contract?

Essentially, a bilateral contract is one where the parties to the contract mutually agree to perform obligations in favour of the other.

Generally, the parties’ obligations are fair or equal to one another (without significant discrepancy).

On the other hand, when a contract obligates only one party towards the other, we qualify that contract as a “unilateral” contract.

According to the Civil Code in Quebec, a unilateral contract is defined as:

When one party obligates himself to the other without any obligation on the part of the latter, the contract is unilateral

In a nutshell, in a “unilateral contract”, only one party has a duty to perform an obligation in favour of the other party without expecting to receive (or be the beneficiary) the performance of any obligations.

Bilateral Contracts Takeaways 

So what is the legal definition of Bilateral Contract in Quebec?

What qualifies as a bilateral contract versus a unilateral contract?

Let’s look at a summary of our findings.

Define Bilateral Contract

  • A bilateral contract is one of the most common types of contracts out there 
  • An example of a bilateral contract is a contract of sale, service contract, lease agreement, employment agreement, or any other type of agreement where there is an exchange of goods, service, or value 
  • In Quebec, a bilateral contract is when the contracting parties agree to correlative obligations towards one another
  • In common law jurisdictions, the typical definition is when the parties exchange promises to perform certain obligations in order to obtain equal, fair or some form of consideration 
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