Bilateral Contract

Contract under which there is an exchange of a promise for a promise. An Insurance Policy is deemed to be a Unilateral Contract.

A contract under which each party promises performance. See Unilateral Contract.
Example: A sales contract is a bilateral contract, since the seller promises to Convey a property and the buyer agrees to pay a specified sum, given certain conditions.

An agreement formed by an exchange of promises in which the promise of one party is consideration supporting the promise of the other party.

A bilateral contract is distinguishable from a unilateral contract, a promise made by one party in exchange for the performance of some act by the other party. The party to a unilateral contract whose performance is sought is not obligated to act, but if he or she does, the party that made the promise is bound to comply with the terms of the agreement. In a bilateral contract both parties are bound by their exchange of promises.

Both parties to a bilateral contract make promises. With respect to the promise in issue, the party making the promise is the promisor and the other party is the promisee. The legal detriment incurred by the promisee consists of a different promise by him or her to do something or refrain from doing something that he or she was not previously legally obligated to do or to refrain from doing. This legal detriment constitutes consideration, the cause, motive, or benefit that induces one to enter into a contract. Consideration is an essential component of a contract.

Mutuality of obligation must exist in an enforceable bilateral contract, and this involves the concept of reciprocity. A cannot enforce B's promise unless A's promise entails a legal detriment, and B can enforce A's promise only if B's promise involves a legal detriment.

If a minor enters a bilateral contract with an adult that is unenforceable due to the minor's age, the adult party cannot assert absence of mutuality as a defense if the minor sues to enforce the contract. This principle applies to any situation where the law grants a particular party a privilege to avoid a contract because of his or her status.