Bilateral Contracts: The Essentials of Mutually Obligating Agreements

Bilateral contract illustration

As you may already know, contracts are legally binding agreements between two or more parties. They provide a framework for relationships, transactions, and expectations. Bilateral contracts, in particular, are agreements in which both parties make promises to each other. They are the most common type of contracts and are used in a wide range of business transactions. In this Business Kitz blog post, we will go through the requirements for bilateral contracts and examples of how they may be applied.

What is a bilateral contract?

A bilateral contract is an agreement between two parties where both parties promise to perform certain actions or services in exchange for something of value. This type of contract creates mutual obligations, meaning that both parties are bound to fulfill their end of the agreement. In a bilateral contract, each party must provide consideration, which can be anything of value, such as money, property, or services. For example, if person A agrees to pay person B $100 to mow their lawn, both parties have agreed to fulfill their end of the contract: person A will pay person B $100, and person B will mow person A’s lawn.

Bilateral contracts are the most common type of contract and are used in various industries, including real estate, employment, and business transactions. They are legally binding agreements that can be enforced in court if one party fails to fulfil their obligations. In order for a bilateral contract to be valid, both parties must be of legal age, have the capacity to enter into a contract, and provide consideration. Additionally, the terms of the contract must be clear and specific to avoid any confusion or misunderstandings.

Example 1

One example of a bilateral contract is a sales contract between a buyer and a seller. The buyer agrees to pay a certain amount of money in exchange for a product or service, and the seller agrees to provide the product or service. Both parties have made promises to each other, and both must fulfill their promises for the contract to be valid.

Two business partners signing a bilateral contract

Example 2

Another example of a bilateral contract is an employment contract. When an employee agrees to work for a company, they promise to provide their labor and services, and the company promises to provide compensation, benefits, and a safe working environment. Both parties have made promises to each other, and both must fulfill their promises for the contract to be valid. If either party fails to fulfil their promise, the other party may have legal recourse to enforce the contract.

How can I establish a legally binding contract?

To establish a legally binding contract, there must be an offer, acceptance, consideration, intention to create legal relations, capacity to contract, and free consent. The terms of the contract must also be clear and not against public policy. It’s best to have the agreement in writing and signed by all parties involved.

Depending on what kind of contract you require, Business Kitz has an extensive range of high-quality commercial, HR and employments contracts.

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Offers are the first step in establishing a legally binding contract. An offer is a proposal made by one party to another to enter into a contract on certain terms. Offers can be expressed orally, in writing, or by conduct. The offer must be clear, definite, and capable of acceptance, and it must be communicated to the offeree. Once an offer is made, the offeree has the option to accept, reject, or counter the offer. Acceptance of an offer creates a legally binding contract between the parties.

Acceptance is a crucial step in establishing a legally binding contract. It is the act of agreeing to the terms and conditions laid out in the contract. Acceptance must be communicated clearly and unequivocally, either through written or verbal means. A contract is formed when one party offers terms and the other party accepts those terms. Without acceptance, there can be no contract. It is important that both parties understand and agree to the terms of the contract before entering into an agreement.


Establishing a legally binding contract requires several considerations. Firstly, the parties involved must mutually agree on the terms and conditions of the contract. Secondly, the terms of the contract must be specific and clear. Thirdly, the parties must have legal capacity to enter into a contract. Fourthly, there must be consideration, or something of value exchanged between the parties. Fifthly, the contract must not be illegal or against public policy. Finally, the contract must be executed with the intention to create legal relations.

Intentions to create legal relations

Intention to create legal relations refers to the parties’ mutual understanding and commitment to enter into a legally binding contract. This means that both parties must intend to be legally bound by the terms of the agreement. This intention can be demonstrated by a written or verbal agreement, which should be clear and unambiguous. The intention to create legal relations is a crucial step in establishing a legally binding contract, as without it, the agreement may not be enforceable in court.


Capacity to contract refers to the legal ability of a person to enter into a binding agreement. It requires that the person must be of legal age, have mental capacity, and not be under duress or coercion. Free consent means that both parties have freely and willingly agreed to the terms of the contract without any force or undue influence. These two elements are crucial in establishing a legally binding contract as they ensure that the parties involved have entered into the agreement voluntarily and with a clear understanding of the terms.

Legal Advice

To establish a legally binding contract, it is essential to have a thorough understanding of the terms and conditions. If you require assistance drafting your contracts or agreements Business Kitz has customisable templates and free customer support to make it easier for you! If you require legal advice, we recommend contacting our our sister company Legal Kitz. You can request to book a free 30-minute consultation with their experienced and highly qualified team via our website now.

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