This article is written by Adhila Muhammed Arif, a student of Government Law College, Thiruvananthapuram. This article seeks to explain what a bilateral agreement is, its essentials, and how bilateral agreements are different from unilateral agreements.
This article has been published by Sneha Mahawar.
As per Section 2(e) of the Indian Contract Act, 1872, an agreement is essentially a promise that is coupled with a consideration. That is, it consists of an offer and its acceptance, and a price for the performance of the offer. Several transactions that take place every day involve the use of some form of an agreement or contract. We see agreements in several commercial relationships such as the rental agreement between a tenant and a landlord, loan agreement between a lender and a borrower, agreement to sell a property between its owner and the buyer, etc. Agreements do not always have to be written or documented in their form. When we go to a nearby shop to buy candy, an agreement is formed between us and the shopkeeper which is unwritten in form. However, it qualifies all the essentials of an agreement. It involves the buyer offering to pay for the chocolate and the seller accepting the payment of money for the chocolate. Agreements can be classified in many ways and some of which are express and implied, written and unwritten, unilateral and bilateral, valid, void, and voidable, etc. Most of the agreements that we form in our day-to-day transactions are bilateral in nature. Such agreements consist of mutual or reciprocal promises. It is crucial to explore what bilateral agreements are, how bilateral agreements are distinctive from unilateral agreements, and what are the different kinds of bilateral agreements.
Essentials of a valid contract
Firstly, Section 2(b) of the Indian Contracts Act defines a promise as an offer made by one party which has been accepted by another party. Section 2(e) defines an agreement as a promise for which another promise exists as consideration. Finally, Section 2(h) defines a contract as an agreement that can be enforced by law. Essentially, as per Section 10, any valid agreement can be called a contract when it’s accompanied by the following factors:
- Competent parties;
- Free consent of the parties;
- Lawful consideration and object, and
- The agreement must not be declared expressly void by law.
Bilateral agreement – meaning and example
In several agreements, one party makes an offer that the other party may or may not accept, and consideration is provided for the performance of the offer. Only one party makes a promise to perform something in such agreements. However, bilateral agreements are distinct in this aspect. A bilateral agreement involves mutual promises. In such an agreement, a promise is met with another promise, also called a reciprocal promise.
For further explanation, some examples of a bilateral agreement are given:
- A promises B that he would sell his car after 20 days. B promises that he would pay the price once the car is delivered to him. Here, both A and B make promises to each other. B promises to perform his obligation once A performs his obligation.
- In an agreement of contract of sale of a house, A, the seller, promises to deliver the title of the house in exchange for an agreed sale price. B, the buyer, agrees to pay the specified sale price in exchange for the title of the house. Both A and B have made promises to each other.
- In an agreement, A promises to ship 20 sacks of rice to B. B in return promises A that he will pay for the 20 sacks of rice once he receives them. This is an example of a bilateral agreement as both A and B have made promises for each other.
What is a unilateral agreement
So far we have seen that in a bilateral agreement, a promise is met with a reciprocal promise. In unilateral agreements, the offer is made by the offeror but the offeree may or may not accept the offer. The offeree does not declare the intention to perform any promise or obligation. Only when the offeree performs the conditions put forward by the offeror the agreement gets formed. For instance, A loses a valuable item and puts up a notice promising to reward whoever finds it for him. Here, the agreement is offered to the public in general and it gets accepted only when someone finds the item and returns it to A. A performs his promise of rewarding the finder only on receiving the item.
Difference between unilateral and bilateral agreements
The following are the notable aspects of unilateral and bilateral agreements that distinguish them:
- Promise: In unilateral agreements, only one party, who is the offeror, makes promises and is obligated to fulfil them. Bilateral agreements on the other hand are created on the basis of mutual or reciprocal promises to fulfil obligations.
- Offer: Unilateral agreements are formed by the acceptance of offers which are in the form of open or optional requests. They are usually open to the general public and not to a specific person. Bilateral agreements on the other hand are always specifically formed by an offer made to a specific person.
- Clarity and communication: There tends to be a lack of clarity in unilateral agreements as the offer can be accepted by any person. In bilateral agreements, there tends to be proper communication between the two parties. The parties to the agreement are clear and specific. The promises made to each other are clear as well. For instance, if there is a unilateral agreement where there is a promise for a reward for finding a lost cat, many individuals could put in the effort in finding the cat. They would not even know if someone has already accepted the agreement by finding the cat.
- Time-frame: In unilateral agreements, the offeror must state the time period for which the offer would stay valid. Bilateral agreements usually specify time-related requirements.
Kinds of bilateral agreements
The following are the different types of bilateral agreements:
Mutual and independent promises
In a bilateral agreement where each party can perform their obligations independently without waiting for the other party’s performance, we can say that the reciprocal promises are mutual and independent. For instance, A agrees to pay B the price of goods on the 10th of February and B promises that he will deliver the goods on the 12th of February. Here, both A and B can perform their promises independently without having to rely on the performance of the other.
Mutual and dependent promises
In a bilateral agreement where one party has to depend on the other party’s performance in order to perform his obligations, the reciprocal promises are mutual and dependent. For instance, in a bilateral contract between A and B, where A promises to build a house for B and B agrees to supply the necessary materials for construction, A has to depend on B’s performance. Since one party has to depend on the other party’s performance, the reciprocal promises can be termed as mutual and dependent.
Mutual and concurrent promises
In a bilateral agreement where the promises have to be performed simultaneously, the reciprocal promises are said to be mutual and concurrent. For instance, A promises B to sell goods to B. B promises to pay on the delivery. Here, the agreement is complete when both parties perform their obligations at the same time. Hence, the reciprocal promises in such a bilateral agreement are mutual and concurrent.
Provisions in the Indian Contract Act, 1872 with respect to bilateral agreements
The following are the provisions in the Indian Contract Act, 1872, which with bilateral agreements, or more specifically reciprocal promises:
Bilateral agreements with mutual and concurrent reciprocal promises
As per Section 51 of the Indian Contract Act, 1872, in a bilateral agreement where the reciprocal promises are to be simultaneously performed, no promisor needs to perform his promise unless the promisee is also willing to perform his reciprocal promise. For instance, A and B enter into a bilateral agreement. As per the agreement, A is supposed to deliver certain goods to B for which B would pay on delivery. A does not have to deliver the goods unless B is willing to pay for it on its delivery. Similarly, B does not have to make the payment unless A is willing to deliver the goods on payment.
Order in which the promises are to be performed
As per Section 52 of the Indian Contract Act, when a bilateral agreement has fixed an order in which promises are to be performed, it has to be performed in that order itself. As for bilateral agreements with no expressly fixed order of performing promises, the order should be what is generally followed for the transactions of that nature. For instance, in a bilateral agreement between A and B, A promises to B that he shall build a house for B for a certain price. Here, B shall make the payment only after A builds the house.
Where one party prevents the performance of promise
Section 53 of the Indian Contract Act renders bilateral agreements where one party prevents the other from performing his promise voidable at the option of the party who is so prevented. Additionally, the prevented party is also entitled to seek compensation for any loss sustained due to the non-performance of the agreement. For instance, A and B enter into a bilateral agreement. B’s promise is to execute certain work for A fixed price of Rs. 1000. Though B is willing to undertake the work, A prevents him from performing it. The agreement is voidable at the option of B if he chooses to rescind it. Another remedy that B has is to make A compensate for the losses incurred by B if any.
Default in promises which are mutual and dependent
As per Section 54 of the Indian Contract Act, in a bilateral agreement when one of the promises cannot be performed, or when it cannot be claimed until the other promise has been performed, the promisor who is supposed to perform his promise first cannot claim the performance of the other. He must also compensate the other party for any losses sustained due to the non-performance of the agreement. For instance, A and B enter into a bilateral agreement where A has to execute certain builders’ work for a certain price. B’s obligation is to supply the necessary materials for the work. If B refuses to supply the materials, the work cannot be executed. In that case, A does not have to execute the work and B will also be liable for compensation for the losses incurred by A.
Bilateral agreements which consist of legal as well as illegal promises
Section 57 of the Indian Contract Act deals with such kinds of bilateral agreements. As per this section, if a set of promises in a bilateral agreement are legal, while the other promises are illegal, the first set remains valid and the second set becomes void. For instance, A and B enter into a bilateral agreement where A promises that he shall sell a house to B for a fixed price of Rs. 10,000. But he also put forward a condition that if he uses that as a gambling house, the price shall be Rs. 50,000. The first promise is lawful meanwhile the second promise enables B to use the house for an unlawful object. For this reason, the second promise is rendered void.
Important clauses to be included in a bilateral agreement
The following are some of the important clauses that the parties to a bilateral agreement should consider while drafting the agreement:
- Parties: It is important to include details of the parties to an agreement while drafting. This is to show who is liable for performing the obligations stated therein.
- Promises: In a bilateral agreement, both parties make promises to each other. It is important to include the obligations undertaken by each party. It would also be ideal to include the order of the performances if one party’s promise is dependent on the other party’s performance of the agreement.
- Termination clause: It is suitable for parties to include a termination clause and for what causes it becomes operative. The parties to a bilateral agreement must consider including this clause so that they can absolve themselves from performing the agreement in difficult circumstances. It is important to include the causes for which the agreement can be terminated.
- Indemnification of loss: This is an important clause that can be included in an agreement as it can ensure that any party affected by the other’s non-performance can be indemnified for the losses incurred.
- Mode of resolving dispute: Another important clause to be included is the mode of resolving the dispute if it arises. It could be either litigation or alternate modes such as mediation or arbitration, whichever the parties prefer to go by.
Sample of a bilateral agreement
Here is a sample of a bilateral contract between the owner of a house and its buyer:
Agreement for sale of house
- This sale agreement has been made on …(date)….between …(name of party1)…, residing at …(address)….., who is the seller, and ….(name of party2)…, residing at …(address)…, who is the buyer.
- The entire house of ….(house address)… will be sold by the seller to the buyer.
- The buyer has paid a part of the price, which is an amount of ….. and the seller hereby acknowledges it. The balance will be paid by the buyer at the time of execution of the deed. The house is free from all encumbrances.
- The sale will be complete by …(date)…
- The seller shall submit the documents regarding the title of the house to the buyer’s advocate. Within one week from the date of such submission, the buyer will intimate about his advocate’s report.
- If the title turns out to be defective, the seller shall make a refund of the money paid in advance.
- The seller will hand over the vacant possession of the house on the execution of the deed.
- If the buyer commits a breach of the agreement, the seller will be at liberty to resell the property to any person and the balance will be retained by him.
- If the seller commits a breach, he will be held liable to refund the advance payment and a sum of ….. as damages.
- The seller shall execute the conveyance deed in favour of the buyer on receiving the balance amount.
- The expenses for the preparation of the conveyance deed, cost of the stamp, registration charges shall be undertaken by the buyer.
Signature and name of party1
Signature and name of party2
To conclude, most agreements formed in our day-to-day lives are bilateral in nature. In other words, most of the agreements that we form consist of reciprocal or mutual promises. It is rare to see agreements where only one party makes a promise to perform an obligation. Bilateral agreements are much clearer with regard to the parties involved and the terms and conditions. The provisions regarding bilateral agreements or more specifically reciprocal promises are found in Sections 51 to 57 in the Indian Contract Act.
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