What is the key difference between unilateral and bilateral contracts?

In the context of contract law, the primary distinction between unilateral and bilateral contracts is centered on the number of parties obligated to act. A unilateral contract involves an agreement where only one party makes a promise or takes an action in exchange for a performance from another party. The classic example is a reward situation, where one person offers a reward for the return of a lost item; the person claiming the reward is not obligated to perform any action until they complete the specified task.

In contrast, a bilateral contract is characterized by a mutual exchange of promises between two parties, where both have obligations to fulfill. This means that each party is committed to performing specific actions, creating a reciprocal relationship.

Understanding this fundamental difference is crucial in recognizing how obligations arise in various agreements. The definition of unilateral contracts clearly states that only one party needs to act, which is fundamental to differentiating it from bilateral contracts. This underscores the significance of the party's performance as the trigger for the contract to be executed.