Bilateral contracts differ from other forms of contracts because they often do not have consideration, which is usually a monetary amount provided to secure the contract. Bilateral contracts are based on promises and may or may not involve immediate or specific performance.
The most important element of a bilateral contract is the requirement that both parties are equally benefit from the contract. Bilateral contracts cannot be one sided. Business deals usually involve an exchange between the two parties, therefore most business contracts will be bilateral because the parties will promise to perform or refrain from doing something before money is exchanged. If the deal involves the exchange of products, money is rarely exchanged before the product is delivered.
Unilateral contracts are often referred to as one sided contracts. In unilateral contracts one party agrees to perform without receiving the assurance that the other party will perform their duties as agreed upon in the contract. Unilateral contracts are usually avoided by most parties as the contract is not enforceable until the performance is completed. In essence, when entering into a unilateral contract you can perform several hours or thousands of dollars’ worth of work without the guarantee that the other party will even pay you.
A homeowner’s insurance policy is an example of a unilateral contract. The policy terms are met by the premium you pay. The insurance company guarantees that they will take care of issues that are covered by the policy. In the event that nothing occurs, you do not receive your money back. It’s one sided in the sense that you perform by paying your premium while the insurance company may or may not have to perform.
Formal contracts are contracts that are required to be written to be enforceable or valid. Formal contracts are not considered legal contracts unless they are written with certain language as required by law. Types of formal contracts include contracts that require seals, negotiable instruments and recognizances.
Sealed contracts are not commonly used today because of the inability to amend the contract. When you enter into a contract under seal you are bound by the terms of the contract until the amendments are also put under seal or the contract is physically destroyed.
A negotiable instrument is a legal contract that states the amount of a fixed payment to be made. An example of a negotiable instrument is a check. Checks state the amount to be paid, who they are payable to and require the signature of the party issuing it in order to be valid, thereby making a check a form of contract.
Recognizances are formal contracts made by parties before the court. When you agree to the terms set forth by the judge in criminal matters you will usually be conditionally released on your own recognizances. A recognizance is considered a contract because the terms are clear and must be agreed to before you are released. They are contracts between a party and the state.
An informal contract is any contract that does not require specific legal requirements to be deemed valid and enforceable. Informal contracts differ from formal contracts in that they do not have to be sealed, written, or witnessed. Informal contracts are commonly referred to as “social contracts.” An informal contract should be avoided if you do not have complete trust in the person with whom you are entering into contract.
An informal contract, when verbal, requires the belief that the other party will in fact perform despite not having their written assurance that they will do so. Sales contracts are the most common form of informal contracts. Sales contracts are usually specific to each individual situation, and therefore, they will not contain specific legal requirements.
For example, you will not have the same sales contract as an individual who is purchasing a newer vehicle than you at the car dealership. It’s also possible that they could be purchasing the same vehicle as you but your contracts will differ based on factors such as your credit score or vehicle color.
In an express contract the terms of the contract are clear and concise. Whether written or oral, the express contract leaves no room for interpretation. The actions of the parties have no effect on the validity of the contract.
An example of an express contract is a parole contract. A parole contract is any contract that is not required to be under seal or of record. Express contracts are based solely on the statements of the party or what is written in the contract.
An implied contract is one that requires no oral or written statements but is simply inferred by the actions of either one or both parties involved. Without your knowledge, you enter into implied contracts every day. When you make purchases with your credit card you have entered into an implied contract with your credit card company.
Without words actually being spoken, by either yourself or your credit card company, an implied contract is obvious because they provided you with credit to make your purchase and you in turn must return that money.
When receiving service in any instance you are entering into an implied contract. For example, when you contact a caterer for an important event, it is implied that the caterer will want to be paid upon deliverance of the food. A remedy for implied contracts created by courts is the quasi-contract or implied-in-law contracts. An implied-in-law contract states what should have been obvious in accordance with the original implied contract. An implied-in-law contract requires the party to perform as ordered by the court.