A bilateral contract is an agreement in which both sides exchange promises: each party promises to do something in return for the other party's promise. It is the default form of contract in Australian business, and most of the agreements a small to medium business makes every day, from buying stock to engaging a contractor, are bilateral. This guide explains the elements that make a bilateral contract enforceable in Australia, how one works in a real business setting, and the misconceptions that cause the most trouble.
What is a bilateral contract?
In a bilateral contract, the exchange is complete at the moment both promises are made. When a supplier quotes a price for goods and a customer accepts, the supplier has promised to deliver the goods and the customer has promised to pay. Each promise is the consideration for the other, and both parties are bound from that point, before either has performed.
Contrast that with a unilateral contract, where only one party makes a promise and the other side accepts by performing an act rather than by making a promise of their own. A reward offer is the standard example: "I will pay $200 to anyone who finds my dog." The person who finds the dog never promises anything. They accept by doing the act, and only then is the promisor bound to pay. Bilateral contracts are far more common in business because both parties want certainty about what the other will do before they commit their own resources.
The elements of an enforceable bilateral contract
Australian courts recognise that a bilateral contract is enforceable only if certain elements are present. If any one of them is missing, the agreement may be void, voidable, or simply too uncertain to enforce. The elements are offer and acceptance, consideration, intention to create legal relations, certainty, and capacity and lawful purpose.
Offer and acceptance
A contract comes into existence through an offer and an acceptance of that offer. An offer is a clear statement of terms that the offeror is prepared to be bound by if accepted. In a bilateral contract, acceptance is normally communicated by a counter-promise, a "yes, I will do that," rather than by immediate performance.
Acceptance does not have to be written or spoken. It can be implied from conduct, such as a customer nodding through a quote and instructing the supplier to proceed, or a business acting on an order it has received. What matters is that the acceptance is clear and corresponds to the terms of the offer. A response that changes the terms is not an acceptance at all but a counter-offer, which the original offeror is free to accept or reject.
It is also worth knowing what is not an offer. Advertisements, price lists, and displayed goods are generally treated as invitations to treat, meaning they invite customers to make an offer, which the business can accept or decline. This distinction matters when a business advertises a price in error: the advertisement does not usually oblige the business to sell at that price.
Consideration
Consideration is the legal name for what each party gives in exchange for the other's promise. In a bilateral contract both sides provide consideration, whether money, goods, services, or a promise to do or not do something. The requirement ensures that a party cannot enforce a promise they have given nothing for.
The law does not require the consideration to be of equal value. A modest sum can support a contract for something worth far more, provided the consideration is real and was genuinely bargained for. This is why a peppercorn rent, a token payment that is real but small, can still make a lease binding. What the law will not enforce is a bare promise with nothing given in return, which is why an agreement to gift something, with no exchange at all, is not a contract.
Intention to create legal relations
For a bilateral contract to be binding, the parties must intend their arrangement to have legal consequences. In Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95, the High Court held that this intention is assessed objectively, by what a reasonable person in the parties' position would have understood, rather than by what the parties later say they intended.
In practice, intention is usually presumed in commercial dealings. When two businesses exchange promises in the course of trade, the law assumes they meant to be bound, and the party arguing otherwise carries a heavy burden. The presumption works the other way for purely social or domestic arrangements, such as a promise between friends over dinner, which are generally not intended to be legally enforceable. The boundary is not always obvious, which is why commercial parties should put their terms in writing rather than rely on a presumption.
Certainty
The terms of a bilateral contract must be clear enough for a court to enforce. As the High Court put it in Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429, the terms of a contract must be certain, or capable of being rendered certain.
A promise to pay "a reasonable amount" can be workable because a court can supply an objective standard, but a promise to share "a fair proportion of future profits," with no mechanism for working out what that means, may be too vague to enforce. The risk is not merely that a dispute arises, but that the whole agreement fails for uncertainty, leaving a business with work done and no enforceable right to be paid for it. Precise drafting of price, scope, timeframes, and obligations is what makes a promise enforceable.
Capacity and lawful purpose
Two further elements are sometimes overlooked. The parties must have legal capacity to contract, which companies and adults ordinarily have, and the purpose of the contract must be lawful. An agreement to do something illegal, such as paying a supplier to mislabel goods, is not enforceable, no matter how clearly the promises are exchanged.
A bilateral contract in practice: the fit-out example
Suppose Priya owns a café and engages a local fit-out company to build and install shelving, a counter, and a service bench for $18,500. The fit-out company's written quote is an offer. When Priya signs the quote and pays a 10% deposit, she has made a counter-promise to pay, and the fit-out company has promised to do the work. Both promises have been exchanged, so the bilateral contract exists from that moment, even though the work has not started.
Consideration is present on both sides: the fit-out company's work and Priya's money. Intention is presumed because this is a commercial dealing. The terms, the scope of work, the price, and the completion date, are certain enough to enforce. If the fit-out company installs shelving that cannot bear the weight of the café's stock, or disappears for three months mid-job, Priya has rights against it. If Priya stops paying, the fit-out company has rights against her. Each party's remedy depends on the promises the other made.
The example also shows why the surrounding law matters. Because the fit-out is supplied to Priya's business for under $100,000, the consumer guarantees under the Australian Consumer Law may apply automatically. Those guarantees require the goods to be of acceptable quality and fit for purpose, and the services to be carried out with due care and skill. Importantly, they cannot be contracted out of: a business cannot take away a customer's consumer rights with a "no refunds" sign or a clause in its terms. The Australian Competition and Consumer Commission treats attempts to mislead consumers about these rights as a breach of the law.
If a party to a bilateral contract breaches a promise, the usual remedy is damages, money intended to put the innocent party in the position the contract promised. For unique goods, such as a one-off piece of machinery, a court may instead order specific performance, requiring the party to do what they promised. Specific performance is a discretionary remedy, which is another reason the terms of the promise need to be clear enough for a court to know exactly what to order.
Common misconceptions about bilateral contracts
Several misconceptions about bilateral contracts recur, and each one can be costly.
- "It has to be in writing to be binding." Most bilateral contracts in Australia are enforceable even when made verbally or implied by conduct. Only certain types of contracts must be in writing, such as contracts for the sale of land. A verbal deal can bind, which is exactly why verbal promises should be written down before money changes hands.
- "A handshake deal is not a real contract." If all the elements are present, a handshake deal can be fully enforceable. The High Court's approach in Ermogenous means a court looks at what the parties objectively intended, not at whether a document was signed.
- "The consideration has to be fair." The law requires real consideration, not adequate consideration. A party cannot escape a deal simply because it turned out to be a bad bargain.
- "Both parties must sign for it to be a contract." Acceptance can be by conduct. A business that starts performing work in response to an order has accepted the deal, even if no one signed anything.
- "A 'no refunds' sign overrides the contract." Under the Australian Consumer Law, consumer guarantees are automatic and cannot be removed by a sign, a notice, or a contract term. Telling a customer their rights have expired is itself misleading conduct.
When a lawyer should look at your bilateral contract
Business owners sign bilateral contracts constantly, and most are straightforward. Professional help becomes worthwhile when the stakes justify it: a high-value supply agreement, a contract with a new or difficult customer, a deal with vague terms, or a dispute about whether a promise was actually made.
A commercial lawyer will check that the elements are present, so the agreement is enforceable in the first place. They will then work through the clauses that allocate risk, such as limitation of liability, indemnities, termination rights, and dispute resolution, and flag the statutory overlays that cannot be drafted around, such as the consumer guarantees. Before a dispute, that review is cheap insurance against signing something unenforceable. After a breach, a lawyer can assess which remedies are realistically available, whether damages or specific performance, and whether the dispute is worth pursuing or better settled.
The question to ask before you sign
Before you rely on any promise, verbal or written, ask whether you can state in one sentence exactly what the other party has promised, when they must do it, and what you are giving in return. If you cannot, the certainty element is missing, and you may have no enforceable contract at all. The businesses that lose the most on bilateral contracts are not the ones that sign bad terms, but the ones that rely on promises too vague to enforce, and discover it only after the work is done and the payment is overdue.