Unilateral contract vs.

Bilateral
contract
Aug 17,2014 / By John Reilly / No Comment
Unilateral contract vs. Bilateral contract
A unilateral contract involves one promise to perform (option contract), whereas
a bilateral contractinvolves mutual promises to perform (as in a sales contract).
Unilateral contract — A contract in which one party makes an obligation to perform
without receiving in return any express promise of performance from the other party.
One party gives a promise in exchange for an act; that party is not obligated to
perform on that promise unless the other party decides to act. An example is an
open listing contract, where the seller agrees to pay a commission to the first broker
who brings a ready, willing and able buyer. The contract actually is created by the
performance of the act requested of the promisee, not by the mere promise to
perform. Note that a unilateral contract contains a promise on one side, where as a
bilateral contract contains promises on two sides.
Before the act is performed, the promise of the promisor is a mere unilateral offer.
When the act is performed, this unilateral offer and the performed act give rise to a
unilateral contract. The broker makes no promise to perform or to do any acts such
as advertising. He or she can accept the contract and thus bind the seller only by
actual performance, that is, by producing such a buyer. Many standard exclusive-
right-to-sell listings are now written as bilateral contracts wherein the broker agrees
to use reasonable efforts to locate a buyer and the seller agrees to pay a
commission if the property is sold by the broker, the seller or anyone else.
The classic example of a unilateral contract is a newspaper notice offering a reward
for the return of a lost dog. The offeree is under no obligation to look for the dog, but
if he or she does in fact return the dog, then the offeror owes him the reward money.
Another example is a brokerage company that promises to pay a $1,000 bonus to
the salesperson who sells the most units in a specific condominium project. An
option in which the seller agrees to sell for a certain period of time at set terms
provided the buyer performs by paying the specified option price is also a unilateral
contract.
Bilateral contract — A contract in which each party promises to perform an act in
exchange for the other party’s promise to perform.
The usual real estate sales contract is an example of a bilateral contract in which the
buyer and seller exchange reciprocal promises respectively to buy and sell the
property. If one party refuses to honor his or her promise and the other party is
ready to perform, the nonperforming party is said to be in default. Neither party is
liable to the other until there is first a performance, or tender of performance, by the
nondefaulting party. Thus, when the buyer refuses to pay the purchase price, the
seller usually must tender the deed into escrow to show that he or she is ready to
perform. In some cases, however, tender is not necessary.
Depending on its wording, a listing form may be considered to be a bilateral
contract, with the broker agreeing to use best efforts to locate a ready, willing and
able purchaser for the property, and the seller promising to pay the broker a
commission if the broker produces such a buyer or if the property is sold. Once
signed by the broker and seller, such a listing contract becomes binding on both.
In a unilateral contract, one party must actually perform (and not just promise to
perform) for the contract to be binding. For example, in an option, the optionor
(seller) promises to keep a specific offer to sell open for a specific time in exchange
for the performance of an act by the optionee (buyer); that is, the actual payment
(not just the promise to pay) of the option money. When the option is exercised, a
bilateral contract to buy and sell is created according to the terms set forth in the
option.