Bilateral contract

Key Takeaways

• A bilateral contract is a promise exchanged for a promise, so both parties are obligated the moment the agreement is formed and before anyone performs.
• A unilateral contract is a promise exchanged for an act, so only one party is bound and the other side is free to perform or walk away.
• A Washington purchase and sale agreement is bilateral: the buyer promises to pay and the seller promises to convey, so either one can sue the other for breach.
• Being bilateral does not excuse a real estate agreement from the writing requirement. RCW 19.36.010(5) makes an unwritten agreement employing a broker to sell real estate for a commission void.

What It Means

A bilateral contract is an agreement built out of two promises. Each party promises something, each promise is the consideration for the other, and both sides are bound as soon as the contract is formed. Nobody has to perform first for the obligations to exist. That is the whole distinction the exam cares about, and it is why almost every document a broker handles is bilateral.

Compare it with a Unilateral Contract, which trades a promise for an act. There only one party is obligated, and the other party may perform or not. A reward offer is the classic case, since nobody owes the offeror anything until the lost dog comes back. An option to purchase works the same way: the seller is bound to hold the offer open, the optionee is not bound to buy anything.

A Purchase And Sale Agreement is bilateral. The buyer promises to pay the price on the stated terms, the seller promises to convey title. Because both sides are obligated, either one can sue for breach or ask a court to order specific performance. Listing agreements and buyer services agreements work the same way: the firm promises brokerage services, the client promises compensation or exclusivity, and two promises make one contract.

How It Works in Washington

Washington law does not care whether a contract is bilateral when it decides whether the contract has to be in writing. RCW 64.04.010 says every conveyance of real estate, or any interest therein, and every contract creating or evidencing any encumbrance upon real estate, shall be by deed. RCW 19.36.010 then makes several promises void unless they are in writing and signed by the party to be charged, including subsection (5), an agreement authorizing or employing an agent or broker to sell or purchase real estate for compensation or a commission. An oral promise to pay a commission is worth nothing in Washington, no matter how balanced the exchange of promises looks.

Agency paperwork is where a new broker meets this first. Under RCW 18.86.020(2)(a), a firm must enter into a services agreement with the principal before, or as soon as reasonably practical after, its appointed broker commences rendering real estate brokerage services to, or on behalf of, the principal. That Written Services Agreement is bilateral: the firm promises services, the client promises the agreed compensation and, in an exclusive agreement, promises to work through that firm. RCW 18.86.020(2)(b)(i) requires the agreement to state its term, and for a buyer principal, a default term of 60 days with the option of a longer term. Our guide to Washington's written services agreement rules walks through what has to be in the form.

Example

Priya Raman lists her Tacoma house at $625,000 with Cascade Realty. Marcus Webb writes an offer of $610,000 with $12,000 in Earnest Money and a 30 day closing, and Priya signs it without changes. At mutual acceptance the two of them hold a bilateral contract. Marcus is obligated to pay $610,000 on the stated terms, Priya is obligated to convey title by statutory warranty deed. Neither promise has been performed yet, and both are already enforceable.

Three weeks later Priya gets a $655,000 offer from someone else and tells Marcus she is backing out. She cannot. Marcus can sue for damages or ask a court for specific performance, because her promise bound her at signing. Flip the facts and the logic runs the other way: if Marcus walks with no contingency left to protect him, Priya has a claim against him and that $12,000 is the first place she looks. Both sides being bound from mutual acceptance is why the shape of an offer matters so much, which our guide to crafting offers and counteroffers covers in detail.

Common Mistakes and Exam Traps

• Bilateral versus unilateral is decided by how many parties are obligated, not by how many people signed. Two signatures on an option agreement do not make it bilateral, because only the optionor is bound to perform.
• Bilateral and executory are two different labels that can describe the same paper. Bilateral describes the exchange of promises, executory describes work still left to do, and a purchase and sale agreement is both until closing.
• Bilateral does not mean the duties are equal or similar. A promise to pay money and a promise to convey land are very different obligations, and the contract is bilateral all the same.
• A bilateral contract still has to satisfy the writing rules. Under RCW 19.36.010(5), an oral agreement employing a broker to sell real estate for a commission is void in Washington.