What is a bilateral contract?
Contracts are an essential part of business and business relationships that define how any relationship will work and what each party must do to fulfill their end of the bargain.
One primary type of contract is a bilateral contract. But just what is a bilateral contract and why should you use one?
What is a bilateral agreement and contract?
Bilateral contracts are a mutual exchange of promises that legally bind two (or possibly more) parties together.
The terms and conditions in these binding agreements are negotiated and agreed upon by all involved parties and, once signed, the contract can only be adjusted by an addendum to that contract.
If, after acceptance of the offer made in the contract, either party fails to meet the obligations set out, then they may be subject to legal action or to penalties detailed in the agreement.
A written bilateral contract protects all parties’ interests through whatever business law or contract law is applicable in that location.
What is the difference between a unilateral vs bilateral contract?
The basic difference between the two types of business contracts is how many parties are involved.
A unilateral contract only requires one person (the offeror) to state or agree to a condition to the second party (the offeree).
With bilateral contracts, you need to have at least two parties who have agreed to terms and conditions and who then sign an agreement.
While both types of contract are legally-binding and subject to whatever laws apply, a bilateral contract needs mutual agreement and signature, while a unilateral contract is only viewed as “mutual” once the action stated in the contract has been completed in full.
Are bilateral contracts enforceable?
Yes, a bilateral contract is enforceable by law.
Once a bilateral contract is signed, then the terms and conditions that both (or more) parties agreed to are legally binding.
In the event that any party fails to fulfill their contractual obligations, then the other party (or parties) can choose to take them to court.
As well as court options for breach of contract, there may be penalty clauses included in the contract as an initial avenue of redress for any breach of legal obligation.
Bilateral contract examples
As mentioned, even everyday transactions are examples of basic and implied bilateral contracts.
You’ll also come across bilateral contracts regularly in your business and private lives.
If you’re wondering what the most common types of bilateral contract could be, then some good bilateral contract examples include:
- Employment contract. One party (the employer) agrees to pay a specific amount of money (salary, usually with added benefits) to the other party (the employee) who agrees to perform work as set out in the contract.
- Sales agreement. In this case, the seller (which could be a manufacturer or wholesaler) agrees to sell a product at an agreed unit price. There may also be other conditions such as the delivery date and the seller paying logistics costs.
What is a bilateral agreement in real estate?
The majority of transactions in the real estate sector rely on bilateral contracts, both when selling or leasing a property.
When selling a property, there are generally two phases to bilateral contracts; executory and executed.
The executory phase is when an agreement has been reached but the details have not been fully completed (you can call this contract pending).
Once all details are completed, such as the buyer making the agreed payment and the seller transferring ownership, then you have reached the executed phase.
You will find that most real estate bilateral contracts contain strict time clauses.
For sales, that could be the date a transaction must be completed (failure to do so could result in the contract being voided).
In leasing/rentals, it refers to the length of the agreement. Though there may be many variations, there are two main types of real estate bilateral contracts:
- Real estate sales contract. When one party (the seller or developer) agrees to the sale of a house (or other property) to the buyer at an agreed price and to complete the agreement by a specified date. If there are issues (such as a delay in the buyer’s financing), then both parties can negotiate an addendum to the contract.
- Lease agreement. Much like a real estate sales agreement, a lease is an agreement between the owner (or designated agent) and a tenant. As well as the length of the contract, the owner may specify certain conditions such as not being allowed to keep pets on the property.
Forge great partnerships with bilateral contracts
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