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December 28, 2018

Bilateral Contract

Word of the day

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 the seller exchange reciprocal promises respectively to buy and sell the property. If one party refuses to honor a 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 non-defaulting party. Thus, when the buyer refuses to pay the purchase price, the seller usually must tender the deed into escrow to show readiness to perform. In some cases, however, tender is not necessary. 

Depending on its wording, a listing form may be considered 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 the seller, such a listing contract becomes binding on both.

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