Unilateral Contract

Definition of "Unilateral contract"

Written by

Betty Thompson

Coldwell Banker Advantage

A unilateral contract is a contract where only one part holds responsibility for whatever the document promises.

For instance, an insurance contract is usually a unilateral contract because only the insurer has made a promise of future performance, and only the insurer can be charged with breach of contract. In contrast, in a bilateral contract both parties promise future performance; both parties have their own rights and duties/obligations.

But the truth is that, if you want to get literal about it, there are no 100% unilateral contracts. All contracts are, at least, bilateral because, at the very minimum, the other party is responsible for paying once services are rendered. Let’s think of an example to make it easier to visualize a unilateral contract:

Tom and Jerry have a unilateral contract where Tom has to fix Jerry’s windows using such and such materials until the last day of that month, In return, Jerry will pay $10 to Tom. From the start, Tom has to perform an action (fix windows), in a specific time frame, with specific materials. Those are his obligations. If he ends the work on the next month, if he doesn’t use the correct materials or ends up not properly fixing the windows, he’ll be breaching the unilateral contract.

Whereas Jerry has no obligations to fulfill. That is… unless (or until) Tom finishes everything correctly; then he needs to pay up the $10 to Tom. But in theory, when talking about responsibilities within a contract, payment is not included. Payment is viewed as the outcome of an action, not the action itself. So, if only one part has obligations within that specified period of the work, it’s a unilateral contract.

Let’s bring it even deeper into real estate: an Open Listing is essentially a unilateral contract. Let’s say Homeowner Layla puts her house on the market in an Open Listing, and Real Estate Agent Alex brings an offer that Layla accepts: now she has to pay Alex a commission. However, if she’d accepted some other agent’s offer, or if she’d found the buyer by herself, she’d have no obligations with Alex. Now, an Exclusive Rights to Sell listing, on the other hand, is a bilateral contract: in it, from the start, the homeowner has the obligation to work with one real estate agent and pay him a commission even if, in the end, his work wasn’t directly responsible for landing him the sale. In return, the homeowner can use the agent’s brand/name to attract more potential buyers. As you can see, both have obligations and rights; none related to the payment.

So, whenever you hear someone talking about a unilateral contract, it probably means that Party A needs to perform something for Party B, who has no obligation but to compensate Party A, once all services are completed.

Real Estate Tip:

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