Bilateral Contract Clarified
Essentially, a bilateral agreement is simply defined as a legally binding transaction or contract whereby two parties mutually agree to an exchange of goods and/or services. While there are actually thousands of types of bilateral agreements, real estate transactions are a good example of its application; other common instances include reciprocal trade deals between countries, loan agreements, joint ventures, and union agreements. Once the parties sign a bilateral agreement, they are both legally bound to hold up their part of the deal. Bilateral agreements are also fairly common in the insurance and government sectors as well. We see this type of agreement in the purchase and sale of real estate that is typically outlined in a standard real estate agreement that both the buyer and seller sign at the time of purchase. In this case , a unilateral agreement would exist if, for instance, the agreement between a prospective buyer and a seller allowed the buyer to back out of the agreement without any penalties. In a bilateral agreement, however, there is no backing out of the deal unless both parties agree to do so.
An example of a bilateral agreement at work is the threatening of a party with a breach of contract lawsuit for not being in compliance with the terms of the contract. The threatened party does not have to act on it and can ignore the threat if what is being demanded of him/her was not part of the contract. The pressured party could then sue for damages relating to the contract violation. Here again we see a real estate agreement in play that would give way to a bilateral agreement between a buyer and seller.
Role of Bilateral Contracts in Property Deals
Bilateral agreements are also significant in real estate transactions. For example, the law may provide a right to receive contingent payments from a parcel of land, or the right of first refusal to purchase a parcel of land. In addition, an owner may have the right to designate the buyer of a parcel of land. While these rights may exist in relation to a particular piece of land, they may not be binding on a subsequent purchaser in the absence of proper registration and notice. Without notice, the subsequent purchaser may be under no obligation to follow the terms of the prior agreement related to the subject land. As a result, it is important that the parties properly register bilateral binding agreements.
Classes of Bilateral Contracts in Real Estate
The first and most common type of real estate bilateral agreement is an agreement for the sale of real estate. A seller (or buyer) may sign a "bilateral" contract to sell or buy a property. The seller and buyer agree to certain terms in advance, so there are no misunderstandings when one of them initially agrees to sell his or her property. California Senate Bill No. 1436, effective January 1, 2011, provides a residential buyer with the right to request an enforceable written contract for the sale of residential real property to the seller within 48 hours of opening escrow. This gives both parties full confidence that the buyer will be completing the sale and that the seller will be receiving the funds in a timely manner.
Another type of real estate bilateral agreement is a lease. Central to every lease is the agreement(s) entered into between the lessors and lessees. Usually, the leasing company will prepare a lease with terms, including but not limited to, duration and price, that the lessee will agree to. Failure to abide by this bilateral agreement will result in the lessee incurring certain fees or penalties. A lessee may also lease real estate to another person, which is called a sublease.
Less common is co-ownership. Co-ownership agreements can be found in last will and testaments where a will might provide that a surviving spouse automatically has unified ownership of the real property, or separate from a will, in a real estate partnership where the spouses rent property together.
These are just a few examples of the bilateral agreements regularly used in real estate. Conclusively, these agreements insure that neither party is at a disadvantage and that each is aware of its duties and responsibilities.
Drafting an Effective Bilateral Agreement
To begin with, the real property buyer (or the real property seller) should prepare a written draft of the agreement and present it to the other party for review. If (when) the other party is happy with the content of the draft, that party should then sign the draft, and return the signed copy to the other party. Assuming that the other party has signed the agreement, he or she will typically sign another copy of the contract (to help create a full executed bilateral agreement), and send that second copy back to the opposite party along with any agreed upon pertinent documentation . An example of this signed documentation would be a "good standing" certificate evidencing that the current owner of title is not currently in bankruptcy and/or is not insolvent.
The above process is not a mandatory procedure. A homeowner/landowner/seller of real property is free to accept a verbal agreement from a prospective purchaser or acquirer of real estate; however, the specific requirements for enforceability of a verbal contract are highly technical and require strict compliance and proof of each of the required elements if the matter is ever contested. Due to this, the aforementioned formal process (and many others) are usually utilized. Verbal agreements are generally unenforceable.
Bilateral Agreements in Legal Context
Settlement contracts (bilateral agreements) are distinguished from stipulations which are merely unilateral and mainly of an informal nature. Stipulations are resolved within the litigation in which they were made.
Bilateral agreements end in either obligations or rights for both parties. The requirements for a bilateral agreement are:
• agreement of the parties to refer their dispute to arbitration;
• the decision of the arbitrator is final; and
• the arbitrator enjoys an advantage as far as costs and practicalities are concerned.
Enforcement
A court order will then have to be obtained to enforce the award in an arbitration. An award in a bilateral agreement is treated as an arbitral award according to the provisions of the Arbitration Act 1965, ss 31 and 33. Thus Chapter IV of that Act (ss 31-39) applies.
Interpretation and enforcement of bilateral agreements
Section 4(3) of the Arbitration Act states that:
‘The award may be made in such manner and in such form as the arbitrators or umpire may determine, and the arbitrator or umpires may direct what judgment or order shall be entered in the court in case of an award being made in favour of any party and what judgment or order, if any, shall be entered in the court in case of non-compliance with the terms of the award or of the submission.’ This empowers the arbitrator:
• to determine the form of the award;
• to direct what judgment of court shall be entered; or
• to direct what judgment, if any, shall be entered in case of non-compliance with the award.
Alteration of judicial awards
An arbitral award rendered in respect of a bilateral agreement may not be altered by a court in any way. If it were so, it would be destroyed as a contract and be subject to the rules of the law, without its being altered. Otherwise there is no need to alter it. It is legally binding: S v B, 1987 (4) SA 385 (T), with reference to the definitions of ‘arbitration’ and ‘arbitrator’ in s 1 of the Arbitration Act 1965.
Stipulation agreements
This type of agreement cannot be enforced in a third-party court proceeding. The court will not deal with the litigation in which the agreement was made. It only has jurisdiction to deal with disputes between the parties to the agreement and not the parties to the existing action.
An exception is where the parties are legally married in community of property. They cannot enter into a stipulation agreement affecting a third party without the consent of the joint estate. In this case the stipulation agreement will have to be interpreted.
It is critical that the agreement can be implemented and enforced in a court of law. Thereafter it can be registered in a deeds registry.
Challenges and Pitfalls
One of the main challenges with a bilateral agreement is that it is easy to misinterpret the meaning and intention behind the terms set out in the document. While there are specific key elements that need to be met under the contract for it to be legally binding, there has been many court had to take actions against the third party if the terms of the contract are not respected by one of the parties.
In addition to the general challenges , following are two of the most common mistakes made both by real estate agents and buyers/sellers when dealing with a bilateral agreement:
There are a few ways to avoid any difficulties with a bilateral agreement:
After reading the article above, these common mistakes will hopefully be avoided and both buyers and sellers will know what they are signing before they sign it. If everyone is on the same page, it is rare that a problem will occur that will put the legal contract into jeopardy.