A bilateral contract is one in which:
Audio Lesson
Duration: 2:51
Question & Answer
Review the question and all answer choices
Only one party makes a promise
Option A describes a unilateral contract, not bilateral. In a unilateral contract, only one party makes a promise that the other party can accept only by complete performance. An example is a reward offer that is accepted when someone performs the requested action.
Both parties make promises to each other
The contract must be in writing
Option C confuses contract type with formal requirements. While some real estate contracts must be written (due to the statute of frauds), this requirement applies to specific contracts, not all bilateral contracts. Many bilateral contracts can be oral and still enforceable.
Performance is optional
Option D misstates contract fundamentals. In any valid contract, performance is required, not optional. The distinction is between whether promises are exchanged (bilateral) or only one promise is made (unilateral), not whether performance is optional.
Why is this correct?
A bilateral contract is defined by mutual promises between parties. Each party's promise is the consideration for the other's promise. In real estate, standard purchase agreements are bilateral contracts where the seller promises to transfer title and the buyer promises to pay the purchase price.
Deep Analysis
AI-powered in-depth explanation of this concept
Understanding contract types is fundamental in real estate practice because nearly every transaction begins with some form of agreement. This concept matters because the nature of the contract affects rights, obligations, and enforceability. The question tests the basic definition of a bilateral contract versus other contract types. To arrive at the correct answer, we must distinguish between unilateral and bilateral contracts. Option A describes a unilateral contract where only one party makes a promise (like a reward offer). Option B correctly identifies bilateral contracts where mutual promises exist. Options C and D are distractors - writing requirements (statute of frauds) apply to specific contracts, not bilateral ones generally, and performance is never optional in valid contracts. This question challenges students because it tests precise terminology definitions rather than practical application, and students often confuse the writing requirement with contract type. Understanding this concept connects to broader knowledge of contract formation, enforceability, and performance in real estate transactions.
Knowledge Background
Essential context and foundational knowledge
The concept of bilateral versus unilateral contracts stems from contract law principles dating back centuries. Bilateral contracts form when mutual promises are exchanged, creating immediate legal obligations for both parties. Unilateral contracts form only when the requested performance is completed. In real estate, most purchase agreements are bilateral contracts because both parties exchange promises immediately upon signing. Understanding this distinction is crucial because it affects when a contract is formed, what constitutes acceptance, and remedies for breach. The statute of frauds requires certain real estate contracts to be in writing, but this is separate from whether the contract is bilateral or unilateral.
Think of bilateral contracts as a handshake agreement - both parties extend their hands (promises) and meet in the middle (mutual exchange). Unilateral contracts are like tossing a ball - one person throws (promises) and the other must catch (perform) to complete the agreement.
When you see 'bilateral' on the exam, visualize two people shaking hands to remember it involves mutual promises.
When asked about contract types, focus on the exchange of promises. Bilateral = mutual promises, unilateral = single promise. Don't confuse with writing requirements.
Real World Application
How this concept applies in actual real estate practice
A buyer submits an offer to purchase a property, and the seller counters with a different price. When both parties sign the final agreement with the accepted terms, a bilateral contract has formed. The buyer has immediately promised to pay the purchase price, and the seller has immediately promised to transfer clear title. If either party fails to perform, the other can sue for breach of contract. This differs from a unilateral situation like a 'for sale by owner' offering a $1,000 bonus to the first agent who brings a buyer - only the owner has made a promise, and it's accepted only when an agent produces a buyer.
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