Georgia Real Estate Salesperson Practice Exam

What defines a bilateral contract?

1. One party promises to perform without any obligation from the other

2. Both parties promise to do something in exchange for the other party's performance

3. A contract that only involves monetary exchange

4. A simple agreement without formal obligations

The correct answer is: Both parties promise to do something in exchange for the other party's performance

A bilateral contract is defined as an agreement where both parties involved make mutual promises to one another. In this type of contract, each party has an obligation to fulfill, creating a reciprocal relationship. For example, in a real estate transaction, one party may promise to sell a property, while the other party promises to pay a specific price for that property. This mutual exchange of promises is the hallmark of a bilateral contract. The other options describe concepts that do not align with the nature of bilateral contracts. For instance, unilateral contracts involve only one party making a promise without a corresponding obligation from the other, which distinguishes them from bilateral contracts. Furthermore, a contract focused exclusively on monetary exchange does not capture the essence of bilateral obligations, as not all bilateral contracts necessarily involve money; they may involve various forms of performance or delivery of services. Lastly, a simple agreement without formal obligations can refer to an informal understanding that does not meet the legal criteria of a contract, lacking the enforceability that is inherent in bilateral contracts. Thus, the defining feature of a bilateral contract is the promise from both parties to take action or provide a service, which is accurately captured in the correct answer.