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Contracts term

Bilateral Contract

A contract in which both parties exchange mutual promises to perform.

Why Bilateral Contract matters on the exam

This term belongs to Contracts. The questions below are real items from Freehold's bank that use it - each one cites its source.

Exam questions using Bilateral Contract

Every Freehold question shows why the right answer is right — and cites its source.

A typical signed purchase agreement in which the buyer promises to pay and the seller promises to convey title is an example of a:

  1. Unilateral contract
  2. Void contract
  3. An implied contract
  4. Bilateral contract
Show answer & explanation

Bilateral contract — A bilateral contract involves an exchange of mutual promises, with each party obligated to perform; a typical purchase agreement obligates both the buyer and the seller.

Source: PSI National Real Estate Exam Content Outline §7 Contracts

A property owner tells a broker, 'I will pay a $5,000 commission to whoever brings me a buyer who closes on my property,' without signing an agreement with any particular broker. This is best described as an offer for a:

  1. Unilateral contract
  2. Bilateral contract, because both parties are bound
  3. Implied contract, because nothing was written
  4. Voidable contract, because there is no listing agreement
Show answer & explanation

Unilateral contract — A unilateral contract involves a promise in exchange for an act; only the owner is obligated to pay, and no broker is bound to perform until one actually produces a ready, willing, and able buyer.

Source: PSI National Real Estate Exam Content Outline §7 Contracts

When an optionee exercises an option to purchase within the agreed time period, the option contract:

  1. Remains unilateral because only the optionor has obligations
  2. Becomes void because the option period has ended
  3. Must be renegotiated as a new offer
  4. Converts into a bilateral contract binding both parties to complete the sale
Show answer & explanation

Converts into a bilateral contract binding both parties to complete the sale — Once the optionee exercises the option and agrees to buy, the previously unilateral option contract becomes a bilateral contract obligating both the optionor to sell and the optionee to buy.

Source: PSI National Real Estate Exam Content Outline §7 Contracts

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