What defines a bilateral contract?

A bilateral contract is defined as a mutual agreement where both parties make promises to each other. In essence, each party is both promising to perform certain obligations and, in return, is receiving a promise that the other party will perform their obligations as well. This reciprocal nature is what differentiates a bilateral contract from other types, like unilateral contracts, where only one party makes a promise that the other party performs an action in exchange for.

For example, in a real estate transaction, when a buyer agrees to purchase a property and the seller agrees to sell it, both parties have made promises — the buyer promises to pay a certain amount of money, while the seller promises to convey ownership of the property. The existence of these interdependent promises solidifies the agreement as a bilateral contract.

Understanding this definition is crucial in real estate practice, as it helps in recognizing the obligations and rights of all parties involved in various agreements and contracts.