What defines a bilateral contract?

A bilateral contract is defined as a mutual agreement between two parties where each party makes a promise to the other. This means that one party's promise serves as consideration for the other party's promise. For example, in a real estate transaction, when a seller agrees to sell a property and the buyer agrees to purchase it, both parties are making promises that create a binding agreement. This exchange is what characterizes a bilateral contract, making it distinct from other types of contracts.

In contrast to a bilateral contract, a contract with only one party involved would be a unilateral contract, where one party makes a promise that the other party can accept by doing a specific action. Additionally, while contracts can sometimes involve third parties, a bilateral contract specifically requires both primary parties to make promises to each other and does not depend on a third party's involvement. Lastly, all valid contracts, including bilateral contracts, require consideration, which is a key component for the contract to be enforceable. Therefore, the defining characteristic of a bilateral contract is indeed the exchange of promises between the two parties involved.