Texas Real Estate State Practice Exam

In a Bilateral Contract, how many parties are bound by exchange promises?

1. Prohibits monopolies

2. Agent acts without permission

3. Court prevents the principal from denying that agency, agency by estoppel

4. Two parties

The correct answer is: Two parties

A bilateral contract is characterized by the exchange of promises between two parties, where each party commits to fulfilling certain obligations as stipulated in the agreement. This mutuality ensures that both sides have a vested interest in the contract, making it legally binding. The nature of a bilateral contract is pivotal in various real estate transactions, where buyers and sellers or landlords and tenants each agree to specific terms. For example, when a seller promises to transfer ownership of a property and the buyer promises to pay a specified amount in exchange, both parties are engaged in this reciprocal agreement. This contrasts with other forms of contracts, such as unilateral contracts, which involve only one party making a promise that the other party can accept through performance. Thus, in a bilateral contract, the binding nature arises directly from the dual commitments made, further emphasizing the importance of both parties’ involvement for the contract to function effectively.