What is a bilateral contract?

A bilateral contract is defined as an agreement involving two parties who each make a promise to the other. This means that both parties have obligations that they must fulfill as part of the contract. For example, in a typical bilateral contract for the sale of a car, one party (the seller) promises to transfer ownership of the car, while the other party (the buyer) promises to pay a specified amount for it. The mutual exchange of promises creates a reciprocal obligation, which is a hallmark of bilateral contracts.

In contrast, the other options describe different types of contracts or mischaracterizations of contracts. A contract where one party does not have to perform would be more representative of a unilateral contract, where only one party makes a promise while the other party's performance is not required for the promise to be binding. A contract based solely on verbal agreements is typically not enforceable unless it meets certain criteria, as it lacks the formal written consideration often required for enforceability. Lastly, a one-sided contract would not meet the definition of a bilateral contract, as it implies that only one party is obligated to fulfill a promise, which does not incorporate the mutual exchange of promises that defines bilateral contracts.