Alabama Insurance Adjuster Practice Exam

Which type of contract requires mutual consent and consideration from both parties?

1. Unilateral Contract

2. Bilateral Contract

3. Conditional Contract

4. Express Contract

The correct answer is: Bilateral Contract

A bilateral contract is characterized by mutual consent and consideration from both parties involved. In this type of contract, each party makes a promise to the other; one party's promise serves as consideration for the other party's promise. This exchange establishes a mutual agreement where both sides are legally bound to fulfill their obligations. For example, in a contract for the sale of a car, the seller agrees to transfer ownership of the car to the buyer in exchange for payment. Each party’s promise—delivery of the car by the seller and payment by the buyer—creates a binding contract based on mutual consent and consideration. Recognizing the importance of this mutual arrangement is crucial in distinguishing bilateral contracts from other types, such as unilateral contracts, where only one party makes a promise that is contingent on the performance of the other party. Additionally, while conditional contracts may involve specific conditions that must be met, they do not inherently require mutual consent and consideration as a foundational aspect of their validity. An express contract is one that is clearly stated, either orally or in writing, but it doesn’t by itself signify the requirement for mutual consent and consideration in the same way that a bilateral contract does.