South Carolina Personal Lines Practice Exam

What does the term unilateral contract refer to?

1. A contract that involves multiple parties making promises

2. A one-sided contract where only one party makes an enforceable promise

3. A contract that is enforceable by mutual agreement

4. A contract that automatically renews

The correct answer is: A one-sided contract where only one party makes an enforceable promise

The term unilateral contract refers specifically to a one-sided agreement in which only one party makes a promise that is enforceable. This type of contract becomes binding when the other party fulfills their part of the agreement, typically by performing a specific task or service. A classic example of a unilateral contract is a reward contract, where one party offers a reward for the return of lost property; the promise to pay the reward is only enforceable when the other party returns the property. In this case, the essence of a unilateral contract is that the offeror is the only one that is bound by a legal obligation until the other party performs an act or provides a service, which then completes the contract. This distinguishes it from mutual contracts, where both parties make promises, or contracts dependent on renewal, which have different characteristics altogether.