What distinguishes a bilateral contract from a unilateral contract?

A bilateral contract is characterized by the mutual exchange of promises between two parties, where each party has an obligation to fulfill a duty. In this type of contract, both parties are bound to perform according to the terms; for example, if one party agrees to provide a service and the other party agrees to pay for that service, the obligations are clear and reciprocal. This mutuality of obligation is what primarily distinguishes bilateral contracts from unilateral ones.

In contrast, a unilateral contract involves a promise made by one party in exchange for an action by another party, where only the promisor has obligations. A typical example would be a reward offer, where one party will pay a reward if the other party performs a specific act, such as finding and returning a lost pet. In this situation, only the party offering the reward is bound to fulfill their promise if the specified action occurs.

The essence of the correct choice reflects this core principle of bilateral agreements being predicated on the existence of obligations from both parties involved in the agreement.