Maryland Home Improvement PSI Practice Exam

Under what circumstances does a unilateral contract exist?

1. Only one party has made a promise to perform.

2. Both parties have made promises that are active.

3. It is legally unenforceable due to lack of consideration.

4. It involves obligations tied to a specific timeframe.

The correct answer is: Only one party has made a promise to perform.

A unilateral contract exists when only one party has made a promise to perform, creating an obligation for that party while the other party is not obligated to perform any action. This type of contract often occurs in situations where one party offers something in exchange for a specific act from another party, such as a reward for finding a lost pet or a bonus for achieving a targeted sales figure. The essence of a unilateral contract is that the promise made by one party relies on the performance of the other party; however, the other party is not bound to that performance until they choose to fulfill the condition stipulated by the promise. The other options do not accurately describe a unilateral contract. In a scenario where both parties have made active promises, a bilateral contract is present, as both sides have obligations. A legally unenforceable situation due to lack of consideration would not constitute any valid contract, unilateral or otherwise. Lastly, while timeframes can be relevant to contracts, they do not define the nature of whether it's unilateral or bilateral. Thus, the defining characteristic of a unilateral contract rests with the existence of a promise made by only one party.