What defines a contract consisting of mutual exchange of promises?

A bilateral contract is defined by the mutual exchange of promises between two parties. In this type of contract, each party commits to fulfilling their part of the agreement, which creates an obligation for both sides. For instance, if one party agrees to sell a car, and the other agrees to purchase it at a specified price, both parties have made promises that enforce the contract.

This mutual exchange is key because it establishes a reciprocal obligation, distinguishing bilateral contracts from unilateral contracts, where only one party makes a promise contingent upon the performance of an act by the other party. Understanding this distinction is important in contract law, as it impacts the rights and responsibilities of the parties involved.

In contrast, a void contract lacks legal effect from the beginning and cannot be enforced, while an implied contract is formed by actions or conduct rather than explicit agreements. Thus, the characteristics of a bilateral contract concerning the mutuality of promises is what makes this answer correct.