Certified Financial Consultant (CFC) Practice Exam

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What is a unilateral contract?

A contract with mutual promises between parties
A contract with enforceable promises made by one party only
A contract that is void and unenforceable
A contract that requires ratification by an attorney

The correct answer is: A contract with enforceable promises made by one party only

A unilateral contract is defined as an agreement in which only one party makes a promise or an enforceable commitment. In this type of contract, one party (the offeror) promises to do something in exchange for the other party's performance of a task or condition, rather than a promise in return. The essence of a unilateral contract is that the offer is contingent upon the other party completing a specific action, which then binds the offeror to uphold their promise. For example, a classic illustration of a unilateral contract would be a reward scenario: if someone promises to pay a specific amount of money for the return of a lost pet, the person who finds and returns the pet is the one fulfilling the contract merely by taking the action of returning the pet. The person who made the promise doesn't have to do anything until that action is completed. This type of contract is recognized in legal systems because it establishes clear obligations for the offeror upon the completion of the specified performance by the other party. Understanding this concept is crucial for recognizing different contractual obligations and the nature of agreements encountered in financial consulting and business.