What Is an Executory Contract and an Executed Contract

As a professional, I write this article on the concept of executory and executed contracts.

Contracts are a fundamental component of any business transaction. A contract is an agreement between two parties that outlines the terms and conditions of their relationship. Contracts can be executed or executory depending on the stage of the agreement.

An executed contract is a completed agreement. In an executed contract, both parties have fulfilled their obligations, and all the terms of the contract have been carried out successfully. It’s also referred to as a bilateral contract when both parties have agreed to fulfill their obligations and have done so. For example, when you sell a house and the buyer has paid the full amount, it becomes an executed contract.

On the other hand, an executory contract is a legally binding agreement wherein one or both parties have yet to fulfill their contractual obligations. It’s a contract where one party has not yet completed their obligations and is still pending. For example, when a homeowner hires a contractor to do a renovation, the contract is executory until the renovation is complete and all agreed-upon payments have been made.

Executory contracts pose a risk to both parties since the obligations are yet to be fulfilled. If the other party fails to meet their obligations, the other party might experience a financial loss or delay in their process. As such, both parties should be aware of the possibility of contract breaches and identify methods of managing the risks before getting into an executory contract.

In summary, an executed contract is one where both parties have fulfilled their obligations, while executory contracts are still pending and yet to be completed. It’s essential to understand the difference between the two when entering into a commercial transaction. Be sure to seek legal advice before entering into any contract to ensure you are making informed decisions.