Jigsaw piece puzzle

Executory Contract: Definition, Example and Related Terms

What is an Executory Contract ?

An executory contract is a type of agreement between parties in which some future act or obligation remains to be performed. This means that the completion of the contract's terms and conditions is contingent on one or more parties fulfilling certain actions or duties in the future. It is considered executory because its terms are not yet completed, and obligations are still pending.

For instance, in a contract for the sale of goods, if the seller has not yet delivered the goods and the buyer has not yet paid, the contract is executory. Once the delivery is made and payment is completed, it becomes an executed contract.

Understanding executory contracts is crucial for contract law as they carry potential risks and require diligent management to ensure all parties meet their obligations. These contracts are common in business and legal transactions, providing a framework for detailing what each party is expected to do in the future.

It's important to note that executory contracts can become complicated if unforeseen circumstances arise or if a party fails to perform their obligations. Therefore, it's vital for parties involved to clearly define their responsibilities and include mechanisms for resolving disputes or addressing changes.

Example(s)

  • Scenario Description
    Lease Agreement A lease agreement is an example of an executory contract, as both the landlord and tenant have ongoing obligations throughout the term of the lease. The tenant must pay rent and the landlord must provide the property for use.
    Construction Contract A construction contract wherein a builder agrees to construct a building and the client agrees to pay upon completion. The contract remains executory until the building is completed and payment is made.
    Service Agreement A service agreement between a cleaning company and a client, where the company agrees to provide cleaning services over a set period. The contract is executory until all the services have been rendered and paid for.