What is an Executory Contract?

December 28, 2018

If you have heard the term “executory contract” used, you might be wondering what kind of contract that is and what it entails. Executory contracts are contracts between two parties, in which the terms of the contract are fulfilled later. Both sides have duties that they must perform up until the full execution of the contract.

What Are Executory Contracts Used For?

Executory contractors are agreements between one party and a borrower, also referred to as a debtor. There are some executory contracts that are much more complex than others. While there are many kinds of executory contracts, here are some of the more common ways they are used:

  • Car lease – Using this approach, a consumer makes payments to the car dealership and in exchange, the dealership provides a vehicle. The vehicle is returned at the end of the lease period, or the consumer buys the car outright.
  • Equipment lease – The renter provides the equipment that is being rented for a set time period. The borrower pays rent to use the equipment that has been rented.
  • Rental lease – In this case, the landlord will provide a house or living space, and the tenant is required to pay for the use of the property for a set time period.
  • Development contract – A contractor will take care of specified duties for the owner of the building while the owner of the building plus the contractor when specific milestones have been met.
  • Intellectual property license – With this kind of agreement, the licensor will not sue the licensee so long as the intellectual property is used within the licensing scope.

What are the Differences Between an Executed Contract and an Executory Contract?

When there is an executed contract, terms must be fulfilled immediately after all the parties have signed the agreement. If it is an executory contract, the terms of the agreement will be fulfilled sometime in the future. Regardless of which kind of contract is signed, both are legally executed agreements and both parties become obligated to follow the terms of the contract.

Examples of the different kinds of contract:

  • Executory contract – You are looking for a vehicle, and instead of purchasing one you decide to lease it instead of making a purchase. You go to the dealership and sign the lease agreement, making the deposit, and then paying the set payment of $400 per month until the term of the contract expires, which is usually three or four years. After that time, you take the car back and pay for any excess miles or you opt to buy the vehicle.
  • Executed contract – You decide to buy a car, so you go to the dealership and buy a car. The dealership is given the full purchase price and you drive away in the car. This is an executed contract because you paid for the vehicle in full and all the terms in the contract have been met.

Breaching an Executory Contract

If either party in an executory contract fails to fulfill their duties as the agreement specifies, it might be a breach of contract. If you enter into an agreement to lease a vehicle, then you don’t make the payments as specified in the agreement, you have breached the contract. The car can be repossessed, and any uncollected payments can be sought through a civil suit.

While these examples are straightforward, contract law can be quite complicated. Whether you are the buyer or seller it is always best to have a knowledgeable contract law attorney by your side to guide through the pitfalls. If you need the help of a Texas contract law attorney for an upcoming deal, then the team at Fears Nachawati is here to help. Our team has helped thousands of Texans to consider the full range of possibilities which are often overlooked and can help ensure a smooth and worry-free transaction. For your free, no obligation consultation please call please call (866) 705-7584 or visit the offices of Fears Nachawati located throughout the great state of Texas, including in Houston, Dallas, Austin, Fort Worth, and San Antonio.

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