What is an executory contract?
Learn about important legal terminology and complex contract jargon to better understand what an executory contract is, what it does, and why it matters.
Let’s face it — contract law can be overwhelming, and the legalese and tricky terminology doesn’t make it any easier. If you’re working with people who use the term “executory contract” but you’re unaware of what it means, don’t panic. This article helps you to understand the meaning of the term, why it’s important, and what it actually does.
What exactly is an executory contract?
An executory contract is a legally binding agreement that happens between two parties — one who acts as a lender and the other as a borrower. In this context, borrowers are often referred to as debtors.
An executory contract states that the desired result hasn’t either been fully performed or paid at the time when both parties sign. In other words, both parties still have actions to complete at the time it is signed. More directly, it’s a contract where both have agreed that they have unperformed or remaining obligations left to fulfill.
What does an executory contract do?
An important distinction in this contract is that both signatories must agree that they have continuing obligations. Executory contracts are used by businesses, organizations, and individuals for numerous reasons, including:
- Real estate leasing (a landlord has the continued obligation to provide a space, a tenant has the continued obligation to pay rent)
- Car or equipment leasing (the lessor has to continue to provide the car or equipment, the lessee needs to continue to pay monthly)
Other executory contract scenarios cover circumstances that involve development contracts, intellectual property licenses, and beyond.
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