Executed Versus Executory Contracts

A contract is a compact between two or more parties and is either executory or executed. General Elec. Credit Corp. v. First Nat. Bank of Dumas, 432 S.W.2d 737 (Tex. Civ. App. Amarillo 1968). In a number of cases, the courts in various jurisdictions have made distinctions between an executed and an executory contract. Thus it has been said that an executory contract is one in which a party binds himself or herself to do or not to do a particular thing and which requires affirmative action for its establishment, whereas an executed contract is one in which the object of the agreement is performed and everything that was to be done is done and remains in force until disaffirmed. Accordingly, the executed contract of an infant is binding upon him or her by his or her failure to disaffirm it within a reasonable time after attaining majority, but where the contract is wholly executory and it is apparent that the infant has received no benefit, it is not binding.

Also similarly stated, an executory contract is one in which a party binds himself or herself to do or not to do particular thing in the future, and when all future performances have occurred and there is no outstanding promise calling for fulfillment by the other party, the contract is no longer executory, but is executed. Whitt v. Whitt, 32 N.C. App. 125, 230 S.E.2d 793 (1977)

An executory contract is one in which the parties have bound themselves to future activity that is not yet completed, while an executed contract is one in which all promises have been fulfilled and nothing remains to be done. Thus, a contract giving one party the option to purchase the other party’s real property was held an executory contract by the court, where it was based upon a future event.

When a contract is missing one of the essential elements which would make it binding, it is known as an executory contract, and a party is under no obligation to perform; however, if a party elects to perform regardless of the contractual defect, the contract is executed and the party who made the election is thereafter bound.  An executory contract is one that remains wholly unperformed, or for which there remains something still to be done on both sides, or if neither party has fully performed his or her obligation to the other party.  Accordingly, contracts between two airlines to sell tickets for flights and to provide services to passengers to whom tickets were sold have been held executory by the courts, since they contemplated ongoing and substantial performances by both parties, which would be excused if either side failed to perform its essential obligations.

A contract may be partly executed and partly executory and may be executory as to one part and executed as to the other. Thus, a contract for a deed, by which the United States agreed to sell and the purchaser agreed to buy certain real estate, with the purchaser making a down payment and regular periodic payments until full payment had been made, and a deed was delivered, has been held to be an executory contract, a part of which had been executed.

Similarly, a deed retaining a vendor’s lien to secure purchase money is executory as between the vendor and vendee only in the sense that the naked legal title remains in the vendor to be automatically vested in the vendee upon payment of the purchase money, and in all other respects the deed is not executory but is an executed contract.

A contract may be executed as to one of the parties and executory as to the other. An executed contract is one wholly performed on one side, whether or not it is performed on the other side. Thus, where one of the parties to a contract has performed everything necessary to be done by him or her according to the terms of the contract, the contract, in so far as such party is concerned, is executed and not executory.  The executory provisions of a separation agreement refer to those provisions requiring a spouse to do some future act in accordance with the terms of the  agreement, such as to pay alimony, child support, etc.  Similarly, a written and signed promise to pay money comes within the classification of an executory contract, as far as the promisor is concerned.

However, a contract is not executory merely because it has not been fully performed by payment, if all acts necessary to give rise to the obligation to pay have been performed. Thus, where the owner of timber land put contractors in possession of timber covered by a contract giving the contractors a right to cut and manufacture lumber and collect proceeds from the sales of the lumber, and the contract left nothing to be done by the owner except to receive 30 per cent of the sales proceeds, the contract became an executed contract.

The Revenue Codes characterize an executed contract as one where nothing remains to be done by either party, and an executory contract as one in which a party binds himself or herself to do or not to do a particular thing in the future. A contract of insurance or contract for a renewal of an insurance policy is an executed contract which can be enforced by law, and a contract to sell land until conveyance is made is an executory contract.

Executory contracts of a strictly personal nature are ended by the contractor’s death. Frissell v. Nichols, 94 Fla. 403, 114 So. 431 (1927)