An executed contract is a contract that has been signed by all necessary parties and has taken legal effect.

Contracts will typically involve two people or more. However, contracts can also be made between people and entities such as businesses or can involve only entities. In most contracts, one party will be required to provide the other with a good or service. The contract will not take effect until it has been signed by all the parties. Depending on the contract, witnesses may need to be present for the contract signing.

Executed contracts are contracts that have been signed, and there are several other types of legal documents that can be executed in this manner. Some legal forms that need execution include:

  • Service contracts.
  • Lease agreements.
  • Sales contracts.

When these documents are executed, they will be legally binding, meaning the parties will need to fulfill the terms of the agreement. In the contract, there will be something called the execution date, which is the date when the contract has been signed.

The execution date can be different than the effective date. For instance, if you signed a lease agreement on May 1, this would be the execution date. The date when you actually move into your apartment would be the effective date.

Executed Contract vs. Executory Contract

All contracts must be executed with the signatures of the parties involved. If the terms of the contract will be fulfilled at a later date, however, some people refer to the contract as an executory contract instead of an executed contract. This can be confusing for some people, as the term executed contract can be used both for contracts that have only been signed and for contracts that have been signed and completed. A sales agreement for an appliance, for example, would be an executed contract. Once the contract has been entered into, the appliance will be delivered immediately.

A good example of an executory contract would be a contract with a home builder to construct a house. Although the contract may already be signed, construction of the house may not begin until a later date specified in the contract.

You should understand, however, that regardless of which term is used, executed or executory, a contract is legally binding the moment that it is signed.

Executory Contracts and Bankruptcy

The term "executory contract" is frequently used by bankruptcy lawyers. The reason for this is that executory contracts will usually involve a debtor and a second party. In these contracts, both parties still have responsibilities that need to be performed. These contracts are usually ongoing, and if one side stops fulfilling their obligations, it would be considered a breach of contract.

Executory contracts can come in several forms:

Now that you understand a little about executory contracts, it's a good idea to find out why these contracts are so common in bankruptcy. The biggest reason that executory contracts are frequently used in bankruptcy is that they receive different treatment from unsecured claims.

First, with an executory contract, the debtor has the right to decide if they will fulfill or reject their obligations. Second, while the debtor is making their decision, the other party is required to continue performing their duties as outlined by the contract. Third, if the debtor decides to accept their contractual obligations, they will be required to make full payments and will need to prove that they can continue to perform their duties in the future.

Most executory contracts will need to be accepted or rejected within 60 days. The only exception to this rule is real property lease.

Executing a Contract: The Basics

The most important part of executing a contract is making sure you are carefully reading the contract and that you understand all its terms. Pay close attention to the fine print, and also be sure you're reading the parts of the contract that are contained in other documents.

If agreeing to the contract would make you responsible for covering a large expense or offering an important service, you may want to review the contract with an attorney before providing your signature.

While reading the contract, you should make sure you understand the differences between an execution date and an effective date. This will make it easier for you to fulfill your contractual obligations.

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