1. Understanding Various Types of Executory Promises
2. What Is an Executory Consideration?
3. Understanding the Difference Between an Executed Contract and an Executory Contract?
4. Tips for Signing an Executory Promise

An executory promise, also known as an executory contract, takes place when two parties agree to a certain set of terms and conditions that are to be fulfilled at some point in the future. Within the contract are stipulations outlining the duties that must be performed by the parties in order for the promise to be considered fully executed. Many times, an executory promise is made between a debtor and the party from the whom the entity is borrowing money from.

Understanding Various Types of Executory Promises

An executory promise can come in many forms. Below is a list of examples of executory promises, but it is important to note that they come in many other types. In fact, many businesses use executory promises within their operations:

  • Rental leases
  • Car loans
  • Equipment leases
  • Car leases
  • Development contracts

An executory promise in the form of rental lease takes place when a tenant agrees to pay a landlord a set amount of money each month according to certain dates. In return for the rental money, the landlord provides the renter a space to live.

When an executory promise is in the form of a car loan, this means a lender lends money to a person to purchase a car. In agreement to provide the money, the borrower agrees to pay back the borrowed funds according to certain dates.

An equipment lease is an example of an executory promise when a borrower pays money for equipment. The equipment is not under the ownership of the renter. Instead, it stays under the ownership of the equipment provider in exchange for money. When the lease is over, the equipment is returned. In some cases, the equipment lender will allow the renter to purchase the equipment outright with the rental payments going toward the purchase price.

A car lease is much like a car loan except that the debtor never actually owns the car. Instead, the person leasing the vehicle maintains ownership of the car. Like an equipment lease, the entity leasing the car may allow the renter to purchase the car once the lease is over.

A development contract is put into place when it is agreed by both parties that certain monies will be paid out when certain construction milestones are completed. When the structural part of the building, for example, has been completed, a set amount of money will be paid to the developer and then no more money will be paid until the next milestone has been completed.

What Is an Executory Consideration?

An executory consideration takes place when an entity makes a promise to another entity and that entity does the same. Take for example a person promises to lend money to a person to purchase a car at a later date as long as the receiving party promises to pay back the borrowed funds. Although the funds have not exchanged hands yet, the promises between both parties can still be made legally official with an executory consideration.

Understanding the Difference Between an Executed Contract and an Executory Contract?

When a person takes part in an executed contract, this means that the terms of the contract must be fulfilled immediately after all parties have signed in agreement to the terms. This is unlike an executory promise because the terms are to be fulfilled at some time in the future. Still yet, once all parties sign an executed contract or executory contract, both are considered to be executed agreements. No matter the type of contract signed, once signed, all parties are legally obligated to fill their promises made to each other.

Tips for Signing an Executory Promise

Before a person signs an executory promise, it is very important that all parts of the contract be thoroughly read through. Because many contracts tend to include legal jargon that can be extremely confusing and difficult to understand, it is typically in the best interest of all parties involved to have the agreement explained by a qualified attorney.

In the event that either party does not fulfill their promises to one another that are agreed upon in an executory promise, this means the contract has been breached and there is generally some type of consequence that will occur.

Take for example a person borrows money from a lender for a car but fails to make an agreed-upon payment. As a result, the lender has the right to take back possession of the car. The exact consequences of breaching an executory promise will be outlined in the contract itself.

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