An executory contract still has obligations left to perform, unlike an executed contract where everyone has finished. Leases and subscriptions are common examples.
An executory contract is one where at least one party still has obligations left to perform. It stands in contrast to an executed contract, where everyone has already done what they agreed to do.
The difference is simply timing. A contract is executory while performance is still outstanding, and becomes executed once every obligation has been fulfilled. A two-year service agreement is executory throughout its term; a cash purchase where goods and payment change hands on the spot is executed almost immediately.
Because obligations remain open, executory contracts carry ongoing risk and require active management. They also receive special treatment in bankruptcy, where a party may be allowed to assume or reject an executory contract. For businesses, the practical challenge is keeping the terms of many simultaneous, long-running contracts consistent and current.
This is where most contract value, and most contract risk, actually lives. Keeping defined terms and obligations synchronized across active agreements is far easier when contracts are treated as connected data rather than static files, which is why defined terms break at scale in traditional tools.
Executed and executory are two of several ways to classify agreements. See the full set in our guide to types of contracts.
Is a lease an executory contract?
Yes. A lease is executory for as long as the tenant occupies the property and both parties have continuing obligations.
What happens to executory contracts in bankruptcy?
A debtor can often choose to assume (keep) or reject (walk away from) an executory contract, subject to court approval, which is one reason the classification matters legally.