Executory contract

An executory contract is a contract that has not yet been fully performed, that is to say, fully executed. Put another way, it's a contract under which both sides still have important performance remaining. However, an obligation to pay money, although such obligation is material, does not usually make a contract executory. An obligation is material if a breach of contract would result from the failure to satisfy the obligation. A contract that has been fully performed by one party but not by the other party is classified as an executory contract.

In U.S. bankruptcy law

In American bankruptcy law, "executory contract" assumes a special meaning, being a contract in which continuing obligations exist on both sides of the contract at the time of the bankruptcy petition—i.e., still requires both debtor and counterparty to make further performance. In this context, a trustee or debtor in possession may assume any prepetition executory contract or unexpired lease of the debtor, preserving both the debtor's and the counterparty's obligations through the bankruptcy process, or reject it, thereby breaching it as of the date of the petition. Affirmation and rejection are subject to court approval. See e.g. 11 U.S.C. § 365.

Installment contracts

Many installment contracts are commonly executory, for example, installment credit loans, period loan payments, mortgages, paychecks, and similar contracts.

See also

• Bankruptcy in the United States
• Chapter 11, Title 11, United States Code
• Charging order
• Executory interest
• Future interest
• Rule against perpetuities