Executory contract

Key Takeaways

• An executory contract still has duties left to perform. An executed contract has none, because every party has finished everything the agreement required.
• A Washington purchase and sale agreement is executory from mutual acceptance until closing. It becomes executed only when the money is disbursed and the deed is delivered.
• Executed and executory measure how much performance is left. Bilateral and unilateral measure how many parties are bound. A purchase and sale agreement is both bilateral and executory.
• A lease stays executory for its whole term, because the landlord owes possession and the tenant owes rent for every remaining period.

What It Means

An executory contract is an agreement that still has work left in it. One or more of the terms, obligations, or promises has not been carried out yet, so the contract is alive and both sides are still on the hook. Its opposite is an executed contract, where every party has fully performed everything the agreement required and nothing remains but the record of the deal.

Almost every document a Washington broker touches is executory the day it is signed. A Purchase And Sale Agreement becomes binding at mutual acceptance, but on that day nobody has done the important parts. The buyer has not paid, the seller has not conveyed, the inspection has not happened, and the loan is not funded. Each satisfied Contingency moves the agreement closer to executed status, and closing is where it arrives.

Students routinely mix this label up with a different pair. Executed and executory measure performance. Bilateral and unilateral measure obligation. A Bilateral Contract can be executory or executed depending on where it sits in its life, so the two labels describe different things about the same page of paper. A signed lease is the clean test case: it is bilateral because both parties promised something, and it stays executory every month of the term because rent and possession keep coming due.

How It Works in Washington

Washington gives one kind of executory agreement its own statutory chapter. RCW 61.30.010(1) provides that contract or real estate contract means any written agreement for the sale of real property in which legal title to the property is retained by the seller as security for payment of the purchase price, and the same subsection states that the term does not include earnest money agreements and options to purchase. That is seller financing, often called a Land Contract, and it can sit executory for ten or twenty years while the buyer pays down the balance and the seller holds legal title.

Because that contract stays executory for so long, Washington built a distinct remedy for a defaulting buyer. Chapter 61.30 RCW lets the seller forfeit the contract rather than foreclose it. RCW 61.30.070(1)(e) requires the notice of intent to forfeit to include a statement that the contract will be forfeited if all defaults are not cured by a date stated in the notice which is not less than ninety days after the notice of intent to forfeit is recorded, or any longer period specified in the contract. So a 45 day purchase and sale agreement and a twenty year real estate contract are both executory, and Washington treats a default in each of them very differently. Our guide to building a contract review system covers where deadlines like this get missed.

Example

On March 3, Alicia Vargas signs an offer on a Vancouver, Washington townhome at $438,000 with $10,000 in earnest money, a 20 day inspection contingency, a 30 day financing contingency, and a closing date of April 24. The seller, Ray Okafor, accepts the same day. From March 3 forward the contract is executory. Alicia owes $438,000 she has not paid, and Ray owes a deed he has not delivered.

On March 18 the inspection contingency is satisfied. On April 1 Alicia's lender clears the financing contingency. Neither event makes the contract executed, because duties are still outstanding on both sides. On April 24 the escrow officer disburses $438,000 to Ray, records the statutory warranty deed to Alicia, and releases the keys. Only then, when the last promise on each side has been performed, does the agreement stop being executory and become executed. Had Ray refused to sign the deed on April 23, the contract would still have been executory, and Alicia's remedies would exist precisely because performance was still owed. Our overview of earnest money and contingencies in Washington follows the same timeline.

Common Mistakes and Exam Traps

• Executed has two meanings on the exam. Loosely it means signed, but in the executed versus executory pair it means fully performed. Read which sense the question wants.
• A contract does not become executed when the last contingency is waived. It becomes executed when the last obligation is performed, which in a sale means at closing.
• Executory and bilateral are not alternatives. A purchase and sale agreement is both at once, so an answer forcing a choice between them is a distractor.
• A Washington real estate contract under RCW 61.30.010 is seller financing where the seller keeps legal title. It is not the ordinary purchase and sale agreement, and the statute expressly excludes earnest money agreements and options to purchase.