What is an executed contract?
How do you legally define it in contract law?
What are the important elements you should know!
In this article, we will break down the legal definition of an executed contract so you know all there is to know about it!
Keep reading as we have gathered exactly the information that you need!
Let’s dig into our contract law legal dictionary!
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Executed contract basics
An executed contract (or executed agreement) is when a contract has been fully signed by the contracting parties in order to formalize the contractual relationship.
In most commercial transactions and business dealings, business parties will enter into a written agreement before rendering services or selling a product.
As a result, they’ll negotiate the terms and conditions of a contract satisfactory to both.
When they are ready to give legal effect to their agreement and effectively start the performance of their legal obligations, they’ll proceed to sign the contract.
When all parties have signed the contract, it is said that you have an executed contract.
Executed contract definition
What is the definition of executed contract?
According to the Cambridge Dictionary, an executed contract is defined as:
a contract (= formal agreement) which has been signed by all the people involved
In other words, an executed document or fully executed contract is a “contract” representing a formal agreement that has been “signed” by all parties implicated.
Performance of legal obligations
The most common understanding of executed contracts is to refer to the act when the parties sign the contract.
However, you can also use the same term to refer to the performance of the parties’ legal obligations.
The term executed contract (like executed purchase agreement) can refer to a situation when the contract has been signed and the obligations fully performed.
In this context, you are referring to a contract that has not only been signed but the obligations fully performed.
In an executed purchase agreement, when the purchaser has paid a sum of money and the seller has delivered the goods, you can say that the contract is executed.
Bear in mind that the term “executed” can either refer to “signature” of the contract or the “execution” of obligations.
When using the term executed contract, it’s important to understand the context to truly assess its meaning.
When is a contract executed
What is required for a contract to be executed?
Generally, most contracts will follow the same process for their signature and execution, namely:
- The parties to the contract are clearly identified
- The address of the parties are outlined
- The contract execution date is specified
- The final page of the contract is generally the signature page
- On the signature page you’ll have the signature blocks
- Each signature block identifies a signing party
- Each party will sign in or above its designated signature block
Once the contract is fully signed (either wet signature, digital signature or electronic signature), then the document is considered to be fully executed.
Contract execution date
When the contract is actually signed by all parties, in most cases, the legal obligations become effective.
We refer to the contract signature date as the execution date or date executed.
However, the contract execution date does not necessarily correspond to the contract’s “effective date”.
The parties in a contract can agree to sign the contract today but have the legal obligation to start producing legal effects starting as of next week.
Regardless of when the parties intend the contract to take legal effect, the execution date of the contract will correspond to the moment when the contract is signed to be “executed”.
Executed document types
Although contracts can be considered legally valid if they are formed orally (verbal agreement), there are many types of contracts that can be executed.
In fact, in business, most companies prefer to written contracts to ensure that the terms of the agreement are clear and they get what was expected.
When contracts are signed, they become legally binding on the parties.
Here are some of the most comment executed documents:
- Purchase agreement
- Service contract
- Sales contract
- Lease agreement
- Rental agreement
- Lending agreement
Our list can be endless.
The common thread with all these contracts, documents and agreements is that they will be considered as an executed contract when they are signed by all parties.
Executed contract vs executory contract
What’s the difference between an executed contract and an executory contract?
When you have a fully executed agreement, you have an executed contract.
In other words, the term executed contract refers to the actual “signature” of the contract by the signing parties.
When you have an executory contract, you are referring to a contract that is producing legal effects.
In other words, you are referring to the “legal obligations” of the parties or the “performance” of the parties.
For example, if you sign a contract today with a general contractor to renovate your kitchen, the contract is “executed”.
However, if your agreement is that the contractor starts the renovation in a month, then the contract is not “executory” at this moment or you cannot legally enforce the contractor to renovate your kitchen at this very moment.
Example of executed contracts
Let’s look at an example of executed contracts to better grasp the concept.
Example 1: Executed contract real estate
Let’s say that John is interested in purchasing Mary’s house.
To start the process, John submits an offer through his real estate agent to purchase the property for $250,000.
Mary rejects the offer and makes a counter-offer of $300,000.
Eventually, John agrees to buy the real estate property at $275,000 and Mary to sell at the same price.
To formalize their agreement, they will enter into a promise to purchase agreement that John and Mary will both sign.
When the promise to purchase agreement is actually signed by both parties, you have a fully executed contract in real estate.
Example 2: Fully executed purchase agreement
Let’s say that Suzanne owns a car that she is looking to sell.
Jack is interested in purchasing the car.
They both agree on $15,000 as the sales price.
To formalize their agreement, they enter into a purchase agreement where Jack and Suzanne place their signature on the contract.
The day they both signed the contract, you have an executed purchase contract.
Example 3: Executed lease agreement
Let’s say that Helen owns a property that she is looking to rent out.
Bob is interested in leasing the property for a year.
To formalize their agreement, they’ll execute a lease contract.
When Helen and Bob sign the lease agreement, the executed lease will represent the executed contract of the parties.
Contract execution best practices
Here are some tips and best practices to keep in mind when you are looking to sign or execute a contract:
- Make sure you read the contract in full and understand its scope and meaning
- Make sure that the signing parties are authorized to sign the contract
- See if the contract’s effective date is the same as the execution date or not
- Consult a contract lawyer or attorney before signing the contract if you have doubts or need advice
- Make sure that the terms of the contract reflect your understanding of the deal
- If the draft of the contract is modified several times, make sure you work on the latest draft copy
- Make sure you understand what is the law applicable to the contract when both parties sign
- If you are signing on behalf of someone else (agency contract), make sure you indicate that you are acting on another’s behalf
- Once the contract is signed, make sure you get an original copy of the fully executed copy
So, what is the meaning of executed contract?
How do you define it?
Let’s look at a summary of our findings.
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