Executory Contract is the contract stipulates that both sides still have duties to perform before it becomes fully executed. When you enter into an agreement to buy a car, you need to promise to pay for the car. The car dealer will give you the car once you pay for it. If you tried to tell the car salesmen that you would use your payment from live years ago on your old car, that clearly would not constitute the appropriate payment for the transaction. That older payment would be considered past consideration which is not permitted in contracts. Rather, contracts require present consideration. The contract is often in place between a debtor or borrower and another party.
In every contract, there must be a consideration in order for the agreement to be legally binding; it is a critical part of contract formation. Therefore, past consideration is the benefit that you get as a result of making the contract. In other words, each person who signed the contract promised to do something. In contrast, the person may have promised not to do something. If there was no past consideration in an agreement, the agreement can be rendered invalid and unenforceable.
Contracts can be either bilateral contracts or unilateral contracts. Bilateral contracts involve agreements where two parties make mutual promises to one another for consideration purposes. For instance, A promises to pick up B’s child from school on Mondays and Tuesdays and in exchange, B promises to pick up A’s child on Wednesdays and Thursdays.
Examples of executory contracts –
- Real estate leases,
- Equipment leases,
- Development contracts,
- Licenses to intellectual property etc.