Bankruptcy, which is a legal term for the process of a person or entity looking to seek relief from some (or all) of their debts, is a complex procedure. Besides the various types of bankruptcy (known as chapters), there are all sorts of nuances within each chapter. However, some common threads run through most of the different types of bankruptcies, with executory contracts being one of them.


What Is an Executory Contract?

It is a legally binding contract, one that has not yet been fully performed or one that is still remaining. In an executory contract, both signatories have important performance issues that still remain to be completed. An executory contract differs from an executed contract, because in the case of an executed contract, both parties have fulfilled their obligation as stated in the contract.


 An executory contract is defined by the United States Department of Justice as an agreement in which “the obligations of both the bankruptcy and the other party are so far unperformed that the failure of either to complete performance would constitute a material breach excusing the performance of the other.” This is a legalese way of saying that if one party doesn’t live up to its end of the bargain, the other can sue for breach of contract.


The Purpose Behind Executory Contracts

A simple example of an executory contract would be a lease. The contract is valid for the entire term — until the stated end date — and the contract dictates that both parties have an obligation that continues throughout the entire contract. In short, it’s a contract in which both parties agree to a set of terms that are ongoing and executed over a set period of time. Failure by either party to uphold their end of the contract would result in a breach of contract. One interesting fact about this type of contract: If one party (but not the other) has fulfilled its entire obligation, then it is not an executory contract.


What Executory Contracts Include and How to Write One

A contract of any type must include the following items.


  • Legality: The contract must be in accordance with federal, state and local laws.
  • Capacity: Both parties must be legally able to enter the agreement.
  • Offer: The contract must state what the offer is, for both parties.
  • Consideration: This is how each party will benefit.
  • Intention: Both parties must be interested in working with each other.
  • Certainty: Stipulates that the contract is clear to both parties.
  • Mutual acceptance: Both parties must agree to all the terms of the contract.


Naturally, an executory contract would contain the names of the signatory parties, the obligations that both parties need to honor, any timeline or expiration dates and what the penalties are for not honoring the contract.


Types of Executory Contracts

As is the case with many other legal items, there are many types of executory contracts. Examples of these types of contracts include the following:


  • Licensing deals
  • Real estate leases
  • Equipment leases
  • Development executory contracts
  • Bankruptcy proceedings
  • Timeshare and utility contracts
  • Employment/service and supply contracts


Executory Contracts Used in Bankruptcy Proceedings

Like the example referenced above, an executory contract in bankruptcy proceedings states that both parties involved are required to honor their part of the contract. An executory contract grants the debtor-in-possession (or trustee) the power to preserve the debtor’s assets, mainly by having the authority to discontinue contracts that don’t help the debtor’s case. For example, a debtor that has signed a lease may want to continue that business relationship with the landlord, particularly if the debtor is working on Chapter 11 reorganization.


Executory Contracts and Virtual Data Rooms: The Perfect Match

No matter what type of bankruptcy proceeding you’re working with, one of the most important tools you need to store, organize and protect the data is a virtual data room (VDR). A VDR is vital in situations where you’re working with sensitive data — including executory contracts — and where all the other documentation related to bankruptcy is gathered. Utilizing a VDR saves both time and money for all parties involved, as it expedites the process by allowing all the documents to be securely stored and shared in one central repository.


The features of a sophisticated VDR consist of secure access (which includes enterprise-level encryption), multiple layers of security and 24/7 customer support. When it comes to selecting a VDR host for your transaction, there are many features that should be present, including the following.


  • Security: Your trusted virtual data room partner must offer enterprise encryption, a necessity that will keep all your data safe.
  • Easy-to-Navigate Interface: An interface that enables you to access all areas of your virtual data room, monitor all activity and view activity logs. 
  • Simple Data Management: The ability to seamlessly upload data from your workstation to your virtual data room and update and edit files that reside in your workspace.


CapLinked Can Help

Finding a VDR partner to help you secure and manage your IP data is paramount. You need not only a company that provides world-class security but also one that has the tools to allow you to easily manage your data and has the reputation for uptime and 24/7/365 customer service. CapLinked, an industry leader in the VDR space, offers all these features and more. Sign up for a free trial to see how CapLinked can help securely expedite your IP deals (and keep costs down).


Chris Capelle is a technology expert, writer and instructor. For over 25 years, he has worked in the publishing, advertising and consumer products industries.



Legal Dictionary – Executory Contract – Definition, Examples, Processes 

Law District – 

Cornell Law School – Title 11 | U.S. Code | US Law | LII / Legal Information Institute