Executed and Executory Contract By Abhinove Mishra

WHAT IS A CONTRACT?
Section 2(h) of the Indian Contract Act, 1872 defines a contract as an agreement enforceable by law. 

Section 2(e) defines agreement as  “every promise and every set of promises forming
consideration for each other.” Section 2(b) defines promise in these words:  “When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted, becomes a promise.”
From the above definition of promise, it is  obvious that an agreement is an accepted
proposal. The two elements of an agreement are:
  (i) offer or a proposal; and
  (ii) an acceptance of that offer or proposal.
What agreements are contracts? 

All agreements are not studied under the Indian Contract Act, as some of them are not contracts. Only those agreements which are enforceable at law are contracts. The Contract Act is the law of those agreements which create obligations, and in case of a breach of a promise by one party to the agreement, the other has a legal remedy.
Thus, a contract consists of two elements:
(i) an agreement; and
(ii) legal obligation, i.e., it should be enforceable at law.
However, there are some agreements which are not enforceable in a law court. Such
agreements do not give rise to contractual obligations and are not contracts.
Examples
(1) A invites B for dinner in a restaurant. B accepts the invitation. On the appointed
day, B goes to the restaurant. To his utter surprise A is not there. Or A is therebut refuses to entertain B. B has no remedy against A. In case A is present in the
restaurant but B fails to turn-up, then A has no remedy against B.
(2) A gives a promise to his son to give him a pocket allowance of Rupees one hundred
every month. In case A fails or refuses to give his son the promised amount, his
son has no remedy against A.
In the above examples promises are not enforceable at law as there was no intention to
create legal obligations. Such agreements are social agreements which do not give rise to
legal consequences. This shows that an agreement is a broader term than a contract. And,
therefore, a contract is an agreement but an agreement is not necessarily a contract.
What obligations are contractual in nature? We have seen above that the law of contracts
is not the whole law of agreements. Similarly, all legal obligations are not contractual in
nature. A legal obligation having its source in an agreement only will give rise to a contract.
Example
A agrees to sell his motor bicycle to B for Rs. 5,000. The agreement gives rise to a legal
obligation on the part of A to deliver the motor bicycle to B and on the part of B to
pay Rs. 5,000 to A. The agreement is a contract. If A does not deliver the motor bicycle,
then B can go to a court of law and file a suit against A for non-performance of the
promise on the part of A.
On the other hand, if  A has already given the delivery of the motor bicycle and  B
refuses to make the payment of price, A can go to the court of law and file a suit against
B for non-performance of promise.
Similarly, agreements to do an unlawful, immoral or illegal act, for example, smuggling
or murdering a person, cannot be enforceable at law. Besides, certain agreements have been
specifically declared void or unenforceable under the Indian Contract Act.  For instance,  an
agreement to bet (Wagering agreement) (S. 30), an agreement in restraint of trade (S. 27),
an agreement to do an impossible act (S. 56).
An obligation which does not have its origin in an agreement does not give rise to a
contract. Some of such obligations are
1. Torts or civil wrongs;
2. Quasi-contract;
3. Judgements of courts, i.e., Contracts of Records;
4. Relationship between husband and wife, trustee and beneficiary, i.e., status
obligations.
These obligations are not contractual in nature, but are enforceable in a court of law.
Thus, Salmond has rightly observed: “The law of Contracts is not the whole law of agreements
nor is it the whole law of obligations. It is the law of those agreements which create obligations,
and those obligations which have, their source in agreements.”
Law of Contracts creates rights in personam as distinguished from rights in rem. Rights
in  rem  are generally in regard to some property as for instance to recover land in an action
of ejectment. Such rights are available against the whole world. Rights in  personam  are
against or in respect of a specific person and not against the world at large.

   CLASSIFICATION OF CONTRACTS
Contracts may be classified in terms of their 
    (1) validity or enforceability,
    (2) mode of formation, or 
    (3) performance.

1. Classification according to validity or enforceability
Contracts may be classified according to their validity as (i) valid, (ii) voidable, (iii) void
contracts or agreements, (iv) illegal, or (v) unenforceable.


2. Classification according to mode of formation
There are different modes of formation of a contract. The terms of a contract may be
stated in words (written or spoken). This is an  express contract. Also the terms of a contract
may be inferred from the conduct of the parties or from the circumstances of the case. This
is  an implied contract  (Section 9).


3. Classification according to performance
Another method of classifying contracts is in terms of the extent to which they have been
performed. Accordingly, contracts are: (1) executed, and (2) executory or (1) unilateral, and
(2) bilateral.
An  executed contract  is one wholly performed. Nothing remains to be done in terms of
the contract.

Executed contract: It is a contract where both the parties to the contract have fulfilled their respective obligations under the contract. Example: X offer to sell his car to Y for Rs. 1 lakh, Y accepts X offer. X delivers the car to y and Y pays Rs. 1 lakh to X. it is an executed contract.
Example
A contracts to buy a bicycle from B for cash. A pays cash. B delivers the bicycle.


An  executory contract  is one which is wholly unperformed, or in which there remains
something further to be done.

  Executory contract: It is a contract where both the parties to the contract have still to perform their respective obligations. Example: X offers to sell his car to y for Rs. 1 lakh. Y accepts X offer. It the car has not yet been delivered by X and the price has not yet been paid by Y, it is an Executory contract.
Example
On June 1, A agrees to buy a bicycle from B. The contract is to be performed on June 15.
The executory contract becomes an executed one when completely performed. For instance, in the above example, if both A and B perform their obligations on June 15, the contract becomes executed. However, if in terms of the contract performance of promise by one party is to precede performance by another party then the contract is still executory, though it has been performed by one party.
Example
On June 1, A agrees to buy a bicycle from B. B has to deliver the bicycle on June 15
and A has to pay price on July 1. B delivers the bicycle on June 15. The contract is
executory as something remains to be done in terms of the contract.

Partly executed and partly executory contract: It is a contract where one of the parties to the contract has fulfilled his obligation and the other party has still to perform his obligation. E.g X offers to sell his car to y for Rs. 1 lakh on a credit of 1 month. Y accepts X offer. X sells the car to Y. here the contract is executed as to X and Executory as to Y. 

DIFFERENCE BETWEEN EXECUTED AND EXECUTORY CONTRACT

Executed Contract: A contract in which the task or action has been completed by one or both the parties.
Ex. The corporation has completed the road laying work near Egmore.

When both the parties have completed their duties and obligations, the contract is said to be executed. The parties are said to be ‘discharged’ of the contract.
Executory Contract: A contract in which a task or action is yet to be completed or partially completed. A contract in which some performance remains to be done by one or both parties.
Ex. The corporation is yet to complete the road laying work near Egmore.

When both the parties have not completed or PARTIALLY completed their duties and obligations, the contract is said to be executory. The parties are said to be ‘discharged’ of the contract.

 by- Abhinove Mishra

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