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You’ve successfully drafted, reviewed, and finalized a contract. 

That’s a wrap, right? Not exactly—there’s still one more step. It also happens to be the most crucial: contract execution.

In this article, we’ll look at the basic definition of an executed contract, why it’s essential, and what to know when executing one. Let’s get started. 

What is an executed contract?

An executed contract is a finalized written agreement that all necessary parties have signed. Now, the contract is effective—the obligations listed within it are active and executable. 

Most executed contracts deliver their obligations once they’ve been finalized and signed. Think of real estate or marriage contracts, both mark the beginning of an engagement upon receiving signatures from the participating parties. 

Now, before we dig into the details of an executed contract, it’s important that we touch on the difference between an executed contract and an executory contract. 

Also read: Clickwrap Agreements: The Ultimate Guide

Executory contract vs. executed contract

There are two main types of contracts: executory and executed contracts. 

Their names are nearly identical, which can cause confusion if they’re used interchangeably. Both forms of legal documents establish obligations for two or more signing parties. Yet they refer to different ways a contract carries out its obligations.

First, an executory contract is a signed agreement where the obligations within the contract have yet to be fulfilled. Parties are responsible for carrying out the contents of the contract over time. This time frame is often listed within the contract, along with any specific deadlines.

Law firms rely on executory contracts for construction projects, consulting, or any other situations in which the contractual obligations are ongoing. For example, in signing a home renovation contract, both parties are agreeing to an exchange of services. Once one end of the bargain has been completed, the other end will fulfill their responsibilities. 

A lease agreement is an executory contract most people have encountered before. When the tenant signs the lease, they become responsible for the rental property, usually an apartment, house, or commercial space, for a defined period of time. Once the lease ends, the contract is terminated or resigned. 

Now, take a look at executed contracts. These are contracts whose obligations are delivered once the contract receives signatures. Some executed contracts include an effective date or outline a timeline for the completion of the contents of the contract. A fully executed contract is one whose legal obligations are performed immediately.

Real estate purchases, marriage contracts, and sales contracts are perfect examples. In each of these cases, a signed contract means it’s effective immediately. They’re all ongoing and long-term contracts that involve an exchange of property or a formal agreement. 

Understanding the differences between executed and executory contracts is important as you navigate a contract’s lifecycle.

Also read: Simplified CRM Contract Management: Practical Approaches & Tips

What is an execution date?

We’ve mentioned a contract’s effective date, but what about the execution date? Each contract will define deadlines and/or timelines throughout which the signing parties must perform their duties. 

The execution date is when the contract is finalized and signed. Once the contract has received signatures, it’s a completed agreement whose contents are now enforceable. In other words, it’s now executable. This isn’t to be confused with the contract’s effective date. 

The effective date, often listed within the contract, is the date on which the contents of the contract start. Some contracts go into action when signed, but others don’t. 

For example, in the case of purchasing real estate, the execution date is when the lease has been transferred to and signed by the property’s new owners. The real estate contract’s effective date usually occurs later. This is when the new owners can officially move in or take full possession of the property. 

Expect both execution dates and effective dates to be outlined within the contract. 

Why are executed contracts important?

Simply put, executed contracts ensure procurement. All involved parties can have confidence that the agreement will get fulfilled. The last thing you want to deal with when managing a contract is uncertainty. A clear and precise contract guarantees a desired outcome as all signing parties are on the hook for their contractual obligations. 

Unexecuted contracts are ineffective. You can avoid costly delays or stalled negotiations by ensuring a contract gets executed. For example, say you’ve purchased a vehicle with a lump sum. Finalizing and signing the contract ensures that you’ve bought the vehicle. The vendor must fulfill their end of the agreement or risk a breach of contract. 

“Get in fast, flag the biggest risks, manage those risks, and move on to the next thing. But see everything so you're not missing anything material.”

~ Jonathan Franz, Head of Legal, Crunchbase

That said, a contract should outline what happens if there’s a breach of agreement. If one party fails to fulfill their obligations, what happens next? An executed contract ensures each party has a safety net to fall back on should there be a violation. 

5 things to consider before executing an agreement

5 things to consider before executing an agreement

#1 Understand all contract terms

Signing parties should closely read and understand all contract terms. Taking the extra time to review a contract’s contents helps mitigate the risk of disputes and allows participants to plan for executing their contractual responsibilities.

Dedicate time to asking and answering any questions. The contents of the agreement should align with everyone’s expectations. Once a contract is final and signed, each respective party is liable for its contents.

Many contracts ask for electronic signatures. Good contract management software will streamline this process for everyone involved. However, don’t hesitate to request a physical copy if doing so would make understanding the information easier.

#2 Review confidentiality provisions

Confidentiality provisions live in a contract to help protect a signer’s private information and business interests. Before executing a contract, verify what the agreement defines as confidential information. Ensure it clearly states what signer information is to remain private and what can be shared.

“The thing about privacy is identifying what data is involved, how we are sharing it, and how we are going to be compliant in that sharing.”

~ Ken Priore, ex-Director of Privacy, Atlassian

Look out for exceptions to information sharing, such as knowledge that’s already public or that an individual must share by law.

Lastly, don’t forget to fully understand each party’s obligations upon contract termination or expiration. Avoid executing a contract that doesn’t define a course of action for a breach of confidentiality.

#3 Be comfortable renegotiating its terms

Don’t hesitate to renegotiate the terms of the contract if they don’t align with each party’s expectations.

Negotiating a contract means finding a middle ground with all parties involved. For everyone to be satisfied with the contract’s obligations, there must be a shared willingness to push back when necessary. Only when each party advocates for their needs does the process result in a fair and mutually agreed upon contract. 

Once you have an executed contract, you’re locked in. 

Also read: Mastering the Art of Contract Negotiation: Strategies for Success

#4 Identify key terms and add anything that’s missing

During your early review of the contract, you most likely noted key terms or clauses pertinent to the agreement. Now, conduct another review. Examine those terms and clauses. Make sure they’re in alignment with your expectations and that each signing party has a clear understanding of what they mean.

Avoid executing a contract that has any hint of confusion or lack of clarity. Read the context around each key term and clause you’ve identified to ensure it’s precise.

If you spot clauses, terms, or provisions missing from the contract, call attention to them. Discuss with all parties to note where the contract could improve its clarity. Alternatively, add the clauses you find are missing and highlight them so that the counterparty can see changes made during their review.

If either party makes any changes, do another close review of the contract before signing it.

#5 Have a system in place for collecting signatures

Many law firms lean on electronic signatures for their contracts. Ensure each signing party is comfortable to e-sign the agreement to avoid costly delays or confusion.

Having reliable contract management software running behind the scenes smooths the entire contract lifecycle, from reviewing to executing. It allows all parties involved to modify and review a contract faster than using a physical document.

Also read: Powering Contract Efficiency Through eSigning

Contract lifecycles made easy with SpotDraft

Contract lifecycles have lots of moving parts. From negotiating and drafting the contract to finalizing and signing it, how do you securely keep track of it all? In today’s fast-paced contracting landscape, having a tool that helps you streamline your contract management process can be a game changer. 

That’s where SpotDraft comes in. 

SpotDraft is a robust contract management tool that helps you securely move a contract through its entire lifecycle. With convenient integrations and automations, you can rely on SpotDraft to remove the logistical headaches associated with managing several contracts at once. 

Check out some of SpotDraft’s features that make your contracting workflow smoother, smarter, and faster:

  • Build and send a new or updated contract in minutes
  • Automate the contract approval process without technical expertise
  • Establish a single source of truth for all contracts
  • 24/7 customer support, so you’ll get answers instantly 
  • Seamless integrations enable you to create, share easily, and store contracts
  • Customizable template to create a new agreement with just a few clicks
  • Safe and secure storage of contract data for internal audits when needed

If you want to try SpotDraft before committing, schedule a demo. We’ll give you the inside scoop on how SpotDraft can streamline your contract management processes for a clean and efficient workflow.

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