Executed, Executory, Unilateral and Bilateral Contracts
Contracts can be classified in different ways depending on what aspect of the contractual relationship is being examined. Executed and executory contracts are classified according to the extent to which the parties have performed their obligations, whereas unilateral and bilateral contracts are classified according to what the parties promise or perform in exchange for the offer.
These classifications answer different questions and should not be confused. A contract can, for example, be bilateral in its formation and become executed once both parties have performed their obligations.
Executed Contract
An executed contract is one in which the obligations arising from the contract have been performed. The focus is therefore on completion of performance, rather than merely on whether the parties have signed a document. A simple sale illustrates the concept. If A purchases a book from B, pays the price and receives the book immediately, the obligations of both parties are performed at the time of the transaction. The contract is therefore executed.The term should not be confused with a “signed contract.” Signing a document may establish the existence of a contract, but it does not by itself mean that the contractual obligations have been performed.
Executory Contract
An executory contract is one where contractual obligations remain to be performed by one or both parties. For example, A agrees to construct a house for B within six months, while B agrees to make payment according to the agreed schedule. Until the respective obligations are performed, the contract remains executory. The distinction is therefore based on the stage of performance. An executory contract may subsequently become executed when the outstanding obligations are completed.
Bilateral Contract
A bilateral contract is formed through an exchange of promise for promise. Each party undertakes an obligation to the other, and the acceptance of the offer creates reciprocal contractual commitments. For example, A promises to sell his car to B for ₹5 lakh, and B promises to pay ₹5 lakh in return. A’s promise and B’s promise constitute the reciprocal obligations forming the bilateral contract. Bilateral contracts are common in commercial transactions because both parties undertake obligations that are to be performed under the agreement.
Unilateral Contract
A unilateral contract arises where an offer seeks performance of an act rather than a return promise. For example, A announces that ₹10,000 will be paid to anyone who finds and returns his lost dog. A person does not need to promise in advance that they will search for the dog. If a person who knows of the offer performs the specified act in accordance with its terms, the performance may constitute acceptance. Indian law recognises acceptance through performance in Section 8 of the Indian Contract Act, 1872. The provision states that performing the conditions of a proposal constitutes acceptance of the proposal.
Carlill v. Carbolic Smoke Ball Co.
The classic illustration is the English case Carlill v. Carbolic Smoke Ball Co. [1893] 1 QB 256. The company advertised a reward for anyone who used its product according to specified conditions and still contracted influenza. Mrs Carlill performed the stated conditions and subsequently claimed the reward. The Court of Appeal treated the advertisement as a unilateral offer capable of acceptance through performance.
The case is a persuasive English authority rather than an Indian decision, but its principle is useful when explaining acceptance by performance.
Position under Indian Law
Indian law similarly recognises acceptance through performance under Section 8. However, the person performing the act must have knowledge of the offer. In Lalman Shukla v. Gauri Dutt (1913), the Allahabad High Court held that a person who performed the requested act without knowing about the reward offer could not claim the reward. Knowledge of the offer was necessary for the act to constitute acceptance.
This makes Lalman Shukla particularly useful when explaining the Indian position alongside Carlill.
Executed vs Executory Contracts
| Basis | Executed Contract | Executory Contract |
|---|---|---|
| Focus | Performance | Outstanding obligations |
| Position of obligations | Performed | Yet to be performed, wholly or partly |
| Example | Goods delivered and price paid | House construction still pending |
| Can it change? | May represent the completed stage of an executory contract | Can become executed after performance |
The distinction concerns performance, not the manner in which the contract was originally formed.
Bilateral vs Unilateral Contracts
| Basis | Bilateral Contract | Unilateral Contract |
|---|---|---|
| Exchange | Promise for promise | Promise for performance of an act |
| Obligation of offeree | Undertakes a promise | Generally accepts through performance |
| Example | Promise to sell in return for promise to pay | Reward offered for finding lost property |
| Acceptance | Usually through a communicated promise | Through performance of the specified condition |
The distinction concerns the structure of the exchange at formation, rather than the extent to which the resulting contract has been performed.
Can a Contract Be Both Bilateral and Executory?
Yes. The two classifications deal with different aspects of a contract. Suppose A agrees to sell a car to B for ₹5 lakh. A promises to deliver the car and B promises to pay the price. This is bilateral because both parties exchange promises. If neither party has yet performed, it is also executory. Once A delivers the car and B pays the price, the contract becomes executed. It remains bilateral in terms of how it was originally formed.
This demonstrates why executed/executory and unilateral/bilateral should not be treated as opposing classifications.
Can a Unilateral Contract Be Executory?
A unilateral contract can also involve different stages of performance. Before the required act is performed, the offer has not yet been accepted through performance. Once the required act is completed, the resulting contractual obligation may have been performed or may leave an obligation outstanding, depending on the terms of the offer.
The important point is that unilateral/bilateral describes the mode of formation, while executed/executory describes the stage of performance.
Common Examination Mistakes
A common mistake is treating an executed contract as a signed contract. Execution in this classification refers to performance, not merely signing. Another mistake is assuming that bilateral means completed and unilateral means incomplete. The two classifications address different aspects of contractual relationships. Students should also remember that Section 8 of the Indian Contract Act recognises acceptance through performance, making it particularly relevant to unilateral offers.
Finally, when discussing unilateral contracts in an Indian law answer, Lalman Shukla v. Gauri Dutt is useful for explaining the requirement of knowledge of the offer, while Carlill provides the classic comparative example of acceptance by performance.
Frequently Asked Questions
What is an executed contract?
An executed contract is one in which the contractual obligations have been performed.
What is an executory contract?
An executory contract is one in which contractual obligations remain to be performed by one or both parties.
What is a bilateral contract?
A bilateral contract is formed through an exchange of promises between the parties.
What is a unilateral contract?
A unilateral contract involves a promise made in return for the performance of a specified act rather than a return promise.
What is the difference between executed and bilateral contracts?
They describe different aspects of a contract. Executed concerns performance, while bilateral concerns the exchange of promises through which the contract is formed.
Which section deals with acceptance by performance?
Section 8 of the Indian Contract Act, 1872 deals with acceptance by performing the conditions of a proposal or accepting consideration offered with a reciprocal promise.
Conclusion
Executed and executory contracts are distinguished by the extent of performance, while bilateral and unilateral contracts are distinguished by the nature of the exchange through which the contract is formed. A bilateral contract may be executory at the beginning and executed after both parties perform. A unilateral contract, by contrast, is accepted through performance of the act required by the offer. Keeping these two classifications separate makes the distinction much easier to apply in examination problems.
References
- The Indian Contract Act, 1872, Sections 2, 8 and 9, India Code.
- Lalman Shukla v. Gauri Dutt, (1913) 11 ALJ 489, Allahabad High Court.
- Carlill v. Carbolic Smoke Ball Co., [1893] 1 QB 256 (CA).
- Restatement (Second) of Contracts, relevant provisions concerning unilateral offers and acceptance by performance.
