Certified Residential Appraiser Practice Exam

What defines an executory contract?

1. All promises have been fully executed.

2. Promises made in the contract are in the process of being fulfilled.

3. Only one party has made a promise.

4. Both parties have fulfilled their obligations completely.

The correct answer is: Promises made in the contract are in the process of being fulfilled.

An executory contract is characterized by the fact that promises made within the contract are still in the process of being fulfilled. This means that both parties have obligations they have yet to complete under the terms of the agreement. In an executory contract, while one or both parties may have already begun performance, the entire agreement has not yet been fully executed, meaning that all obligations have not been fulfilled. This distinguishes it from contracts that are considered fully executed, where all parties have completed their obligations. The key aspect of an executory contract lies in the ongoing nature of the required actions by the parties involved. The other options refer to either completed contracts or a scenario where only one party has made a promise. Such distinctions highlight why those options do not define an executory contract; they describe contracts that are completed or imbalanced rather than emphasizing the ongoing fulfillment of promises.