PSI Virginia Real Estate Practice Exam

What is an executory contract?

1. All parties have completed their obligations

2. At least one party has not fulfilled its obligations

3. It is immediately enforceable in court

4. The terms are no longer valid

The correct answer is: At least one party has not fulfilled its obligations

An executory contract refers to an agreement in which one or more parties have not yet fulfilled their contractual obligations. This definition is crucial in real estate transactions, where agreements may involve multiple performance milestones that need to be completed before the contract can be considered executed, or fully performed. In the context of real estate, an executory contract might be a purchase agreement where, for example, the buyer has not yet paid the purchase price, or the seller has not yet transferred the title to the property. Until all parties have met their obligations, the contract remains executory, meaning the legal rights and duties it establishes are still active and enforceable, even if not all actions have been completed. The other options imply a completed transaction or indicate that the contract has become void, which does not fit the definition of an executory contract. Understanding this distinction helps clarify the status and enforceability of contracts during the course of real estate transactions and other contractual agreements.