The Difference Between a Service Agreement and a Contract

All contracts are considered agreements, but not all agreements are contracts. There are small differences between a contract and a service agreement.

What is required in a contract or service agreement?

To create an agreement, all parties need to understand and agree upon their rights and responsibilities.

An agreement most of the time lacks one or several elements that make a contract legally binding.

A contract has certain requirements that must be met precisely in order to for it be valid such as:

• Offer and Acceptance: The contract must include an offer made by one party and the acceptance of that exact offer by the other party. If there are modifications, all parties must agree to them in the contract. The conditions imply that all parties intend for the agreement to be binding.

• Mutual Consent: The offer and acceptance must be agreed to by both parties without force or coercion. Everyone must agree to the exact terms in the contract.

• Consideration: In order to be valid, something of value must be exchanged between the two parties. Consideration often take the form of money, but can also be goods or services. Both parties have to exchange something, such as money exchanged for a service. If just one party provides consideration, the agreement is a gift rather than a contract.

• Competence: Each party must be competent to understand what they are agreeing to. All parties must understand what is stated in the contract. If either party is deemed incompetent, the contract is considered void.

• Legal Purpose: A binding contract can't involve any illegal activities and must be able to be possibly obtainable by both parties. If the agreement is based on something that seems impossible, either party can modify the terms as they see fit.

A contract that meets these requirements is considered enforceable by law, which means one party can take the other party to court if they don't comply with the terms of the contract.

The Difference with Examples

The difference between an agreement and a contract can be seen in the following examples. If two friends agree to meet for dinner and one friend doesn't show up, the other friend can't do anything to get the damages for their wasted time because it was an agreement to do something, not a contract.

In another example, a parent agrees to pay their child's debt. The agreement is written and agreed to by the child and the parent, which makes it an enforceable contract.

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