What is the difference between service agreement and contract? All contracts are considered agreements, but not all agreements are contracts. There are small differences between a contract and a service agreement. Essentially, a contract follows a more formal outline than an agreement. An agreement can include any understanding between multiple parties about what they promise to do for each other. Often referred to as “gentlemen's agreements”, these informal deals depend on all parties honoring the agreement instead of being enforced by a third-party or the threat of legal consequences.

On the other hand, a contract is legally binding, and courts can enforce the terms if they aren't met. An agreement is much less rigid and formal. If there is a dispute between parties of a contract, either party can take it to court. However, most contracts don't end up in court. In fact, most contracts can be made verbally unless there is a definitive reason the contract needs to be written. A written contract protects everyone involved if something goes wrong.

In the case that one party believes the other party has breached the contract or not kept up their side of the deal, they can file a lawsuit and take that party to court. During litigation, the court will decide if there was a breach of contract or if other circumstances nullify the breach. The important thing to remember is that only valid contracts can be taken to court for a dispute.

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 typically 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. The following elements are essential to create a legally binding contract:

  • Offer and Acceptance: The contract must include an offer made by one party and the acceptance of that exact offer by the other party. All parties must agree to any modifications made in the contract, and no one can be forced into agreeing to the terms. The conditions imply that all parties intend for the agreement to be binding. A contract can't be created if one party isn't serious.
  • Mutual Consent: The offer and acceptance must be agreed to by both parties without force or coercion. Everyone must agree to the exact terms.
  • Consideration: In order to be valid, something of value must move between the two parties. Consideration often take the form of money, but it 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: Neither party can be a minor or anyone who is incompetent 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 plausibly 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 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.

Not all contracts need to be written. In many instances, an oral agreement creates a valid contract as long as it meets the criteria listed above.

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