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The Difference Between Service Agreements and Contracts

The Difference Between Service Agreements and Contracts

Not sure what's a service agreement? Can't work out what exactly is the difference between a service agreement and contract? Read on to learn about two of the most critical commercial legal documents!

1st October 2019

Service Agreement or Contract? That is the Question?

Service agreements and contracts are essential commercial legal instruments in any businesses arsenal. All contracts are considered agreements but not all agreements are considered contracts. Service agreements are arrangements (usually informal) between two or more parties and are sometimes enforceable at law. Contracts are a formal arrangement between two or more party that, by its terms and elements, are always enforceable at law. This article will explore some of the core differences between contracts and service agreements.

Formalities of service agreements and contracts

Furthermore, one of the core differences between a service agreement and a contract is the formality of the legal documents. Service agreements require fewer formalities to contracts. These informal deals sometimes rely on parties to complete the agreement. However, contracts are incredibly formal documents. Contracts create rights and responsibilities for the parties and if valid, will always be enforceable at law. Contracts, particularly deeds, require certain formalities to be valid; otherwise, they will be void. Voidable documents have the effect of being unenforceable at law. Therefore, it is always necessary to consider the formalities of contracts and service agreements.

Creation of Service Agreements

Moreover, the creation of a contract and service agreement differ significantly. A service agreement does not require any unique process to be created. Sometimes referred to as a gentleman’s agreement, service agreements can be drafted with any provision. To create an agreement, parties need to understand and agree upon their rights and responsibilities. Service agreements can clarify and improve the relationships between the parties. These agreements should outline what those rights and obligations are. Therefore, it is quite easy to create a service agreement.

Creation of Contracts

However, contracts require several steps to become legally enforceable. Several essential elements are necessary for a contract to be formed. Firstly, a contract must include an offer from one of the parties. An offer can be anything from the completion from million dollar deal to painting of a fence. The offeree must then accept the terms of the contract. There must be some form of consideration between the offeror and the offeree for a contract to be valid. Consideration often takes the form of some exchange of payment for a product or service. On top of consideration, there must be a mutual intention from the parties to ensure that the contract is enforceable. The terms of the contract must also be certain, and the parties must have the capacity to enter into the contract. Therefore, contracts differ from service agreements because of the formalities required at creation.

Contract and Service Agreements: A match made in heaven

Thus, service agreements and contracts are essential to ensuring the flow of trade and commerce. Service agreements outline the roles and responsibilities of parties. Service agreements are often less formal and can include a variety of terms and conditions. However, contracts, on the other hand, are often more precise and require specialist formalities. Contracts if created correctly, will be enforceable by a court and are effective means to ensuring the completion of an agreement. Therefore, there are significant differences between a service agreement and a contract.

Joshua Cutrone

Josh is a Legal intern at Lawpath. He is a Commerce/Law student at Macquarie University. He has an interest in cyberlaw and blockchain technology.