What is a Service Contract?

Where You Need a Lawyer:

(This may not be the same place you live)

At No Cost! 

 What Is a Service Contract?

A service contract is an agreement between two or more parties regarding provision by one party of a service to the other party or parties. The service might involve giving a car a tune-up or remodeling a house.

Service contracts are different and distinguishable from contracts for the sale of goods. Consultants, people who work on a freelance basis, and contractors of all types usually provide their services as provided in a service contract.

This type of contract will involve one person or party paying the other to perform an act or provide a service. Any written agreement that sets the terms for provision of a service by one party to another in return for payment can be called a “service agreement.”

In another meaning, a service contract is a specific type of agreement that is offered, usually to car buyers by car manufacturers or dealers. But they can be offered to the buyers of other kinds of equipment by the sellers.

An automobile warranty is a contract in which a manufacturer or dealer promises to fix certain defects or malfunctions in a car for a specified amount of time after a person buys the car. Generally, a manufacturer’s warranty of some type is included in the purchase price that a buyer pays for a new car, although used cars might come with some type of warranty coverage, too.

An auto service contract is a contract in which one party promises to perform certain repairs or services for a car in exchange for payment by the other party. A service contract is sometimes called an “extended warranty,” but it is not a warranty as defined by federal law.

Rather a service contract is sold by car manufacturers, car dealers, and even independent companies to a car buyer or car owner. A person can buy them at any time, not just when they buy a new or used car. The prices and services offered vary widely. Some of these contracts may only extend the life of a manufacturer’s warranty that a car buyer received when they bought a new or used car. Others may cover routine maintenance, such as periodic tire rotation.

What Do Service Contracts Cover?

As noted above, a service contract can involve the provision of a wide variety of services. Equipment service contracts usually cover the repair and maintenance of the product being purchased. This can include repair required because of normal wear and tear, as well as replacement of vital working parts.

Service contracts sometimes provide coverage for every customer who purchases a product. Or a service contract might also be the product of negotiation between the parties and provide specific coverage that is unique to the parties to the agreement.

This kind of negotiated agreement may be used in cases where the party to the agreement buys a complex piece of equipment from the other party, for example. The price of the service agreement for the equipment might be included in the purchase price. The availability of the service contract might make the sale more likely as the buyer has some guarantee that the equipment can be repaired and maintained as needed.

In another example, in a car sale, a manufacturer or dealer might offer all customers a standard service agreement on the same terms. Some might need it if they do not have access to a reliable mechanic. Others might not need it if they have their own repair mechanic. In that case, the seller can still complete the sale, and the buyer does not have to purchase coverage in the event they do not really need it.

What if I Have a Legal Issue Involving a Service Contract?

A common dispute occurs when the service provider does not actually follow through and provide the service on the terms specified in the service contract. For instance, if the seller agreed to provide repairs on a car in the future, then fails to deliver on their promise, this might be considered a breach of contract.

Say the person or entity that is supposed to provide a service under the terms of a service contract. In that case, the person who is supposed to receive and benefit from the service may have to sue for breach of contract.

In order to prove a case for breach of contract, a person must present evidence to prove the following elements:

  • The parties have a valid contract;
  • The complaining party has performed its part of the contract;
  • The other party has failed to perform their part of the contract; and
  • The complaining party has suffered damage or loss as a direct result of the other party’s failure to perform.

In contract law, the standard remedy available for a breach of contract is an award of monetary damages. Generally, the amount of damages is limited to what is provided in the contract. So, for example, if a manufacturer has agreed to repair a complex piece of farm machinery, if it breaks down for a price and the buyer gets the service but fails to pay the contract price, the damages award would be the contract price for the service.

Unlike tort cases, courts do not award punitive damages in a breach of contract case. For example, assume that a party agrees to pay $50,000 for the remodeling of their kitchen, but is only willing to pay $10,000 when the job is done. In that case, a court would award the remodeling contractor $40,000 in damages.

Any party harmed by a breach of contract has a duty to mitigate their damages. For example, if a farmer plants a wheat crop in reliance on the promise that the manufacturer of the farmer’s harvester will repair it in a timely fashion, but the manufacturer does not do what was promised.

The farmer might be expected to rent a harvester to harvest their wheat crop in order to mitigate their damages rather than letting the crop go to waste in the field. Then the farmer could sue the manufacturer for the cost of renting the harvester.

Failure to satisfy the duty to mitigate might mean that after proving the liability of the other party for breach, the complaining party would not be able to recover damages.

In a case in which damages are not sufficient to compensate the complaining party, a court has the option of awarding specific performance. If a complaining party is awarded specific performance, the breaching party must fulfill the terms of the contract and perform as promised. An award of specific performance is somewhat rare; it is generally awarded only in cases that involve a one-of-a-kind good, such as a parcel of real estate.

If a person believes that they have a legal dispute over a service contract, they should begin compiling any documents that they might need to support their position in the dispute.

These can include the service contract itself; any other sales documents; receipts from previous interactions with the other party; and the names and contact information of any witnesses or others who might know about the agreement. These documents will be helpful when it comes to negotiations and supporting one’s case in a court of law.

Do I Need a Lawyer for Help With a Service Contract?

Service contracts are excellent tools for giving additional protection to consumers in some situations. If you are considering the purchase of a service contract, you want to consult with a qualified contract lawyer. LegalMatch.com can connect you to a lawyer who can review the contract and advise you as to whether it is a good deal for you.

Or if you are a service provider and you need a contract or want to improve your current agreement, you need to consult a contract lawyer. Your lawyer can draft an entirely new agreement or revise your existing agreement to make sure it is up-to-date and best protects your interests.

Law Library Disclaimer


16 people have successfully posted their cases

Find a Lawyer