Contracts with Minors are Voidable
In general, individuals must possess the requisite "legal capacity" to enter into a valid and binding contract. Contract law regards such legal capacity as the capability of understanding the nature and consequences of the transaction. In most states, minors do not have capacity to enter into contracts until they reach the age of majority, usually 18 years of age or older. However, this does not mean that minors may not make contracts at all. Rather, the law is designed to protect minors by discouraging other parties from entering into contracts with them. Accordingly, contracts with minors may or may not be binding, depending on the circumstances.
Incapacity of Minors
In order to create an enforceable contract, both parties must have maturity and capacity. If one of those elements is lacking from the bargaining process, one consequence could be the invalidation of the entire contract. Minors, for example, do not possess the legal capacity to enter into contracts with other parties. This is generally because minors are not thought to possess the ability to perceive and process all of the necessary information to make an adequately rational decision. However, this does not mean that minors cannot make contracts, it just means that courts may not enforce the contracts that minors enter into.
Voidability of Contracts with Minors
Contract law, regarding the incapacity of minors to enter contracts, is designed not only to protect minors from their lack of maturity but also to deter others from entering into contracts with minors. The law recognizes that minors might be particularly susceptible to deception. Typically, contracts with minors are "voidable" at the option of the minor but binding on the adult. This generally means that minors can repudiate, or back out of their contracts with other parties, but the other parties are bound by those agreements.
Exceptions to Voidability by Minors
There are certain contracts entered into by minors which are not voidable at their option. Since certain transactions provide significant benefits to minors, the law considers those transactions to be binding on them. Typical exceptions to a minor's right to avoid their contract obligations include:
- Contracts for necessities such as food, lodging and medical services
- Statutory exceptions including insurance contracts and student loans
In addition, as a matter of public policy, some courts will hold minors' contracts regarding military enlistment to be enforceable. Many states also do not allow a minor to repudiate a real estate transaction until after they reach the age of majority.
Emancipated Minors
Emancipated minors are minors who are legally treated the same as adults. Once emancipated, the minor may enter into any contract as an adult. Emancipated minors include those who are:
- Legally married
- Serving in the armed forces
- Legally emancipated through the courts
In addition, emancipated minors are generally held to the same legal responsibilities and liabilities as an adult.
Ratification of the Contract
Most states allow minors to "ratify" their contracts once they reach the age of majority. The effect of ratification is to affirm the contract, which renders it no longer voidable by the minor. However, this right to ratify the contract, similar to the right to avoid it, belongs only to the minor; another party may not seek to ratify the contract. Ratification does not have to be express, it may also be implied through the minor's conduct if they fail to disaffirm the contract or to return the benefits in a timely manner after reaching the age of majority.
Remedies for Repudiation by Minors
In general, when a contract with a minor has been performed completely or in part and is then disaffirmed by the minor, they must return any benefit that they have already received from the other party. If the minor no longer has the benefit that they received under the contract (e.g., consumed goods or services), many courts will not require the minor to pay for the used, lost or destroyed benefit. This result forces the other party to bear the risk of loss. However, minors (or their parents) are typically always liable to pay for the fair market value of all "necessities" even if they no longer have them.
For example, if a minor purchases a car from another party and later decides to back out of the deal, the minor must return the car to the other party in order to get their money back. However, if the car is destroyed in an accident, the minor may still exercise their right to back out of the contract and get their money back (less depreciation or value of benefit already received), but owes nothing to the other party.
Remedies for Misrepresentation of Age
Courts are divided on how to remedy a situation where the minor represented that they were of legal age when they entered the contract. Some courts regard the misrepresentation as immaterial and treat the contract in the same way as any other with a minor. Some courts allow the other party to avoid the contract on the grounds of fraud and get its full value back from the minor. Other courts use the minor's misrepresentation as justification to revoke the minor's right to back out of the contract.