For a contract to be valid, all parties must have contractual capacity. Certain classes of people do not have the capacity to contract. For example, a person who has a mental disorder that means they are unable to understand the nature of the contract, lacks contractual capacity. Persons under the age of 18 have a limited capacity to contract. This means that contracts with minors are valid in some situations.
Under common law, a contract entered into by a minor is generally voidable. However, there are exceptions set out in the Supreme Court Act and the Goods Act.
Contracts with minors for items of necessity
A minor can enter a contract to buy or sell necessities and such a contract is binding on both parties. Under Section 7 of the Goods Act, ‘necessities’ means goods suitable to the life of the minor and his or her requirements at the time of the sale.
The purchase of items that are extravagant and beyond the needs of the minor may be found to be invalid on the basis of infancy should the contract come to be the subject of a legal challenge.
This occurred in the 1908 English case of Nash v Inman, where a minor had entered into a contract for the purchase of extravagant and expensive items of clothing. Inman was a university student whose parents provided him with adequate clothing for his needs. He sought to disaffirm the contract on the basis of infancy and the court ruled in his favour, finding the items were not necessities.
Employment contracts with minors
A minor can enter a contract for employment (whether oral or written) provided the terms of the contract are not unfair and oppressive. A minor bound by such a contract can repudiate the contract upon becoming an adult.
Contracts with minors at common law
In Victoria, contracts with minors that do not fall into either of the above exceptions are voidable. However, when a contract results in a minor permanently acquiring land or involves ongoing obligations, it is binding unless avoided by the minor. All other contracts involving a minor are not binding unless affirmed by the minor after he or she becomes an adult.
Supreme Court Act
The Supreme Court Act makes certain contracts with minors void. Section 49 of that act states that the following contracts are void where a party is a minor:
- Contracts for the repayment of money lent;
- Contracts for payment of goods supplied (other than necessities);
- Accounts stated.
This provision does not affect contracts for the sale of land, contracts of employment or contracts for essential goods and services.
Section 50 of the Supreme Court Act provides that where a minor affirms a contract upon attaining the age of majority, a new contract must be entered into.
Section 51 provides that where a person enters into a contract for a loan while a minor and agrees upon attaining adulthood to repay the amount owed under the contract (which is void), that agreement is also void.
In Victoria, a child can validly purchase and own real estate. However, due to the restrictions on contracts with minors for the repayment of money, a mortgage entered into by a child is not binding on the child. This means that financiers are reluctant to enter into contracts with minors.
In Victoria, where a property is registered in the name of a minor, a court order must be obtained before the property can be sold. It can also be difficult to find a buyer who is prepared to contract with a child as such a buyer runs the risk of the child not seeing the transaction through.
To avoid these complications, a person wishing to gift a property to a child can do so via a trust, where an adult holds the property on trust for a minor. The adult trustee can then deal with the property by taking out loans over it but must hold it on behalf of the child.
Other Australian jurisdiction have different laws regarding the contractual capacity of minors.
If you require legal advice or representation in any legal matter, please contact Go To Court Lawyers.