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Contracts are used in all sorts of different business relationships. Once signed, and it is found to be valid, the contract binds both parties. But what if one party is a minor? Can they validly enter into a contract? Can it be properly enforced against that party?
Though it may seem hard to imagine a minor entering into a business relationship with an established company, these sorts of circumstances can appear more often than you might think.
To take a basic example, gym memberships aren’t uncommon for minors. To properly enforce the membership, the contract between the gym and the minor must be valid.
Another example might be a contract between the seller and buyer of a car. These sorts of situations occur everyday, and understanding the intricacies of them is important for all sorts of business owners.
What Is The Statutory Legal Age To Sign A Contract?
An important question to ask when it comes to the validity of a contract is, ‘What exactly is the legal age to sign a contract in NSW?’.
As stated in the Minors (Property and Contracts) Act 1970 (NSW) (the Act), a ‘minor’ is someone under the age of 18. Under section 17 of the Act, where a minor participates in a ‘civil act’, that civil act is not binding on the minor except as provided by the Act. Under section 6, a contract is considered a civil act.
So, why is it not binding? The main reason is because the minor might lack the understanding necessary for their participation in the civil act (or in this case, to enter into a contract). So essentially, unless the Act allows it, contracts with minors will not be legally binding.
It is important to note that this reduction in culpability is not a two way street. Minors can still enforce a contract against the other party. But presumptively, they cannot have a contract enforced against them.
So, if you are entering into a contract with a minor or trying to enforce a contract with a minor, you need to understand the limited circumstances in which these contracts with minors are considered binding. The following sections will delve into the intricacies of this question.
When Is A Contract With A Minor Valid?
Necessity And Benefit
The first permitted circumstance is set out in section 19 of the Act. Put simply, when a minor signs a contract that is ‘for his or her benefit at the time of his or her participation’, it will be presumptively binding despite the age of the signatory.
However, this exception is subject to section 18 which requires the minor to not lack (by reason of youth) the understanding necessary for their participation in the contract. This basically means that they must understand what they are doing and the obligations that come with signing the contract.
It is also worth mentioning that contracts of ‘necessity’, whilst binding minors in other Australian states, are not explicitly covered by the Act. Necessities would include things like food, accommodation, clothing or medicine. But as previously mentioned, this concept will likely have little impact in NSW.
To illustrate how contracts necessity apply elsewhere, Victoria provides several examples.
| Example Section 6 of the Goods Act 1958 (Vic) defines necessities as ‘goods suitable to the life of the minor and his or her requirements at the time of the sale’. This would be determined on a case by case basis, but in the case of Nash v Inman [1908], the purchase of extravagant and expensive clothing by an ‘adequately clothed’ university student was not a contract of necessity. |
Contracts Of Employment
Importantly, contracts of employment with minors will be enforceable, so long as they provide some benefit. In an employment context, this is likely to equate to the salary being paid.
| Example Let’s use an example of working at KFC for the benefit of $20 an hour. However, the benefit of being paid a monetary sum does not automatically validate the whole of the contract and allow its enforceability against minors. If the benefit is outweighed by the obligations owed by the minor, the contract may well be found void and unenforceable in court. For instance, this might occur if the KFC contract forced the minor to pay $5 for every mistake made during their work. This typically involves a balancing act, or weighing the perceived benefit against the detriment owed by the minor in question. |
How Can A Minor Avoid A Contract?
Thankfully, the law covers situations where a minor wants to avoid a contract they entered into. This is to relieve any unfair circumstances that result from them being too young to understand the consequences of signing a contract.
However, it’s important to understand the circumstances under which this kind of power can be exercised.
Repudiation
Under section 31 of the Act, a minor can repudiate the contract at any time before they turn 19. This allows a minor who signs a contract, and then turns 18, to validly repudiate the contract once they are an adult. This method is only valid if the contract is not of benefit to the minor in question. Further, this ability is subject to restrictions contained in sections 33 and 35 of the Act.
Under section 33, for the repudiation to be valid, the minor (or their agent) must provide signed notice to the person under whom the repudiation is claimed. For instance, if a minor has signed a gym membership contract, and one day tells the receptionist ‘I repudiate this contract’, this repudiation will not be valid as notice has not been given.
The court also has the power under section 37 to adjust the rights under a contract that might need to be changed as a result of the repudiation of the minor. This allows for a degree of flexibility, especially with third parties.
Involvement Of Third Parties
Agency Relationships
Though agency relationships sound reassuring, it’s important to know what the law says about them.
Section 46 of the Act basically says that if a contract is invalid, the presence of an agent for the minor would make little to no difference. The contract would still be unenforceable.
So for instance, if the contract wasn’t of benefit to the minor, it is invalid despite the agent being appointed. The main purpose of the agency relationship in NSW is to help minors access goods and services they otherwise would be barred from due to their age.
Guarantor Relationships
This is the most effective way to ensure you arent seriously damaged by a contract with a minor.
As set out in section 47 of the Act, a guarantor of a contract signed by a minor is bound as if it were a normal contract (in other words, as if they were not a minor).
If a minor fails their obligations under a guaranteed contract, the guarantor will be fully bound and liable as if the contract had been signed by an adult. It will be subject to normal contract laws, thus an expert contract lawyer would be helpful here.
Key Takeaways
Signing a contract with a minor is not as simple as it seems. Though you are bound by the terms of the contract, the minor is protected from some of the potential consequences of contracting by NSW legislation. Understanding how this legislation functions is crucial before signing a contract with a minor, and before attempting to enforce it.
If you have any questions about this area, reach out to us at team@sprintlaw.com.au or contact us on 1800 730 617 for an obligation-free chat.
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