Risks of contracting with minors in the online world

For an enforceable contract to exist both parties to the contract must have “capacity”. This will generally depend on an objective legal test of capacity, rather than the subjective intention of the parties.

Companies invalidly entering into digital contracts with “minors” is an increasing problem, for example via “accepting” standard terms and conditions to purchase goods and services.

The law in Australia and Western Australia states that a minor is someone who has yet to reach the age of majority, being 18 years.

The rules about contractual capacity for minors are not uniform. They are governed by common law principles in all Australian states, subject to some statutory qualifications in some states, except for NSW.

Common law position

A minor can enter into a contract. The general common law position however is that a contract entered into with a minor is voidable. “Voidable” means that the minor can either end the contract or permit it to operate on its terms. An adult contracting with the minor will be bound by the minor’s election and cannot generally plead the minor’s lack of capacity as a defence.

Exceptions to the general common law position

The general common law position is subject to the following exceptions:

(a) Minors will generally be bound by contracts for “necessaries”. Necessaries are goods or services necessary for a minor’s existing way of life. This definition extends to necessary goods such as clothes, foods and medicines and necessary services such as transportation, medical attention and education. The facts and circumstances will be decisive in applying this exception.

(b) Beneficial contracts of service. That is, contracts of employment or apprenticeship for the overall benefit of the minor. These are considered valid and binding on the minor unless any exploitative or prejudicial terms outweigh their long term benefits.

(c) Minors will be bound by contracts of a continuing nature involving permanent obligations unless repudiated while they are minors or within a reasonable time after they cease to be minors (e.g. contracts for sale of land, contracts granting leasehold interests, contracts concerning the issue/sale of shares and partnership agreements).

(d) Minors will be bound by contracts generally if they ratify them upon attaining majority.

Consent of parent or guardian

At common law it appears to be (despite some comments in case law to the contrary) that the consent of a parent or other guardian will not give validity to a contract entered into by a minor, such that the contract is unlikely to be enforceable against the minor. Mere reliance on implied or express consent of a parent or guardian should therefore be avoided.

For a binding contract to come into place, the parent or other guardian of the relevant individual must in fact themselves be a party to the contract (not merely impliedly or expressly consenting to the entry of the minor into the contract). If the minor then backs out of performing the contract, the party seeking to rely on the contract will have enforceable rights against the parent or guardian. The parent or guardian would effectively be acting as a “guarantor”.

Minors under statute

Each jurisdiction contains certain statutory provisions that add to or qualify the above common law principles. These must be considered on a case by case basis.

How we can help

If you are entering into a contract with a minor that does not fit within one of the above exceptions, it is unlikely your contractual rights will be enforceable if the minor chooses to back out of the agreement. To the extent that you are considering entering into a contract with a minor, or another party where capacity may be an issue, it is a good idea to get legal advice.