January 2007 EXTENDING CREDIT TO MINORS Does your company extend credit to minors, or have your teenagers entered into contracts without your signature? For example, you have a young person in 4-H who wants you to extend credit for feed for their 4-H animal. Can you do that? Can you try to get your money back if the young person "forgets" to pay you? Or, have your teenagers been receiving offers from credit card companies for credit cards? You might want to know the Colorado law that governs these agreements. Colorado statute 13-22-101 states that the age of competence to enter into a contract is eighteen. The pertinent section provides that every person shall be deemed to be of full age at the age of eighteen in order to enter into "any legal contractual obligation and to be legally bound thereby to the full extent as any other adult person…" What this statute implies, and what the Colorado courts have affirmed, is that a person under the age of eighteen who enters into a contract can disaffirm the contract when reaching the age of majority. Nicholas v. People, 973 P.2d 1213, 1219 (Colo.1999). The contract itself is not void when it is signed, but it is voidable by the young person when they turn eighteen. If they have their eighteenth birthday and do not disaffirm the contract within a reasonable time following the birthday, then the contract is deemed enforceable. Does this mean that you cannot extend credit to minors? Well, you certainly can set up a credit account with a minor, but you need to be aware that the young person can disaffirm any contract entered into while a minor when he or she turns eighteen and you are simply out of luck trying to enforce the contract. In addition, a minor cannot be sued on the agreement until the age of eighteen. Of course, one obvious solution to this dilemma is to have a parent or both parents co-sign any contract or credit agreement. This would eliminate several problems. The contract would be enforceable against the parents if the child did not perform, and the parents could be sued if there was a default on the agreement or if the child disaffirms the agreement. However, going back to the example of the young person in 4-H, perhaps you want to act as a mentor or teacher to the young person with respect to finances and handling credit, utilizing the assistance of their parents. By having the young person be the sole signer on the credit agreement, you and the parents have the opportunity to teach the young person about responsibility, banking, interest rates, loans and other financial matters that would help the young person in the future. So, yes, you can extend credit to minors, but you should keep in mind the risks involved in such contracts, including the possibility that the contract may become completely unenforceable when the young person reaches the age of adulthood.
This Newsletter is provided for information purposes only. Accordingly, the information is general in nature and is not intended to address a specific issue or problem. The reader should seek legal counsel of his or her choice for specific problems. The receipt of this Newsletter does not create an attorney-client relationship with the author or the law firm of Dean, Dunn & Phillips LLC.
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