The Minors' Contracts Act 1987

This article gives a short account of the effect of the Minors' Contracts Act 1987 ('the Act') on contracts entered into after commencement and a short analysis of the practical significance, of the Act for practitioners.
The Act is chiefly based on the Law Commission's Report on Minors' Contracts (Law Com No. 134). This forms part of a long-term project to codify contract law. It was preceded by a detailed working paper (No. 81). Only a few of the Commission's original recommendations were incorporated into the final report and consequently into the Act, which has only five sections.
Previous law
The previous law must be borne in mind in order to understand the new provisions. Anson's Law of Contract classifies contracts entered into by persons under 18 in three ways:
1. Valid contracts such as beneficial contracts of employment and the notorious purchase of 'necessaries'. Necessary goods are defined as 'goods suitable to the condition in life of the minor . . . and to his actual requirements at the time of sale and delivery' (s.3(3) of the Sale of Goods Act 1979). These contracts are unaffected by the Act.
2. 'Positively voidable' contracts, eg non- beneficial contracts of employment and those creating interests in property, which are binding on the minor until repudiated before or within a reasonable period of majority. Others include equitable interests in land. They are not directly affected by the Act, but see s.2 of the Act (described below).
3. 'Negatively voidable' contracts were enforceable at common law by the minor to some degree, but unenforceable against him, although they could be r atified by him after majority. It is this class with which the Act is concerned. Prima facie, contracts not in the first two classes fall within this one, eg purchases of non- necessary goods, and minors' trading contracts, ie where the minor sets up in business.
Negatively voidable contracts
All students learn and quickly forget the provisions of the Infants' Relief Act 1874 ('the 1874 Act'). This altered the common law as to negatively voidable contracts. S.1 of the 1874 Act apparently rendered 'absolutely void' three groups of contracts in this class -- contracts for loans, for non- necessary goods, and for accounts stated. Much case law accrued round the meaning of 'absolutely void'. The courts were prepared to grant some legal effect to such contracts, eg it seems that property passes under them to a minor and hence to third parties (obiter in Stocks v Wilson [1913] 2 KB 235), and that a minor could recover money paid where there had been a total failure of consideration (see Pearce v Brain [1929] 2 KB 310). Due to the uncertain meaning of the 1874 Act and its interaction with the common law, and the fact that it made the law unduly favourable to minors, it is wholly repealed by the Act (see s.1).
As a result of this repeal, all negatively voidable contracts are now governed by the pre-1874 common law rules, and are enforceable by the minor as at common law, though unenforceable against him.
Fresh agreements
S.2 of the 1874 Act did two further things: it prevented a minor from ratifying a negatively voidable contract after majority, which the common law allowed, and it also prevented him from making a fresh agreement to pay a debt contracted during minority. A creditor will no longer be concerned with the distinction between ratification and a fresh agreement, since s.2 is repealed by the Act. Also repealed is the Betting and Loans (Infants) Act 1892, the result of which is to make effective any new agreement after majority and any security given to repay a previously void loan. Therefore as a result of both repeals it is now open to a creditor to induce a former minor to satisfy a previously unenforceable debt, repay a previously unenforceable loan, or perform a previously unenforceable contract, after majority; a fresh agreement and an act of ratification made after majority are both equally binding. The Law Commission doubted whether this change will act as an incentive to offer credit or loans to minors.
S.2 of the Act repeals the rule in Coutts v Browne-Lecky [1947] KB 104 whereby a guarantee by an adult of a void (now unenforceable) contract, or one repudiated after majority, was equally void. This means that a creditor no longer need ensure that a separate indemnity is taken instead of a guarantee, although the distinction between them for all other purposes is apparently unaffected.
Recovery of property
S.3 of the Act alters the common law as to recovery of property from defaulting minors under unenforceable contracts. The disappointed creditor is now allowed even in the absence of fraud and where it is 'just and equitable' to obtain a court order for the return of property acquired by a minor, 'or any property representing it'. The intention of this last expression is unclear. In Stocks v Wilson at first instance the defendant was held liable to account for the identifiable proceeds of sale of goods fraudulently acquired. In Leslie v Shiell the Court of Appeal held that restoration would not be ordered of money borrowed where the effect would be to order repayment of a void loan . Since the effect of s.3 is to widen the circumstances in which restitution can be ordered, it may be that the scope is also widened so that the identifiable proceeds of sale are now recoverable and the doubt shed on Stocks v Wilson by Leslie v Shiell is now removed.
Consumer credit
S.4 of the Act amends s.113 of the Consumer Credit Act 1974.S.113 extends the protection of the 1974 Act to persons who stand surety to debtors under regulated credit agreements, so that such persons are no worse off than the primary debtors. The amendment appears to be a consequential amendment, resulting from s.2 of the Act, as it now includes guarantees of minors' contracts within its scope.
Summing up
Commencement is two months from passage, which was on 9 April 1987. In the view of the Law Commission, there is no retrospection, ie the Act applies only to contracts entered into after commencement, and to any ratification of or fresh agreement to perform a previously unenforceable contract where both the earlier and the later agreements were made after commencement.
To sum up, it seems unlikely that the Act will have much effect on the business community. Since the age of majority was reduced to 18 in 1969, there has been less scope for minors to run into debt, and mail- order companies and the like in any case declining to deal with them.
Nevertheless, any incentive to extend credit to teenagers is perhaps regrettable at a time when Britain is said to be staggering under a burden of consumer debt. The Act makes no contribution to the current issues concerning 'contractual unfairness' and 'unconscionable bargains' (eg see National Westminster Bank v Morgan [1985] AC 686). It seems surprising that it was given government time, albeit without debate, in the pre- election period.