SI CHI01120.221 Validity of Loans to Minors (RTN 371 -- 11/2005)

A. General

In each of the six states in Region V, a contract, including a loan, entered into with a minor (defined as an individual who has not reached the age of eighteen) is generally voidable by the minor, but not by the party who is of the age of majority. Such agreements, therefore, are not enforceable against minors, regardless of whether the loan contract is a formal, written agreement. However, some exceptions apply. Below is a general discussion of conclusions and an outline of the particular rules for each state in Region V.

Assets are a resource for SSI purposes if the individual owns and can convert them to cash for their support and maintenance. If the individual has the right, authority, or power to liquidate the property, it is a resource. Loan proceeds and payments and loan agreements may be considered a resource or income to the borrower and lender, and the rules for determining when a loan counts as a resource vary based on whether the underlying loan agreement is a bona fide loan. In order to constitute a bona fide loan, a loan must be enforceable under state law.

B. State Law- Region V

In all states in Region V, minors generally lack the legal capacity to enter into a contract. The age of majority is eighteen in all Region V states. Loan agreements entered into with a minor, whether formal, written agreements or otherwise, are not enforceable under state law, because they are voidable at the option of the minor. Certain exceptions apply, however, and some loans entered into with minors are enforceable.

EXAMPLE

If a minor takes out a loan for the purchase of necessities, the loan will be enforceable under State law.

Additionally, in some states in Region V, a minor's loan is enforceable if the minor fraudulently represented that he was of the age of majority when he took out the loan. Further, a minor may ratify or disaffirm a loan upon attaining the age of majority; ratification renders the loan enforceable. The states in Region V generally require a clear, intentional act to constitute ratification. Some states in Region V dictate that a loan will be deemed ratified where a minor fails to disaffirm the loan within a reasonable time after attaining the age of majority.

C. State Law and the Age of Majority

The six states in Region V follow essentially similar rules regarding the enforceability of loans to which a minor is a party. However, some slight differences exist. Below is an outline of the particular rules for each state in Region V.

1. Illinois

a. Age of Majority

In Illinois, the age of a majority is eighteen.

b. General Rule

A loan agreement with a minor is not enforceable because the loan agreement is voidable by the minor party.

c. Exceptions

A minor who has been emancipated by court order may enter into valid loan contracts, which are therefore, enforceable.

A loan with a minor is enforceable if it is entered into for the purpose of obtaining necessities; necessities includes items such as food, clothing, lodging, and education, but typically does not include automobiles, even if used to earn a living.

d. Ratification

A loan agreement becomes enforceable against a minor if the minor, upon reaching the age of majority, ratifies the loan agreement. Illinois law allows a minor to either ratify a contract with an intentional act after reaching the age of majority, or to disaffirm the contract within a reasonable time or within the statute of limitations applicable to the type of loan at issue. Acts which may constitute ratification include making payments on a loan, or causing a loan contract to be recorded. In Illinois, if a minor fails to ratify a loan agreement upon attaining the age of majority, the loan may nonetheless be deemed ratified, and rendered enforceable against the minor, if he fails to disaffirm the loan agreement within any applicable statute of limitations. If FOs cannot clearly determine whether a disaffirmance has occurred within a reasonable time or within an applicable statute of limitations, please send the case to MOS-SSI Team for a referral to the Office of General Counsel for a legal opinion.

2. Indiana

a. Age of Majority

In Indiana, the age of majority is eighteen.

b. General Rule

Any loan entered into with a minor is not enforceable because the loan contract is voidable at the minor's option. A minor may void his contract at any time prior to, or upon attaining, the age of majority. Whether emancipation affects the minor's right to disaffirm his contracts depends upon the scope of the emancipation. If FOs cannot clearly determine whether a minor's emancipation affects his ability to enter valid loan contracts, please refer the case to MOS-SSI Team for a referral to the Office of General Counsel for a legal opinion.

c. Exceptions

A loan entered into by a minor who represented in writing that he was eighteen or over in obtaining the loan is enforceable.

Loans by minors for necessities are enforceable, so long as the minor is not living at home or otherwise being supported by his parents. Necessities include items such as food, clothing, lodging, medical services, and education as well as such provisions provided for the minor's spouse, but generally do not include automobiles. Medical services are considered necessities regardless of whether a minor is living at home or being supported by his parents.

d. Ratification

A minor may ratify a loan contract upon reaching the age of majority, rendering the loan enforceable. Ratification is not presumed, or deemed, to occur unless there is some affirmative act. A ratifying act may be done without the minor having explicit knowledge that his acts constitute ratification or that he was not otherwise liable. However, ratification induced by fraud or undue influence is not valid and will not render a loan agreement enforceable. Whether a valid ratification has occurred depends on the facts of the particular case, but the ratification should be in proportion to the nature of the original transaction.

EXAMPLE

If a minor, after reaching the age of majority, agrees to pay, or makes a payment on, a simple loan which he entered into by himself while a minor, ratification has occurred.

3. Michigan

a. Age of Majority

The age of majority in Michigan is eighteen.

b. General Rule

A loan agreement with a minor is not enforceable because minors lack the legal capacity to contract and their contracts are voidable. Emancipation of a minor does not affect this general rule.

However, if evidence of a minor's emancipation indicates the minor may enter into a valid contract; please send the case to MOS-SSI Team for a referral to the Office of the General Counsel for a legal opinion.

c. Exceptions

If a minor willfully misrepresented his age to obtain a loan, and if the misrepresentation was either made in writing in a separate instrument or admitted in open court, the loan is enforceable against the minor. Such a loan may not be disaffirmed by the minor upon attaining the age of majority.

Loan agreements entered into by minors for the purchase of necessities are enforceable under state law. Necessities include items such as clothing and books for education.

d. Ratification

A loan is rendered enforceable in Michigan if a minor ratifies the loan with an affirmative act upon reaching the age of majority. Ratification consists of making a distinct acknowledgement of a loan contract and indicating an intention to be bound by it, for example by writing a letter acknowledging one's loan and promising to pay it. A minor may also disaffirm his loan upon attaining the age of majority. Silence may be sufficient to constitute ratification only where it would be inequitable to permit the defense of infancy. If FOs should raise the question as to whether a loan has been ratified based on silence, or a failure to disaffirm, please send the case to MOS-SSI Team for a referral to the Office of General Counsel for a legal opinion.

4. Minnesota

a. Age of Majority

The age of majority in Minnesota is eighteen.

b. General Rule

Any loan agreement with a minor which has not been fully executed (performed) is not enforceable. A minor who enters into a loan agreement by fraud may still disaffirm the contract. If evidence of emancipation is presented, or other evidence showing that a minor's loan obligation may be authorized by law, please send the case to MOS-SSI Team for a referral to the Office of General Counsel for a legal opinion on whether the loan is enforceable.

c. Exceptions

A loan a minor enters into for the purchase of necessities, however, is enforceable. Necessities include items such as food, clothing, and lodging, but not transportation expenses.

d. Ratification

A minor may affirm his loan by a ratifying act upon reaching the age of majority. The loan is then enforceable in Minnesota. A ratification consists of some word, act, or deed that indicates an intention to be bound by the loan. A minor also may disaffirm his loan within a reasonable time after attaining the age of majority. In Minnesota, unlike in the other states in Region V, a minor is required to return the proceeds of a loan in order to disaffirm the loan. If the minor does not actively disaffirm within a reasonable time of attaining the age of majority, the loan will be considered ratified. The fact that a minor may be unaware of his right to disaffirm will not absolve him of his duty to act promptly in disaffirming the loan in order to avoid liability. If FOs cannot clearly determine whether a loan has been disaffirmed within a reasonable time, please send the case to MOS-SSI Team for a referral to the Office of General Counsel for a legal opinion on whether the loan is enforceable.

5. Ohio

a. Age of Majority

In Ohio, the age of majority is eighteen.

b. General Rule

A loan entered into with a minor is not enforceable because the loan is voidable at the minor's option. If evidence of emancipation is presented, or other evidence showing that a minor's loan obligation may be authorized by law, please send the case to MOS-SSI Team for a referral to the Office of General Counsel for a legal opinion on whether the loan is enforceable.

c. Exceptions

Loans entered into with a minor for the purchase of necessities are enforceable. To be enforceable, however, such loan contracts must be fair and reasonable, and must be made by the non-minor party in good faith and without knowledge of the minor's lack of capacity to contract. Necessities include food, medicine, clothing, shelter, or personal services usually considered reasonably essential for the preservation and enjoyment of life.

d. Ratification

If a minor does not disaffirm his loan or other contract within a reasonable time after reaching the age of majority, ratification may be inferred from his voluntary actions, regardless of whether he had a definite intent to ratify the contract.

EXAMPLE

A minor who makes payments on a car loan and uses the car after reaching the age of majority is considered to have ratified his loan contract. In such a case, the loan agreement would then be rendered enforceable under state law. If FOs cannot clearly ascertain whether a loan has been disaffirmed by the minor upon reaching the age of majority; please send the case to MOS-SSI Team for a referral to the Office of the General Counsel for a legal opinion.

6. Wisconsin

a. Age of Majority

The age of majority in Wisconsin is eighteen.

b. General Rule

A loan entered into with a minor is not enforceable because it is voidable at the minor's option. This rule does not change depending on whether the minor is emancipated.

c. Exceptions

Loans to minors for the purpose of purchasing necessities are enforceable in Wisconsin. What constitutes necessities includes those items necessary for the minor's personal care and maintenance, but does not usually include cars.

d. Ratification

A minor may ratify a contract upon reaching the age of majority and such ratification may be express or implied, as long as the intention to be bound by the