BUSINESSWEEK ONLINE : MAY 29, 2000 ISSUE
PEOPLE The Legal Pitfalls of Doing Business with Teens Lawyer David Baker explains the risks of inking contracts with minors Contracting with or buying an item from a teenage entrepreneur can put you in a legal minefield. For example, did you know that parents don't have the right to contract for their minor children without court approval? Or that minors and their parents can void a contract for any reason up until the minor's l8th birthday and, in some cases, for two years after that? In this Apr. 4 interview with Ann Therese Palmer of Business Week's Chicago, David A. Baker, head of the Practice Group for Estate & Trust Litigation at McDermott Will & Emery, explores the legal issues in dealing with these young entrepreneurs. Baker authored the Illinois Continuing Legal Education's Handbook on Estate, Trust and Guardianship. Edited excerpts follow: Q: Can a minor enter into a legally binding contract? A: A minor [a person under age l8 in most states] cannot enter into a contract that is legally binding on the minor and a third party as an adult can. They're not old enough to make a contract. Therefore, if someone -- a corporation, a customer -- contracts with a minor, the contract is voidable by the minor or the minor's guardian before the minor becomes an adult and, in most cases, for a period of two years and sometimes longer [after that]. Voidable means the minor or his guardian can elect, for any reason, not to honor the contract.... There is nothing that a third party [someone contracting with a minor] can do to stop that. Q: How risky is this for someone contracting with a minor? Can they get their money back? A: If at the time the minor or guardian seeks to void the contract, the consideration has been converted or consumed, the minor doesn't have an obligation to return the money, stock, or other consideration received. The third party is entirely at risk. Q: What kind of problems does a teenage entrepreneur who is a minor face? A: If the teenage entrepreneur is dealing with any intellectual property -- for instance, designing a computer program -- and doesn't have a court-appointed guardian, there could be serious problems. Most people don't know that there is no common-law or statutory authority for parents or anyone else to bindingly contract for a minor. There are a lot of things parents can do, like signing permission slips...because parents are the legal guardian for personal matters concerning their child. But generally, without court authority, they can't enter into a contract for a minor. Q: What would you recommend the parent of a teenage entrepreneur do, after a child decides to sell a service or product? A: First of all, I would apply to the court to be the child's guardian. It's important to realize that there are no inherent powers in a guardian. You don't have inherent authority to do anything. A guardian, whether it is a parent or another person, has to get specific authority from the court to do anything. Without the court's permission, the guardian doesn't have any power. There are three relationships at issue in this situation -- the court, the minor, and the guardian. The minor is the protected party. The guardian is the implementor. And the court is the safeguard which reviews everything. Q: How long does this take? A: In Cook County, generally the appointment of a guardian can be done in a matter of days. The problem may come with getting specific court authority to do things for the minor once you're appointed legal guardian. You have to file a petition with the court every time the guardian wants to do something. That process would undoubtedly slow down the negotiating process. But it would also ensure that if there was an offer for a minor's product or service, the guardian couldn't jump at the first offer and take it. Q: Is a contract signed by a parent who isn't a court-appointed guardian valid? A: [A parent] doesn't have legal capacity to sign a contract for [his or her child]. Generally, under common law, a parent has no inherent authority to sign a contract on behalf of a minor simply because [he or she is] the minor's parent. Under the law of Illinois and most states, I'm aware of no authority that would make a contract binding on the minor by virtue of the parent's signature. It's a voidable contract on the part of the minor or [his or her] guardian. They can opt out at any time. Q: When a minor is selling something on the Net, what problems could the minor face? What problems may arise when a minor contracts with a credit-card company to collect fees? A: I'm not aware of anything that makes a parent responsible for their children's financial transactions. The only way that a parent might be liable is if a parent knew about something [untoward] a child was doing...in a business dealing. The child is also not on the hook because [he or she is] a minor and can't contract for [him or herself]. That's the essence of the risk you take in contracting on the minor. Q: What's the result where a minor does business in a state and says he or she has a corporation, but it's not registered with the state? A: Again, you're talking about misrepresentation. If you're talking about a minor's civil liability, if the minor is sued under Illinois laws, a guardian is supposed to be appointed to defend that minor. It's hard to imagine what right an adult would have to rely on the financial representations of a child. If there was something wrong with what the minor sold, it would be pretty hard for a third party to try to collect damages or get his money back. You're proceeding at your own peril. Q: What about a company interested in purchasing a product or service from a teenage entrepreneur? How can it protect itself in its dealings with the minor? A: The only way is to make sure that a guardian has been appointed by the court and make sure that the guardian gets authority from the court to enter into any kind of contractual relationship to exploit this program or service. A guardian can do anything with the minor's property as long as there is court approval. The guardian's actions are as binding as they would be with another adult. People who don't do this because it's slow, costs money, or involves lawyers are looking for trouble. Q: What about any money or stock that a teenage entrepreneur gets for selling a service or product? Are there laws that safeguard it for the minor? A: Once again, the court-appointed guardian would ask the court for permission to establish a fund in which to keep the money, stock, or other consideration given to the minor. The court would then monitor the guardian to make sure that the funds were being invested for the minor responsibly. There are no guidelines for situations where a parent, who isn't appointed guardian, holds the money for his child. They aren't liable to the minor for bad investments made or money squandered. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Teen Internet Moguls RESUME: Michael Furdyk RESUME: Cameron Johnson RESUME: Brad Ogden RESUME: Angelo Sotira RESUME: Paul Dinin RESUME: Rishi Bhat ONLINE ORIGINAL: Microsoft Puts Teens under the Microscope ONLINE ORIGINAL: Girl Geeks Start to Breach the Wired World ONLINE ORIGINAL: From High-Tech Hobby to Big Bucks ONLINE ORIGINAL: Changing the Image of the Inventor ONLINE ORIGINAL: The Legal Pitfalls of Doing Business with Teens INTERACT E-Mail to Business Week Online

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