IBA Compliance Connection

Your go to source for compliance!

Will Illinois courts enforce a loan agreement signed by a minor? What about when they open deposit accounts and write checks on them – is the signature of a minor legally binding for those activities?

—

by

admin

Let’s take the easier question first. Section 45.1 of the Illinois Banking Act allows a minor to open a deposit account in his or her own name and provides that a bank’s rules and regulations for the account “shall be as binding upon such minor as if such minor were of full age and legal capacity.” This section also covers writing checks, making deposits and other activities related to the account, all of which are binding on the minor.

The law is more complicated for a minor's signature on a loan agreement, and it is mostly based on court decisions. In Illinois, the age of majority for entering into a contract is eighteen. The general rule is that a loan agreement with someone under eighteen is not enforceable, because the signature of the minor is voidable. However, there are exceptions to this general rule. One is when the minor has been emancipated by a court order. Another is when a loan with a minor is entered into for the purpose of obtaining “necessities.” The term “necessities” includes items such as food, clothing, lodging and education, but typically does not include automobiles, even if used to earn a living.

A loan agreement does become enforceable against a minor if the person ratifies the loan agreement after reaching the age of majority. Illinois law allows a minor to ratify any contract with an intentional act after reaching majority age. Intentional acts that constitute ratification of a loan agreement include making payments on a loan and causing a loan agreement to be recorded. Conversely, a minor can disaffirm a contract with an intentional act within a reasonable time after reaching majority age. When a minor has neither ratified nor disaffirmed a contract within a reasonable time after reaching majority age, there have been a few cases in which a court has enforced the contract, but we would not recommend betting on that result.

Needless to say, if a minor co-signs a promissory note with an adult, the note will be enforceable against the adult even if it becomes voidable with respect to the minor’s signature.