We made a vehicle loan to a minor, who is the sole owner of the vehicle. We required a co-borrower due to the minor’s age. However, can we use the vehicle title as collateral, and will that be binding?

Yes, you can use the vehicle as collateral, but be aware that the minor’s age adds some risk that the security agreement could be challenged — at least until the minor reaches the age of eighteen and ratifies the security agreement.

In Illinois, the general rule is that an agreement with a minor is voidable by the minor until the minor reaches the age of majority (which is eighteen in Illinois). Because the vehicle’s sole owner is a minor, the security agreement creating the security interest will be voidable until the minor reaches the age of eighteen. Based on a conversation we had with the Illinois Secretary of State’s office, the Secretary of State is willing to notate a bank’s lien on a vehicle’s title, even if the vehicle’s owner is a minor — but that would not change the fact that the security agreement would be voidable until the owner turns eighteen.

There are exceptions to the general rule on the enforceability of agreements with minors, but from what you have told us, those exceptions would not apply in this situation. One exception applies when the minor has been emancipated by a court order. Another is that a minor’s agreement is enforceable if it is entered into for the purpose of obtaining “necessities” — a term that encompasses items such as food, clothing, lodging and education, but not purchases such as automobiles, even if used to earn a living.

Once the minor reaches the age of eighteen, you should ensure that the minor ratifies the contract. Ratification could occur by an intentional act, such as making payments on a loan or causing a loan contract to be recorded, or by a failure to disaffirm the agreement within a reasonable time.

For resources related to our guidance, please see:

Fletcher v. Marshall, 260 Ill.App.3d 673, 675 (2nd Dist. 1994) (“A contract of a minor is deemed ratified if the minor fails to disaffirm it within a reasonable time after attaining majority. . . Also, a minor ratifies a contract if, after becoming of age, he ‘does any distinct and decisive act clearly showing an intention to affirm [the contract].’”)

Iverson v. Scholl Inc., 136 Ill.App.3d 962, 968 (1st Dist. 1985) (“The general rule applicable to all contracts, other than for necessaries, is that the contract of a minor is voidable and may be repudiated by the minor during minority or within a reasonable time upon achieving majority absent a ratification.”)

Dixon National Bank v. Neal, 5 Ill.2d 328, 336 (1955) (“A minor may disaffirm a contract made by him during minority within a reasonable time after reaching his majority or, he may by acts recognizing the contract after becoming of legal age, ratify it.”)