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In the United States, there is generally a broad freedom to contract. By default, the courts will hold two parties that have entered into a contract accountable for the conditions of the contract and will enforce the terms of the deal above the objections of either party. However, there are some exceptions to this principle. As a matter of public policy, the courts have decided that there are some groups of people who cannot be bound to a contract, such as the intoxicated or the mentally unfit. When these groups enter into a contract, the courts will often allow them to escape the terms by relying on the assumption that these groups of people are not fully competent to make decisions for themselves. The most common group of people that cannot be bound by contracts are minors, as it is assumed that a minor is not fully competent to make decisions that they will be later bound by. Because of this, most states have laws where a minor can choose to “disaffirm” (declare that they will not be bound by) a contract.

As an illustrative example of disaffirmation, let us assume that a car dealership decided to enter into a contract to sell a car to a minor. Normally, if this car had been sold to an adult, once the contract had been completed (normally by driving the car off the lot), the adult would be unable to reverse the contract and receive a full refund for the (now used) vehicle. However, in the interest of preventing businesses from taking advantage of minors, the courts will allow the minor to disaffirm the contract, forcing the car dealership to refund their money with the condition that the minor return the car to the dealership.

This seems fair enough, right? Companies assume the risk of choosing to enter into a deal with a minor and the minor has to give back what they contracted for if they decide they no longer want to be bound by the conditions of the contract.

However, in some states, courts have been taking a more expansive approach to disaffirmance. Specifically, the issue of disaffirmation has recently come up in the context of digital items or “in-app” purchases on video games. Recently, several large-scale class action lawsuits have been filed towards video game companies on behalf of minors who have agreed to terms and conditions, purchased hundreds of dollars of games or in-app purchases, utilized those purchases (by either playing the game or consuming in-app currency) and then later asked for a refund of the purchases made in the application. The major issue in these cases is that the minor has already used up the in-app purchases and cannot return them. Because the game play and the digital purchases are not tangible in these cases, courts have been ruling that as long as the minor does not use the game anymore, they can get out of their contract to pay the game developers for the game. However, this means that minors can essentially purchase as many games or in-app purchases as they want, and as long as they are “done” with the game, they can simply tell the game developers “I don’t want to be bound by the terms and conditions I signed because I’m a minor” and the company will be forced to refund the entire purchase.

In an extreme hypothetical, a minor streamer could even feasibly purchase a game, complete it in a series of streaming videos, monetize those videos, and then return the game and any purchases for a full refund. In this scenario, the minor effectively takes advantage of the ability to disaffirm the contract to gain access to content with no intention of following through with the purchase, and effectively “returns” nothing as all the value of the digital purchase has been extracted before the “return”. What makes this issue even more burdensome to companies, is that in many of the recent cases, the companies had an arbitration clause that waives the right to a trial, so that the company can more efficiently deal with these kinds of issues. Because the people affected in these suits are minors, they can essentially get around the arbitration clause by disaffirming the terms and conditions that stipulate that any legal issues must be resolved by binding arbitration. This leads to immense legal fees, contributes to the clogging of the courts, and allows the minor to recover not only compensatory damages (the refund), but also punitive damages (punishing the business for its “unethical” conduct of forcing a minor into the contract).

What is likely to happen based on this loophole? Some argue that it is simply on game developers to find a way to verify that it is an adult who is using a card or to more rigorously get explicit parental permission for game purchases. Some argue that these legal costs to game developers will simply raise the costs of games and in-application purchases themselves as a natural consequence to these minor disaffirmance laws. These additional verification safeguards, if added, would potentially create more minor safety by not allowing them to make purchases pretending to be an adult or without adult permission. But another negative consequence to this is that it encourages a mentality in which minors can “get away with” making these poor decisions without repercussions. In the car example given earlier, the minor does not “get away” with their poor decision entirely, because they are forced to return the car, and the courts essentially help facilitate the ability of the minor to “undo” their decision. In cases of non-tangible single-use assets (like a “bonus” or reward in a game), the minor essentially gets away with fully using the asset and keeping their money. The money and the time spent developing those in-application purchases and advertising it to potential game-players is essentially exploited.

In conclusion, the issue of minors being able to disaffirm contracts is a growing issue in the gaming space and may result in complex verification procedures or more expensive games and undermines the trust in virtual contracts unless courts can come up with a better framework that more equally balances the rights of minors with the rights of video game companies.

 

Suggested Citation: Loriana Goulding, Minor’s Disaffirmance of Digital Application Contracts: Having Their Cake and Eating It Too?, Cornell J.L. & Pub. Pol’y, The Issue Spotter (February 26th, 2024), http://jlpp.org/blogzine/minors-disaffirmance-of-digital-application-contracts-having-their-cake-and-eating-it-too.