You need to remove the iPhone 5 from the original owner's Apple ID account before you can do anything. Activation lock prevents you from just resetting it and using it with a different name/Apple ID (otherwise, it wouldn't do a very good job of making stolen iPhones unusable).
Complete instructions from MacWorld:
"Apple requests the password from you before removing the Apple ID. This is a security measure to prevent stolen phones from being sold on.
If you know the person, then you'll need to get their password from them (or get them to enter it). If you don't have their password (because you bought the phone second-hand) then you should get in touch with the person as soon as possible, or return the iPhone for a refund.
Once you have the password, follow these steps to remove the Apple ID account from iCloud and Find My Friends:
1.Tap Settings > iCloud.
2. Scroll down and tap Sign Out.
3. Tap Delete from My iPhone.
4. Enter the password of the person's Apple ID.
5. Tap Turn Off.