Donor's remorse and broken promises: the enforceability of charitable pledges.

Author:Robertson, Patricia Quinn
 
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"You make a living by what you get; you make a life by what you give"

(Attributed to Winston Churchill).

"Better a broken promise than none at all"

(Mark Twain).

Note: This article is designed to service as a general discussion of the subject and not as the sole authority. The authors are not qualified to practice law in all jurisdictions and do not state or imply that this article addresses all situations that could arise. This article contains views and opinions of the authors. The reader acknowledges that any reliance upon such views, opinions and/or statements shall be solely at his/her own risk. This article shall not serve as a substitute for legal counsel and readers should consult counsel to address their specific situation.

INTRODUCTION

Americans contribute billions of dollars each year to philanthropies and causes. These contributions are made for a variety of reasons and are given throughout the calendar year with an emphasis towards the end of the year. "On average, people make 24 percent of their annual donations from Thanksgiving to New Year's. This time period accounts for about twice what one would expect if giving were equally distributed throughout the year" (American Express Charitable Gift Survey). Charitable giving rises about one-third as fast as the stock market with 2006 meeting this expectation (Giving USA 2007). Statistical data indicates that charitable giving constituted approximately 2.1% of the gross domestic product and reached the level of approximately $295 billion in 2006 (Giving USA 2007; The Chronicle of Philanthropy).

As of 2006 there were 1,064,191 religious, charitable and similar organizations in the United States, which is an increase from 964,418 religious, charitable and similar organizations in the United States in 2003 (Internal Revenue Service 2006). In 2006, individuals made 83% of total contributions, including bequests (Giving USA 2007). 86% of "wealthy donors" give to satisfy "critical needs" and 83% make these gifts as a way of "giving back to society" (National Philanthropic Trust citing The Center for Philanthropy at Indiana University).

Donations are given in a variety of ways. Some donors give contemporaneously with their decision to give, while others make pledges to donate in the future in a more planned or structured manner. Others give subsequent to their death through bequests made in their will. Some make donations or pledges over a period of years for a particular project, such as the building of a new or additional facility for the philanthropy. Many give based upon the conduct or some action by the donee such as the naming of a hospital wing after their family or perhaps the donee allowing the donor to participate in some of the key decisions of the particular charity.

Many donors and donees do not recognize legal issues that may arise from these donations. However, legal issues are present when there is a failure by the donor to give as pledged or a failure of the donee to fulfill its stated purpose for the gift as proposed. A complicating factor is the change of circumstances for either the donor or the donee. What are the legal rights and obligations of the donor and donee and under what theory of the law are they enforceable? These cases can present a plethora of questions and issues affecting individuals who are trying to benefit society.

This article reviews recent court decisions about donors that have refused to pay a pledge or have requested a refund of a charitable donation based upon a failure of the charity to meet the donor's post-pledge expectations or based upon a change in anticipated activities or circumstances of the charity. Recent case law indicates that some charitable donors who revoke their pledges may be liable for breach of contract, but in other circumstances charitable donees may be required to cancel pledge obligations and refund charitable contributions.

Courts often analyze pledges in terms of traditional contract law principles. The general rule is that an enforceable contract must contain the elements of offer, acceptance, and consideration (Virginia School v. Eichelbaum 1997). When courts do not find that the common law element of consideration is present in a charitable pledge case, the courts will often rely upon the theory of detrimental reliance or promissory estoppel to uphold and enforce a charitable pledge (Temple Beth AM v. Tanenbaum 2004).

Arguments on behalf of donors who desire to revoke their pledges or gifts include arguments that the pledge was not a contract because it was not supported by consideration. In addition, some donors argue that charitable donees are not above the law, i.e., even charitable donees must fulfill their contractual obligations to donors under traditional contract law. Therefore, pledges or gifts that are expressly conditional are not enforceable if the donee does not satisfy the condition.

However, donees may argue that they have detrimentally relied upon these pledges or gifts in planning or conducting their activities, and therefore, the pledges should be irrevocable. For example, if a donor pledges a sum to a charity, the charity may undertake projects that it would not have undertaken absent the pledge, and other donors may have matched the pledge or otherwise relied upon the donor's promise. A donee may also argue that it gave up additional opportunities for fundraising in reliance upon the donor's pledge. Furthermore, charities may argue that public policy supports charitable work, and therefore, the law should discourage broken promises to a charity.

CONSIDERATION FOR A CHARITABLE DONATION

Many donors think that when they make a pledge to a non-profit organization they have incurred a moral obligation, but not a legal obligation, to make the charitable donation. In analyzing a charitable gift within the parameters of contract law the element that is most often absent is consideration. Consideration includes a bargain and exchange of value. A donor may claim that the donee did not give the donor any value or consideration in exchange for the donor's pledge to the donee. Traditional contract law provides that a binding agreement that is enforceable in a court of law or court of equity must have consideration (Hamer v. Sidway).

Donors who desire to revoke their pledges or gifts may argue that the pledge was not a valid contract because the transaction lacked consideration. Although it appears that a pure gift may not be supported by consideration, in 2006, a Massachusetts District Court held that consideration may exist if a recipient of a pledge promises to "use the gift for an express purpose" (Massachusetts Eye & Ear v. Casey 2006). The Eugene B. Casey Foundation ("Foundation") agreed to donate $2,000,000 in seven installments to the Massachusetts Eye & Ear Infirmary ("Infirmary") in 2002 for the Infirmary's Voice Restoration Research Program ("Program"). Dr. Zeitels, a leading laryngologist, was the director of the Program. However, in May 2004 Dr. Zeitels tendered his resignation from the Program to be effective June 30, 2004. In June 2004, the Foundation allegedly requested return of the unused part of the $1,000,000 that the Foundation had already paid to the Infirmary. In addition, the Foundation stated that it would not pay the remaining $1,000,000 under the pledge. The court held that consideration existed for the agreement by the Foundation to donate money because the Infirmary agreed to use the funds for the "Voice Restoration Program." Additional consideration included the Infirmary's agreement to send the Foundation written accounts of the work every six months and a final report at completion of the Project. For these reasons the court held that consideration for the agreement did exist (Massachusetts Eye & Ear v...

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