Fellow appraiser Monica Fidel spotted an interesting article in the Miami Herald about broken charitable gift promises. The article discusses the four main legal theories involved in gift promises, such as they are not enforceable, to non enforceable with exceptions, charitable reliance, or made with some form of consideration.
The Miami Herald reports
Source: Miami HeraldConcerned Charity Charities have a big problem with broken gift promises, commonly known as donor’s remorse. Whether a donor’s gift pledge is legally enforceable is an unsettled area of state contract law. There are four legal theories argued in the cases.
The traditional view is that these gift promises aren’t legally enforceable because they lack legally sufficient consideration. Required mutual exchanges of benefit and detriment are missing, where both parties receive and give up something of value in the exchange. The donee receives a benefit but suffers no detriment. Wording that there is “good and valuable consideration” is insufficient.
The modern view makes charitable pledges legally enforceable as an exception to the general rules of non-enforceability. The exception is based on the public policy that charitable giving is to be encouraged. It is stated in Restatement of Contracts, Section 90(2): “A charitable subscription . . . is binding . . . without proof that the promise induced action or forbearance.”
The middle view allows enforcement if there is specific wording that “this gift is made in consideration of gifts of other donors.” This satisfies the requirement of mutual consideration flowing between the donors.
The promissory estoppel theory upholds the gift if the facts of the case clearly show that the charity changed its position in detrimental reliance upon the promise being honored. If this occurs, the donor is legally estopped to deny enforceability. This is stated in Section 90(1) of the Restatement of Contracts.
No matter what state law applied, charities were usually reluctant to sue to enforce defaulted gift promises. They didn’t want to create a negative litigious image. And most of the time donors honored their gift pledges. But this all changed with the 2008 economic downturn, financial scandals, and investment rip-offs.
You want to know where you stand. The Florida Supreme Court case of Mt. Sinai Hospital v. Jordan, 290 So.2d 484 (1974) suggests you can’t enforce the gift pledges unless you actually relied on them. Your question doesn’t mention that detail.
In Jordan, a case of 1st impression, the donor signed pledges totaling $100,000, payable in equal annual installments of $5,000, “in consideration of and to induce the subscriptions of others.” After paying $20,000 he died and his estate refused to pay the balance. The trial court ruled for the charity.
On appeal the decision was reversed because there was no claim or evidence of detrimental reliance (promissory estoppel) by the charity. The Florida Supreme Court then affirmed. It said the gift promise was unenforceable without (1) reciting the specific purpose for using the funds and (2) a showing of actual reliance.
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