Multi-year pledges can provide a stable revenue stream of funds, but what if a donor dies before an agreement is fulfilled? You may find that the estate is under no legal obligation to live up to the deceased's intentions. Here's how one hospital lost a large donation and what your not-for-profit group can do to help make long-term pledges hold up.
Important Elements in Long-Term Promised Gifts |
Enforcing pledges can be impossible if donors die before changing their wills to accommodate completion of the promised gift. The executors of the estate may refuse to honour the pledge, claiming that it is legally unenforceable - leaving your organization out on a limb.
The issue involves the difference between pledges and contracts. A contract is a legal obligation that, under Canadian law, must provide benefit to the contract's parties. A pledge, on the other hand, is simply a promise to make a gift.
The pitfalls of relying on a simple pledge rather than cash-in-hand are highlighted in one Ontario case where trustees of an estate refused to pay the balance on a woman's pledge to a hospital. (Brantford General Hospital Foundation v. Marquis Estate, Ontario Superior Court of Justice, 67 O.D. (3d) 432)
The woman, who bequeathed one-fifth of the residue of her estate to the hospital, also signed a $1 million pledge payable over five years. She paid the first instalment of $200,000 but died the following month.
The estate refused to pay the $800,000 balance of the pledge, claiming it was merely a proposed gift.
The hospital sued, claiming that the signed pledge form amounted to a legal and binding contract. The hospital's case focused on two legal points:
1. Sufficient Consideration: Canadian law requires an enforceable contract to contain consideration,
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In the Brantford case, the hospital said it was naming a new critical care unit after the woman and her husband and that amounted to sufficient consideration. But the court disagreed, noting the naming of the unit wasn't a condition of the donation. In fact, the hospital suggested the idea to the woman as a way of showing gratitude for the gift. Since the naming was not a condition, the pledge was unenforceable, the court ruled.
2. Estoppel and Detrimental Reliance: The hospital also argued that because the woman paid the first instalment of the pledge, the estate could not deny that a contract existed. Under the legal doctrine of "estoppel," one person cannot change previous statements when the alteration would be detrimental to another person who acted on those statements.
The court, however, stated that the estoppel argument could only succeed if there was already a legal relationship between the parties. In this case, there wasn't. Moreover, the hospital couldn't show it relied on the pledge to its detriment because construction of the intensive care unit hadn't started at the time of the donor's death and the hospital found another avenue for raising funds.
In the end, the court agreed that the deceased would have wanted the hospital to receive the full pledge but that it was unenforceable under "Canadian law as currently framed."
The 2004 ruling illustrates how important it is to make long-term pledges enforceable. Seek legal advice about how to accomplish this and consider:
- Discussing with your donors their intentions regarding pledges and bequests.
- Providing donors with some benefit (or consideration), such as naming rights.
- Signing the agreement under seal.
- Stipulating that if naming rights are involved, they are a condition of full payment of the pledge.
- Including a detailed statement that your organization is relying on the gift and would suffer from not receiving the full pledge.
