Charitable Gifts & Trusts

In 2010, Warren Buffett and Bill Gates made their Giving Pledge campaign public. The Giving Pledge asks some of the wealthiest people in the world to donate at least half of their wealth to charity during lifetime or at their death. As of last year, 168 billionaires have signed the pledge. The fine print of the campaign, however, makes clear that “the pledge is a moral commitment to give, not a legal contract.”

It is not unusual for donors to sign a charitable pledge when committing to make a charitable contribution.  While many think of a charitable pledge as a promise, it can be a legally enforceable contract between a donor and a charity.  Whether a charitable pledge is a legally enforceable contract depends on the specific language in the pledge document and on applicable state contract law.

In recent years, courts have shown more willingness to enforce charitable pledges than has generally been the case in the past.  In an opinion rendered last month in Appalachian Bible College v. Foremost Industries, a federal district court in Pennsylvania followed the recent trend and enforced a charitable pledge by a corporate donor.

THE FACTS

In 2015, Foremost Industries signed a charitable gift agreement promising to pay Appalachian Bible College $4 million in five equal annual installments.  The agreement provided that in entering into the gift agreement, Appalachian Bible College was relying to its detriment on satisfaction of the pledge in full.

Foremost never made any of the payments called for under the gift agreement, and Appalachian Bible College filed suit in federal district court in Pennsylvania.  The College alleged breach of contract, anticipatory breach of contract and unjust enrichment.

THE RULING

In its ruling issued April 17, 2018, the United States District Court for the Middle District of Pennsylvania analyzed the facts of the case just as it would any other contract dispute.  The Court held that Foremost is liable for damages in the amount of $4 million for both breaching the contract and anticipatorily breaching the contract.

THE TAKE AWAY

Not all charitable pledges are enforceable contracts.  In order to determine whether the pledge is enforceable, attention needs to be paid to the particular language of the written instrument.  If the charitable pledge is an enforceable contract, it is binding on the donor and, if the donor is an individual, the pledge is enforceable on the donor’s estate.