Is a Charity Ever Required to Sue a Donor for an Unfulfilled Pledge?

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Estate Planning Attorney

Whether or not a charity is obligated to sue a donor who fails to fulfill his or her promise to make a gift depends upon the facts and circumstances of each case. There is no general, affirmative obligation by a charity to sue a donor. However, as discussed below, in an extreme case such as where the donor is capable of fulfilling the pledge but simply refuses to do so and the consequences to the charity are significant, the fiduciary duties of the charity’s board may require the commencement of litigation if no other reasonable alternative exists. The charity’s board of directors should make the decision after carefully reviewing all relevant information. In deciding what to do, the board should keep the following considerations in mind:

Many organizations have adopted gift acceptance policies which cover the acceptance of pledges and their enforcement. In the absence of such a policy – or if the policy does not provide adequate guidance, the following factors may be considered:

  • Is the pledge in writing?
  • Are the terms of the pledge clear and unambiguous?
  • Does the donor have the ability to fulfill the pledge?
  • Does the donor have legitimate counterclaims or defenses against claims to collect the pledge?
  • Does the amount likely to be recovered justify the expense of collections?
  • Would enforcement damage relations with other donors or outside parties to the extent that any recovery would be offset by lost funding opportunities?

The bottom line is this: with rare exceptions, charities have the right to enforce and collect pledges that they have accepted, especially if they have acted in reliance of the promise. With rare exceptions, charities are not required to sue donors, and indeed they should consider the long and short term effects of a lawsuit before doing so. The potential damage such a lawsuit might do to relationships with other donors and the expense of litigation relative to the amount that might be recovered are legitimate issues the Board should memorialize if it decides not to enforce a pledge. These considerations should be carefully documented in the Board’s minutes or in a resolution. If a charity does decide to enforce a pledge, the case will be treated more or less like an ordinary breach of contract action, with the caveat that courts tend to favor charities in these disputes.

To discuss your NJ Estate Planning matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.