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Tuesday, September 20, 2005

NY High Court to Apply PA Law: Non-binding, Charitable Pledge or Enforceable Promise?

Wirth v. Drexel University, a New York case involving Pennsylvania law, raises the seemingly timeless issue whether consideration exists to bind a donor's pledge to make a charitable contribution.

Raymond P. Wirth executed a Pledge Agreement with Drexel University, "irrevocably pledg[ing] and promis[ing]" to pay Drexel $150,000.  The Agreement expressly stated that Wirth "intend[ed] to be legally bound."  The parties agreed that a scholarship fund would be set up in Wirth’s name, effective immediately upon the transfer of an initial $50,000.  Wirth expressly "acknowledge[d] that Drexel’s promise to use the amount pledged . . . shall constitute full and adequate consideration for [the] pledge."  Less than two months later, Wirth passed away; he had not yet contributed the initial $50,000 to Drexel.  Drexel sued Wirth’s estate to enforce the Pledge Agreement.  The parties agreed that Pennsylvania law applies.

The Surrogate’s Court denied Drexel’s motion for summary judgment and dismissed its petition. By a 3-2 vote, the appellate court reversed.  The majority held that, under section 6 of Pennsylvania’s Statute of Frauds, the Pledge Agreement did not need to be supported by consideration because Wirth expressly stated his intent to be bound.  Moreover, even assuming consideration was necessary, the majority held that:

Drexel provided sufficient consideration by expressly accepting the terms of the Pledge Agreement and by promising to establish a scholarship in the decedent’s name. The fact that the decedent died before the initial gift was transferred into a special account set up by Drexel, and therefore the scholarship fund was not yet implemented, did not negate the sufficiency of the promise as consideration to set up the fund. (citations omitted).

The two-justice dissent would have affirmed.

The dissent stated that, despite the statute of frauds, under Pennsylvania law, a charitable promise to pay money in the future is not enforceable unless it is supported by consideration.  The dissent stated that, in charitable cases, "consideration is defined either as some type of detrimental reliance upon the promise by the promisee, or other donors were induced to donate based on th[e] promise."  The dissent would have held that the pledge was unenforceable for want of consideration because Wirth died before the initial $50,000 gift was transferred to Drexel, and before Drexel acted in reliance on the pledge.

The double dissent gave Wirth’s estate an appeal as of right to New York’s highest court, which will hear oral argument in this case next month. 

[Meredith R. Miller]

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I feel sort of smart and like I actually know a little bit. The reasoning given by the New York Appellate Division in Drexel University v. Wirth, one of those evergreen cases about the enforceability of a donative promise,... [Read More]

Tracked on Sep 21, 2005 9:47:38 AM