ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Friday, November 24, 2006

When a donor has a change of heart...

Death_and_the_miser_death_of_a_miser_31_This is the season of giving, right? Well, a recurring theme in contract law: wealthy donor pledges piles of money to a non-profit or charitable institution; wealthy donor (or wealthy donor's heirs) renege on the pledge. Recent examples include: FIU, University of Colorado, and Drexel (a la Allegheny College). (Image: Hieronymus Bosch, Death of the Miser).

In "A Prenup for Donors," the W$J reports that charitable institutions are trying to make it more difficult for donors to "renege on their gifts." It presents a delicate balancing act, however. Apparently pledges happen rather informally, without a written, signed pledge of, say, $101 million. If the charitable institution wants some legal assurances, and asks the potential donor to sign a "binding agreement," the institution might "turn off" that potential donor. The donors might feel betrayed by the institutions' lack of trust and "take their money elsewhere." The article reports:

Nonprofits also are beefing up their development offices, recruiting lawyers and former bankers to better document donations and ensure gift agreements are legally sound. At California State University, Monterey Bay, the school's director of planned giving is a former litigator specializing in estate planning. A few institutions, including Drexel University in Philadelphia, even are taking heirs of wealthy alumni to court.

But making sure donors pay up is a delicate balancing act. As with a prenuptial agreement between an engaged couple, too much tough talk could turn off a potential contributor. That's an especially tricky terrain as nonprofits court newly wealthy hedge-fund managers and investment bankers.

Peter Lewis, who made a $101 million pledge to Princeton, his alma mater, in January, says he "wouldn't react real positively" if an institution insisted he sign a legally binding gift agreement. "My word is good," says the former chief executive of insurance giant Progressive. "If they don't trust me they don't have to take the money -- I can go somewhere else. There are plenty of places that are happy to accept gifts without promises." Neither Princeton nor Mr. Lewis would say whether he signed a legally binding gift agreement.

[Meredith R. Miller]

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