Charitable Pledges: Not Found Money, You Have to Earn Them
April 30, 2014
A donor writes in a pledge amount, signs the pledge card, hands it over to the charity, and is absolutely committed to that amount; end of story, right? Not necessarily. A recent case emanating from Kings County Surrogate’s Court, Matter of Kramer, N.Y.L.J. April 21, 2014, p. 24 (col. 6), shows that certain charitable pledges may not be as binding as they appear on paper. The case provides an excellent primer on the operation of specific charitable pledges under the theory of unilateral contracts, and serves as a stark reminder to charities that to have the right to enforce a pledge that they must do more than just secure a signature on a pledge card. The case also underscores to estate administrators the importance of scrutinizing and potentially challenging seemingly credible claims against an estate.
Kramer involved a motion by a charity, Educational Institute Oholei Torah-Oholei Menachem, for summary judgment dismissing objections to its petition to determine the validity and enforceability of its claim against the estate of Isaac Kramer. The charity’s claim was based upon a pledge card and promissory note, in the face amount of $1,800,000, allegedly signed by the decedent approximately a year and a half before his death, and ostensibly payable six months prior to the decedent’s death. The pledge was allegedly given for the purpose of supporting a building campaign proposed by the charity to construct a new ritualarium, or mikveh, for use of the charity’s members. No payment on the pledge had been made by the decedent or demanded by the charity prior to the decedent’s death. Representatives of the charity claimed they consciously withheld demands for payment because of the decedent’s illness shortly before his death.
Objections to the charity’s petition were filed by each of the Kings County Public Administrator, as fiduciary of the decedent’s estate, and four additional groups representing various purported testamentary legatees and distributees. The respective objections raised multiple theories for rejection of, and affirmative defenses against, the charity’s claim including (i) forgery of the decedent’s signature, (ii) lack of due execution, (iii) lack of consideration, (iv) lapse upon the decedent’s death, (v) laches and unclean hands, (vi) expiration of the statute of limitations, (vii) fraudulent inducement, and (viii) the decedent’s lack of capacity. Upon the charity’s summary judgment motion, two of the respondents cross moved for summary judgment upon an additional theory of the charity’s failure to demonstrate acceptance of the pledge by taking action in reliance thereon.
The Court granted the charity’s motion for summary judgment concerning the objections based upon lack of due execution, laches, unclean hands, expiration of the statute of limitations, and fraudulent inducement, because none of the respondents supported or addressed these objections in their responsive papers. Thus, these objections were deemed abandoned. The Court also found that no triable issue of fact was raised concerning the decedent’s capacity, and that the burden of proving the decedent’s incompetence was not met. Accordingly, the charity’s motion for summary judgment was granted concerning the objections based upon capacity. The charity also prevailed concerning objections based upon forgery of the decedent’s signature, as the Court found that the handwriting analysis report raised no triable issue of fact concerning its genuineness.
The final objection considered by the Court, lack of consideration, however, turned out to be dispositive against the charity. It was clear from the facts and on the face of the pledge that it was made in furtherance of a specific purpose, namely a building project, rather than for the charity’s general educational and religious work. As such, the Court noted that the pledge must be examined under the theory of a unilateral contract. Under this theory, the signed pledge card is not the contract itself, but merely an offer to make a contract which the charity must then accept by taking action in reliance upon the offer. The pledge, then, will not become binding until the charity has sufficiently acted upon the pledge so as to incur liability on the part of the donor.
The Court stated that it has been the “noted policy of the courts to sustain the validity of subscription agreements whenever a counter promise of the donee can be sustained from the actions of the parties or it can be demonstrated that any legal detriment has been sustained by the promise in reliance upon the promised gift.” For instance, charitable subscriptions have been deemed enforceable where the donee has made some substantive progress towards the charitable goal for which the pledge was made. This would include starting construction, employing architects and paying for plans, raising additional pledges based upon the disputed pledge, or taking on a construction loan for the project. The donor’s partial payment of the pledge, whether alone or in conjunction with concrete action on the part of the charity, has also been deemed sufficient to indicate acceptance of the unilateral contract.
Despite this broad policy in favor of enforcement, the charity in Kramer was unable to meet the burden to show that it had meaningfully acted in reliance upon the pledge. Indeed, it was undisputed that no actual construction had begun on the proposed building project. Nor was there any specific date upon which construction was to begin, or any reasonable timeframe for completion of the project. The Court characterized the construction project as more of a “hoped-for occurrence” than an actual plan. Moreover, despite its claims to the contrary, the charity could not prove that it had expended any sums of money on any construction related expenses, such as soil samples or architectural plans. Nor could the charity produce any contracts or engagement letters from architects, engineers, or contractors. There was also no proof of building permit or zoning applications. Finally, though the charity claimed to have used the decedent’s pledge to solicit other pledges, no independent evidence of receipt or fulfillment of such additional pledges was offered. In sum, the Court found that the charity had done nothing meaningful or substantive in reliance on the decedent’s pledge. Thus, the charity’s motion for summary judgment on the consideration issue was denied and the cross-motions dismissing the charity’s petition were granted.
The Kramer case should serve as a useful guide for charities in satisfying the requirements for establishing enforceability of specific charitable pledges. It also gives estate administrators helpful factors to look for when challenging charitable pledges