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gavel and money

Corporate Donor on the Hook for $4 Million Charitable Pledge

Federal District court rules that the gift agreement is binding.

Prior to May 29, 2015, Foremost Industries signed a gift agreement promising to pay Appalachian Bible College the sum of $4 million in five equal annual installments. The gift agreement was binding on Foremost and its successors and assigns. The gift agreement stated that in executing the gift agreement, ABC was “relying … to its detriment” on satisfaction of the pledge in full and that the pledge would be used as “an inducement for other donors to make contributions and gifts to ABC for its charitable purposes.”

Subsequently, the board of directors of Foremost ratified the gift agreement and, on the same date, GLD Foremost Holdings agreed to purchase from the owner of Foremost all of its issued and outstanding shares. After the purchase was complete, GLD ratified the gift agreement.

Foremost never made any payments under the gift agreement and later stated that it wouldn’t be making any payments.

ABC filed a complaint in federal district court for breach of contract, anticipatory breach of contract and unjust enrichment. 

Court’s Ruling

In a ruling issued April 17, 2018, the Federal District Court for the Middle District of Pennsylvania analyzed the facts as it would any other contract dispute. The Court held that the gift agreement was legally binding on Foremost, and that Foremost had both breached and anticipatorily breached the gift agreement. It was liable for $4 million in damages to ABC (presumably as the payments came due).

Written charitable pledges are contracts and must be treated as such. They’re binding on the donor and, if the donor dies before the pledge is satisfied, on the donor’s estate. When a donor makes a large pledge to charity, the charity may rely on that pledge to undertake a project such as the construction of a building or might use that pledge as the basis for requesting gifts from other donors. The charity might acknowledge the pledge with a plaque or other marker.

The holding of this case applies to individual and corporate donors. If your client makes a pledge to charity, and especially if he signs a pledge form, be aware that he’s bound by the pledge and must be prepared to satisfy it.

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