Real responses to real-life questions
Kathryn Engelhardt-Cronk, MissionBox co-founder and CEO, is joined by Clark Richards, a partner at Richards Rodriguez & Skeith LLP , for the MissionBox DoubleTake — a column that offers opinions about the peskier aspects of working in the nonprofit sector. The opinions offered here are based on the authors' personal nonprofit experience and may not reflect the opinions of MissionBox, Inc. These opinions should not be considered legal advice or used as a substitute for professional legal consultation. MissionBox readers are invited to submit alternative responses, which may be published here as well.
My nonprofit recently held a gala fundraiser and we showed a newly produced and excellent video that told our mission story. After the video, one individual stood up and pledged $10,000 to our cause.
This was the largest individual donation we ever received and were excited! However, when we ran the donor’s credit card, the charge was rejected. Since the pandemic began, I’ve tried contacting this man three times and he never returns my calls. It's becoming clear he isn’t going to contact us and that the “pledge” has vanished into thin air. I am sure it is not his fault, but we need the money!
My question is: do we have any legal recourse in this situation?
Kathryn says …
First, a donor going back on a pledge is not unheard of. In these terrible times, it is likely that promises made regarding donations can no longer be kept.
In a survey conducted by the Association of Fundraising Professionals (AFP), 62 percent of nonprofit respondents said they had two percent or more in uncollected pledge payments and 10 percent or more in unfulfilled pledges. An additional 91 percent had to extend the time frame for a donor to fulfill a pledge.
Small online donations are usually made with a credit card, which is immediately processed. Larger donations may come in the form of a promise or pledge, either by check, cash or credit card. In your case, the credit-worthiness of the donor could not be immediately ascertained.
The rate of pledge fulfillment varies, but all nonprofits must still account for the possibility a pledge will go unfulfilled. Be prepared for pledges like the one made by your enthusiastic but unresponsive would-be contributor. In the future, have a template pledge form at hand at your galas and immediately ask the contributor to fill in the amount and sign.
That being said, no matter what pledge form is signed, likely all bets are off if the donor has suffered financially from the pandemic. It would have been helpful if the would-be donor had just contacted you and said "I can no longer honor this pledge." Then, you could close the case and stop chasing him. To be fair, your organization may be the last thing he is thinking about right now in a worldwide health and financial emergency. I say forgive him and move on. In fact, it would be a smart and kind move to call him and leave a message that you are assuming he cannot honor the pledge, that you understand and wish him healthy. He may be back when times are better.
Post COVID-19, a big component of your question relates to your legal position in pledge enforcement, so I have asked a colleague, who is a practicing attorney, to answer.
Clark says ...
The ability to enforce a donation pledge depends on state law, which may vary from state to state. Typically, the enforceability of a promise (such as a pledge) is analyzed under the law of contracts. Most state laws require either consideration or detrimental reliance to render a promise enforceable. Consideration occurs when each party gives something or promises something in an exchange. If the charitable pledge is made in an auction or involves some other form of exchange, then there is consideration and the promise is usually enforceable. Alternatively, if the donor knows that the recipient of the promise plans to take some action in reliance on the pledge, such as purchasing equipment or leasing an office, then the law of most states will likely enforce the promise due to the detrimental reliance of the recipient.
Another issue that affects the enforceability of a promise is whether or not the promise is in writing and signed. Most states have rules requiring that some promises are only enforceable if they are in writing and signed by the person against whom enforcement is sought. Each state will have a different threshold, therefore a promise of $100 may not require a written agreement, but a promise of $10,000 may be only enforceable if it is made in writing.
If a nonprofit wants to make their pledges enforceable, it may be possible to use a written agreement that promises to provide the donor with a receipt for a valuable tax deduction. If such a document is signed by the donor at the time of the pledge, then the nonprofit may be able to argue that there has been an exchange of consideration — the pledge in exchange for the promise of a valuable receipt.
In the absence of either mutual consideration or detrimental reliance, the promise may be unenforceable.
Even if a promise is enforceable, the recipient will want to carefully consider whether or not taking legal action is worthwhile. Seeking to enforce a donation pledge would typically require filing a lawsuit, which can often be costly and time consuming, diverting attention and resources from the primary mission. Litigation can also result in adverse press, especially during the financial disaster of the pandemic. Whether or not to take legal action is a judgment call that requires careful balancing of these issues.