In 2010, billionaires Warren Buffett and Bill Gates went public with their “Giving Pledge” campaign. The campaign asks the wealthiest people in the world to donate at least half of their wealth to charity either during lifetime or as a testamentary gift. As of this summer, some 137 billionaires (or former billionaires if not for their giving), have signed the pledge. The campaign, however, specifically notes that: “[t]he pledge is a moral commitment to give, not a legal contract.”
This raises the question: when is a charitable pledge legally enforceable? In California, like most other states, charitable pledges are analyzed as a matter of contract law. This means that pledges are not enforceable unless: (1) the pledgor receives consideration for making the pledge; or (2) the charity has detrimentally relied on the pledge. But the application of this principal varies from state to state. Some states (not California) follow the modern position found in the Restatement of Contracts that no consideration need be furnished by the charity to the pledgor in order for there to be an enforceable contract.
In states such as California, what is sufficient consideration then? The answer requires a case-by-case inquiry and is often the subject of litigation. California courts have held that an unconditional promise to build a building named after the pledgor or to establish a scholarship fund in his or her name is sufficient. (Buchtel College v. Chamberloix (1906) 3 Cal.App. 246.) Withdrawn or unfulfilled pledges can seriously harm a charity that budgets and/or relies on the anticipated gift. Accordingly, courts tend to favor charities and look for ways to enforce a charitable pledge.
What is detrimental reliance? Based on the pledge, the pledgor knows (or should know) that the charity will incur significant costs or obligations, such as hiring contractors and breaking ground on the construction of a building. (University of Southern California v. Bryson (1929) 103 Cal.App. 39.) But some state court are more lenient on this issue—compare the Ohio Supreme Court’s ruling in the long-standing case of Irwin v. Lombard University holding that reliance by a charitable donee was not required to enforce a written pledge. (Irwin v. Lombard University (1897) 56 Ohio St. 9.)
Several states have considered legislative action to address these issues, but with little or no success. In California, there was actually a California Legislative Proposal in 2009 to make any written pledge to a charity enforceable with or without consideration. But the bill was never enacted.