Several recent articles in the Globe and Mail dealt with the apparent failure of some major donors to honour pledges made in conjunction with the expansion of the Royal Ontario Museum in Toronto.
A Globe and Mail investigation[1] showed the Royal Ontario Museum is still owed $23 million in unpaid pledges left over from its 2003-2010 capital campaign to renovate its historic building and erect the Michael Lee-Chin Crystal on Toronto’s Bloor Street.
The Globe investigation named three donors: Shreyas Ajmera, who only made a significant contribution toward his $5-million pledge after phone calls from a Globe reporter; Alex Shnaider, who told the Globe through a lawyer that his 2007-08 $5-million pledge was contingent on the success of his investment in the Trump International Hotel and Tower in Toronto, and that he still hoped to pay it, and Michael Lee-Chin, who has more than $10 million left to pay on a $30-million pledge he made in 2003. The ROM, which owes the Ontario government $33 million in loans for the project, has incurred penalties for missed loan payments and has had to pay more interest than expected because of the partly fulfilled pledges.[2]
It should be pointed out that to some extent the donors got caught in the financial crash of 2008 and insofar as we can discern, none have actually repudiated their pledge. And because Ontario has stood behind the ROM (which is an agency of the province) the construction of the edifice did go ahead to completion.
But the situation serves as a reminder to organizations that pushing ahead with major projects based on pledges rather than cash received can be risky.
Except in extraordinary fact situations, a pledge is not a contract and cannot be enforced in a court of law.
A few years ago a decision of the Ontario Superior Court of Justice confirmed that a pledge to make a gift is not the same as a contract and will only be enforced in unusual circumstances.[3]
The case involved a promise by Mrs. Helmi Marquis to donate a million dollars over a 5-year period to the Brantford General Hospital Foundation. She and her husband, Dr. Jack Marquis, had been major donors to the hospital over the years and when Dr. Marquis died, a diagnostic unit was named after him.
As a result of a planned expansion of the hospital, this unit named after Dr. Marquis was going to be merged with the intensive care unit. The hospital approached Mrs. Marquis and asked whether she would consider being the lead donor to the new project, to the tune of $1 million. Because she was concerned that the unit bearing her late husband’s name would disappear, she agreed to the suggestion by the hospital that a new unit would be named after both of them.
Mrs. Marquis signed a pledge form and donated $200,000 at once, promising to make four further instalments of the same amount. Unfortunately, shortly after she made the first payment, she died. Under her will, the hospital was to get one-fifth of her estate, but it was fairly clear that this money was not being paid in furtherance of the pledge as it was available for the hospital to use as it saw fit.
Mrs. Marquis’ executors then refused to pay the balance of $800,000 due on the pledge.
The hospital made three main points.
First, it said, that because a term of the arrangement included the naming of the unit, this turned the pledge into a contract. The judge, for various factual reasons rejected this position. We might add that the CRA also takes the position that an agreement to name a facility after a major donor is not “consideration” and thus does not turn a gift into a contract.
One problem with the contract argument, of course, is that if there is a contract, there cannot be a “gift” and if there is no gift, no charitable receipt can be issued.
Second, the hospital took the position that there was “detrimental reliance” on the pledge; that is to say that the hospital had made commitments to build based on the promise to pay. In fact, detrimental reliance is one of the few reasons why a court would enforce a pledge. But the court suggested that the hospital addition would certainly have been built without this particular pledge and further, that since there had been no start on construction, there was no detrimental reliance.
Finally, the hospital took the position that since the first portion of the payment had been made, the estate was “estopped” from denying the validity of the “contract”. The court rejected this argument as well based on the legal premise that estoppel could only apply where there was a pre-existing legal relationship between the parties.
The case itself is not wildly important in that it didn’t make “new” law but simply, in our view, restated Canadian law. Of course, the issue in such cases often turns on the unique facts.
We would note that there has been a trend in recent years in the United States to enforce “mere” pledges, but that trend cannot be discerned in Canada.
This case should be required reading for all fundraisers and for organizations which try to raise significant amounts from individual donors. Many lawyers suggest, for example, that the wills of such donors contain specific clauses requiring executors to honour outstanding charitable pledges (usually enumerated as of the date the will is executed) and in our experience, we have never found an executor who failed to honour the instructions.
The Globe in a subsequent article[4] referenced good practices:
Any non-profit organization that is launching a capital campaign needs clear policies about how it will recognize donors and what it will do if donors fail to pay pledges, says the head of the national association for Canada’s philanthropic sector.
“It’s incumbent on organizations before they embark on this kind of hugely visible campaign to have done their homework,” said Bruce MacDonald, chief executive officer of Imagine Canada, which acts as a service organization and advocate for charities.
The article then referenced Imagine Canada’s Standards Program of which the ROM was one of the first adherents…but long after the fundraising campaign started.
[1]http://www.theglobeandmail.com/news/toronto/crystal-myths-behind-the-roms-philanthropic-facade/article23653032/.
[2] Subsequently the Ontario government indicated that it had no concerns about the loan being repaid.
[3] Brantford General Hospital Foundation v. Marquis
[4] http://www.theglobeandmail.com/news/national/donor-policies-imperative-to-capital-campaigns-philanthropy-head-says/article23680512/