Reference Articles > Pledges: Be Wary The Hollow Gift

                                                Printer Friendly

PLEDGES: BE WARY THE HOLLOW GIFT – A “mere nudum pactum” .
© 2008 M. Jasmine Sweatman

This article describes the current states of the enforceability of charitable pledges in Ontario.

Very often as part of fundraising initiatives donors will sign pledge forms expressing a commitment to give to an organization. Very often the organization senses the commitment is tenuous and may wonder what is exactly a pledge and what more can be done to make the commitment more secure. This article examines these questions.

What is a pledge?

The traditional view is that a pledge is “a promise that is not enforceable in the absence of a bargain". The leading Supreme Court of Canada’s decision in The Governors of Dalhousie College at Halifax v. The Estate of Authur Boutilier, Deceased [1934] S.C.R. 642 explained it like this: a pledge can be “sustained as a binding promise only upon one basis, viz: as a contract, supported by a good and sufficient consideration.”

This case is a classic fundraising pledge case. During the course of a campaign to raise funds in June 1920 Mr. Boutilier signed a “subscription” with language as follows:

“For the purposes of enabling Dalhousie College to maintain and improve the efficiency of its teaching, to construct new buildings and otherwise to keep pace with the growing need of its constituency and in consideration of the subscription of others, I promise to pay to the Treasurer of Dalhousie College the sum of Five Thousand Dollars, payment as follows:
Terms of payment as per letter from Mr. Boutilier.”

Although the subscription was not accompanied by a letter as to the terms of payment, six years later, Mr. Boutilier acknowledged the pledge in a letter responding to the College’s inquiries as to payment. In that letter he expressed his desire to satisfy the commitment but as he was presently experiencing “financial reverses” he was unable to do so at the moment but expected to be able to do so “before too long”. He died two years later without having made any payment on the pledge. The College claimed payment against his estate.

The issue for the court was whether “good consideration” existed for the pledge. If there was sufficient “consideration” then the promise would become a binding contractual obligation for which the estate would be liable to satisfy.

The most important point of this case is that the Supreme Court of Canada did not say that a pledge or subscription could never be binding, just that this particular one was not. Accordingly, a pledge can be a promise that can be, if sufficient consideration exists, a binding legal obligation.

In the Boutilier case, the College argued the sufficient consideration was that it had relied upon the pledge and expended “large amounts of money” over many years in reliance upon the pledge. At trial this evidence was considered sufficient but not at the Supreme Court of Canada in large measure because the evidence did not show that the moneys expended were as a direct result of this particular pledge.

In a more recent Ontario case of The Brantford General Hospital Foundation v. The Canada Trust Company (2003), 67 O.R. (3d) 432 (S.C.) ², the Court considered the question again. Mrs. Marquis, who with her husband (Dr. Marquis had left the Foundation $2.8 million) were generous philanthropists, had been approached as a lead donor of a capital campaign. The discussions lead Mrs. Marquis to sign a pledge for $1 million over 5 years. In her will Mrs. Marquis also left 1/5 of the residue of her estate to the Foundation. One month before she died she made a $200,000 payment on the pledge but the balance remained unpaid.

The Foundation sued Mrs Marquis’ estate seeking payment of the balance outstanding on the pledge. On the issue of consideration the court found there was none. The evidence that the Foundation would name the new unit after the Marquis was insufficient consideration for a number of reasons: the naming had never been Mrs. Marquis’ idea, she placed little significance on this benefit, the documentation placed little significance on this opportunity, there was actually no firm commitment on the naming as formal board approval was still required (even as of the date of the hearing), it was a mere “expectation”, and the naming was not a condition of making the pledge.

With respect to the circumstances surrounding the signing of the pledge, these too were insufficient to find consideration. Mrs. Marquis did not expressly request the Foundation to undertake some definite project or personally take part in the proposed building. The partial payment of $200,000 did not provide the consideration necessary to enforce the pledge, and neither did the Foundation demonstrate any detrimental reliance on their part – the project would be going ahead regardless.

These findings were made despite the Court recognizing that Mrs. Marquis was an incredibly generous individual who had made a large gift. The Court had no doubt she intended a $1 million gift and if she had survived she would likely have honoured it, but, unfortunately, “Canadian law as currently framed, could not enforce Mrs. Marquis’ intentions”. Accordingly the pledge was unenforceable.

So, what is sufficient “consideration”? As with most cases, it depends on the facts. Consideration may come in different forms and may result from the accumulation of factors. A court will look at the wording of the pledge itself and the evidence surrounding the giving of the pledge. The wording of the pledge is therefore extremely important. A statement that the pledge is being given “in consideration of the subscription of others” is insufficient.  A statement (and agreement by the subscriber) of the purpose for the subscription and the organization’s acceptance of the purpose and promise to apply the funds to the purpose are considered statements of mutual promises; not an enforceable contract. But, if the pledge document contained an express request by the subscriber, for example, to construct a new building for an annual production then that may be sufficient. Consider the other side – if the subscriber had paid the money, could the organization be sued if it failed to construct the new building?

Turning to “circumstantial” evidence, sufficient consideration may exist to create a binding obligation where, for example, there is an express agreement by the organization to do certain acts in return for the subscription, or the subscriber is personally and actively involved in the projected enterprise.

Another way to achieve enforceability is by way of “security” for payment. By this, a subscriber would refer to the pledge in his or her will and direct payment of any pledged amount outstanding upon death from his or her estate.

Organizations that wish to be in a position to enforce the pledges made to them (and be able to rely upon more than the moral suasion of having made a promise) should first look to the wording of the actual pledge and also the circumstances surrounding the pledge to build a stronger case for enforceability.

________________________________________________
For more information on estate, trust, powers of attorney or guardianship topics please see accompanying articles. Remember these articles are provided for information only and are not meant to be legal advice. Please consult with a professional.

M. Jasmine Sweatman practices at the law firm Sweatman Law Firm and can be contacted directly by telephone at (905)337-3307 or by email at jasmine@sweatmanlaw.com.

 Black’s Law Dictionary (5th ed.) defines nudum pactum est ubi nulla subset causa praeter conventionem; sed ubi subset causa, fit obligation, et parit actionem as “a naked contract is where there is no consideration except the agreement; but, where there is a consideration, it becomes an obligation and gives a right of action.” (p.961)

² Please note that I had some involvement in this matter.