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Fundraising Lessons Learned the Hard Way
One charity's experience proves that Charities that accept pledges as a method of fundraising also need to be aware of their inherent risks.


Blindly culling wisdom from the American experience in the evolving fundraising industry has it's own pitfalls, especially as our own government stands by scoping the playing field to determine how and when it will regulate the fundraising practices of charities. Some of those pitfalls were highlighted in a decision of Justice Milanetti of the Ontario Superior Court of Justice in the case of Brantford General Hospital Foundation v. Marquis Estate, cited as 67 O.R. (3d) 432.

Justice Milanetti would not enforce her intentions in the absence of an enforceable binding contract.

The case involved a pledge made by the late Helmi Marquis during her lifetime to the Brantford General Hospital. Before she died Mrs. Marquis promised to give the hospital one million dollars. After making the first instalment on that gift, she died. The hospital wanted the estate to pay the balance Mrs. Marquis had promised.

Mrs. Marquis and her late husband, Dr. Jack Marquis, were both generous philanthropists with an established record of providing significant financial assistance to charitable organizations. During their lifetimes the Marquis' gave extensively to the Brantford General Hospital and when Dr. Jack Marquis died he left them almost $2.8 million. The restructuring of the health care system in the mid-1990's left the hospital in the unenviable position that they had to raise substantial sums of money from the community. Over the years Mrs. Marquis herself also demonstrated a genuine love for the institution which was described in court as her "life and blood." She was known as a person of substantial means who had already donated substantial sums of money to the hospital. It was the place where she worked and where she first met her late husband and, after her retirement, where she volunteered for many years. She was particularly fond of the coronary care unit which was named after her late husband.

When Mrs. Marquis was approached to make a gift for the capital campaign, the proposed changes to the facility were explained to her including the movement and ultimate merger of Dr. Jack Marquis's Coronary Care Unit and the I.C.U. into a new critical care unit. In response, Mrs. Marquis expressed concern about whether her late husband's name would remain on his unit. Described as a humble individual who concerned herself little with public recognition, the hospital nonetheless suggested that she "take on the entire unit," putting both her name and that of her late husband on the new merged critical care unit.

As suggested by the hospital Mrs. Marquis sought counsel from various advisors, including her accountant on at least three occasions, before committing to the gift. At no time did she bring up that her name was to be used in recognition of the donation and this was very clearly irrelevant to her in her decision to make the commitment. Nonetheless, when she made the commitment, the hospital suggested that the unit be named after her and her late husband as a mechanism of showing their gratitude.

So Mrs. Marquis pledged to the hospital a million dollars to be paid over five years. Unfortunately, after she made the first $200,000 donation, she died. In her Will she left the hospital a one-fifth share of the residue of her estate. The hospital accepted that but also wanted the balance of $800,000 owing on the pledge paid to them as well. Her estate refused to pay and the hospital sued. The hospital had counted on that amount coming into their capital campaign and publicized the total funds raised as of that date for purposes of both a campaign kick-off and its representations to the government in their quest to achieve further approvals. When the estate refused to pay the balance of the gift, the hospital was forced to raise additional funds elsewhere.

The issue for Justice Milanetti was whether the pledge was an enforceable contract or merely a "naked promise." Justice Milanetti observed the difference between Canadian and US jurisprudence on this point. American courts clearly have taken a considerably different approach then Canadian courts and have been much more willing to consider enforcement of these promises to pay. Canadian courts have followed English law that requires that consideration, however slight, must be proven and so a promise to subscribe to a charity would not be enforceable in the absence of a bargain.

Justice Milanetti said that naming the unit after the Marquis' was not consideration for the pledge. Justice Milanetti pointed out that the idea to name the unit after both of the Marquis' came from the hospital and not from Mrs. Marquis. She described Mrs. Marquis as having a humble and modest nature who never sought the naming of the unit as a condition for making the pledge. Rather, the hospital suggested this as a mechanism of showing their gratitude to her and her late husband. It was, therefore, not a condition of the pledge and therefore not a contract that could be enforced by the hospital. Mrs. Marquis was an incredibly generous individual, who out of devotion to the hospital, made a large gift to it. Even though Mrs. Marquis intended to provide the foundation with this one million dollar gift at the time of the pledge, in addition to her substantial bequest, Justice Milanetti would not enforce her intentions in the absence of an enforceable binding contract.

Among [lessons to be learned] is a cautionary note about blindly following the lead of US precedents set in relation to US fundraisers.

The next question was whether the partial performance of the pledge by the payment of $200,000 on account made the balance of the pledge enforceable. The hospital lawyers argued that the doctrine of estoppel applied, which prevented the estate from denying the existence of a contract because Mrs. Marquis had already paid the first $200,000 instalment of her pledge commitment.

Justice Milanetti said the doctrine of estoppel could only succeed if there was a pre-existing legal relationship between the parties, which she had already concluded did not exist. On top of that, the hospital was unable to establish that they relied on the promise of Mrs. Marquis to their detriment. Even though Mrs. Marquis pledged one million dollars that the hospital had counted on receiving, given that the phase of the project had not yet been commenced, they were unable to prove that they relied on this incomplete pledge to their detriment. They acknowledged that the project would go ahead regardless of whether the pledge was honoured and that they would need to raise additional funds over and above if the pledge failed. As an aside, Justice Milanetti also pointed out that the hospital received $800,000 from the Estate of Mrs. Marquis through her Will. Fortunately or not, those funds were not designated for the capital campaign and could be used wherever the hospital decided. As such, Justice Milanetti found neither the facts to support a contractual relationship nor any detrimental reliance by the hospital foundation and therefore the doctrine of estoppel could not succeed.

Justice Milanetti graciously refrained from making any order of costs against the hospital despite their lack of success. The Court of Appeal, on the other hand, sent a different message after the hospital pressed the issue before the higher court requesting the right to argue for a reversal of Justice Milanetti's findings. The Court of Appeal issued a one-sentence ruling, dismissing the hospital's right to appeal and ordered costs against them.

There are lessons in this case for charities and their lawyers and other advisors. Among them is a cautionary note about blindly following the lead of US precedents set in relation to US fundraisers. While wisdom can always be garnered from observing what professional US fundraisers have developed on that side of the 49th parallel, as the business of professional fundraising continues to develop in this country, and while the government continues to monitor the increased activities of that industry in this country with a view to regulating it in a more comprehensive fashion, knowledge and observance of Canadian law is paramount to ensuring that charities do not suffer from unforeseen surprises. The simple exporting of US protocol north of the border remains a risky proposition in this unique culture.

Charities that accept pledges as a method of fundraising also need to be aware of their inherent risks. Pledges remain an unenforceable instrument and as such charities need to recognize the difference between cash in hand and promises to pay. When charities rely upon pledges as the foundation for their capital campaigns, if those promises are not honoured due to unforeseen circumstances that arise between the time of the pledge and when it matures, the cornerstone of those fundraising efforts could be hollow, leaving the charity with no avenue of recourse.

David van der Woerd is a partner at Ross & McBride LLP (www.rossmcbride.com). He can be reached at: Ross & McBride LLP, 1 King Street West, P.O. Box 907, Hamilton, Ontario, L8N 3P6. TEL (905) 572-5803 (direct line); (905) 526-0732 (fax); dvanderwoerd@rossmcbride.com.

Originally published in the Hamilton Law Association Newsletter, October 2004.

 

 
 
 
 

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