Key point. Some courts have concluded that donors can legally enforce the terms of a designated contribution to charity if the charity diverts the contribution to some other purpose.
* A New York court ruled that a donor’s widow had the legal authority to enforce the terms of a charitable contribution her husband had made to a charity. A recovered alcoholic devoted the last 40 years of his life to the treatment of alcoholism. In 1971 he announced his intention to make a gift to a hospital of $10 million for the establishment of an alcoholism treatment center. With $1 million from the first installment of the gift the hospital purchased a building for the rehabilitation program. According to the donor’s widow, the hospital sought to avoid its obligations under the terms of the gift, and its relationship with the donor was an uneasy one. A year after the donor’s death in 1994 the hospital informed his widow that it planned to move the treatment center into a hospital ward and sell the building.
The hospital’s plans aroused the suspicions of the donor’s widow, and she demanded an accounting of the treatment center’s finances. The hospital at first resisted disclosing its financial records, but the widow persisted, and in 1995 the hospital disclosed that it had been misappropriating monies from the endowment fund (funded by the donor’s original gift) and transferring them to its general fund where they were used for purposes unrelated to the treatment center. The widow notified the state attorney general who investigated the hospital’s finances and confirmed that it had transferred restricted assets from the endowment fund to its general fund in what it called "loans." The attorney general demanded the return of these assets and the hospital returned nearly $5 million to the endowment fund, although it did not restore the income lost on those funds during the intervening years.
The widow was still convinced that the hospital was not fully honoring her husband’s gift, and so she filed a lawsuit in which she asked a court to compel the hospital to honor the terms of the gift. The state attorney general asked the court to dismiss the widow’s lawsuit on the ground that donors lack "standing" (judicial authority) to enforce the terms of their gifts. The attorney general insisted that standing to enforce the terms of a charitable gift is limited to the attorney general. The court concluded that a donor (or, in this case, a donor’s widow acting on his behalf) has the legal authority to enforce the terms of a charitable contribution.
the Episcopal seminary case
The court referred to an earlier decision of the New York Court of Appeals (the highest state court in New York) in a case addressing the question of whether alumni of a seminary, who had donated funds for the endowment of a professorship with specified conditions, could sue to enforce those conditions when they were violated. Associate Alumni of the General Theological Seminary of the Protestant Episcopal Church v. The General Theological Seminary of the Protestant Episcopal Church, 163 N.Y. 417 (1900). The court concluded that the donors (alumni) could enforce the conditions of their contributions, but could not obtain a return of their contributions. The court described the general rule as follows, "If the trustees of a charity abuse the trust, misemploy the charity fund, or commit a breach of the trust, the property does not revert to the heir or legal representative of the donor unless there is an express condition of the gift that it shall revert to the donor or his heirs, in case the trust is abused, but the redress is by … the attorney-general or other person having the right to sue."
The court in the Episcopal seminar case concluded that while the donors were not entitled to a return of their contributions, they "had sufficient standing to maintain an action to enforce the trust."
conclusion
The court concluded that the Episcopal seminary case "forecloses the conclusion that the attorney general’s standing in these actions is exclusive." In other words, the attorney general is not the only person who is legally authorized to enforce the terms of a charitable gift. In some cases, donors can as well. Further, the court concluded that donors may have the right to enforce the terms of charitable gifts even though they do not specifically reserve the right to do so.
The court then defended its conclusion that donors can enforce the terms of their gifts to charity:
The donor of a charitable gift is in a better position than the attorney general to be vigilant and, if he or she is so inclined, to enforce his or her own intent …. To hold that, in her capacity as her late husband’s representative [the donor’s widow] has no standing to institute an action to enforce the terms of the gift is to contravene the well-settled principle that a donor’s expressed intent is entitled to protection and the longstanding recognition under New York law of standing for a donor. We have seen no New York case in which a donor attempting to enforce the terms of his charitable gift was denied standing to do so ….
Moreover, the circumstances of this case demonstrate the need for co-existent standing for the attorney general and the donor. The attorney general’s office was notified of the hospital’s misappropriation of funds by [the donor’s widow]. Indeed, there is no substitute for a donor, who has a "special, personal interest in the enforcement of the gift restriction" …. We conclude that the distinct but related interests of the donor and the attorney general are best served by continuing to accord standing to donors to enforce the terms of their own gifts concurrent with the attorney general’s standing to enforce such gifts on behalf of the beneficiaries thereof.
Application. Church leaders should be familiar with this case, and understand its implications. It is common for churches to receive contributions from donors that are designated for a specific purpose. For example, donors contribute money to the church’s building fund, or a scholarship fund or missions fund. Can these donors legally enforce their designations if the church decides to divert these contributions to other purposes? This court concluded that they can, even if they retained no right to do so in a written agreement. The attorney general also is authorized to enforce the conditions of a designated gift, but the attorney general’s authority is not exclusive. It is "concurrent" with the authority of the donors themselves. Church leaders should keep this principle in mind when considering a diversion of designated funds to a purpose not specified by a donor. Smithers v. St. Luke’s-Roosevelt Hospital Center, 723 N.Y.S.2d 426 (2001).
© Copyright 2002 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m08 c0402
