Are Oral Pledges Legally Enforceable?

Yes, in some states.

Church Finance Today

Are Oral Pledges Legally Enforceable?

Yes, in some states.

In re Estate of Schmidt, 723 N.W.2d 454 (Iowa App. 2006)

Background. An elderly man (John) had been a member of the same church for many years. Throughout his life he made many gifts to the church. He informed his pastor that he wanted to fund remodeling of the parsonage, the church basement, and the cemetery. No specific amount of money was mentioned. John made a new will later that year, but he did not include a bequest to the church. The will included bequests to thirty-four relatives, including nieces, nephews, great-nieces, and great-nephews.

John informed various relatives of his intent to pay for the church projects. He was later informed that the projects would cost between $115,000 and $150,000. He expressed no reservations as to these figures.

Prior to John’s death, and in reliance on his agreement to finance the project, work was begun on one bathroom in the parsonage, and flooring was taken up in the church basement. Landscaping the cemetery was also started.

John had a joint checking account with a great-niece. When his health began to fail, and in an attempt to avoid estate taxes, he asked his great-niece to “clear out” the checking account by writing checks to the beneficiaries in his will. The great-niece wrote checks totaling $257,000, leaving the checking account without funds. John died a few days later.

One of John’s great-nephews was named executor of the will, and he chose to honor John’s verbal pledge to the church. As a result, he used $135,410 of estate funds for the remodeling projects. One of the beneficiaries under the will objected to this use of funds, and a court conducted a hearing on the validity of John’s oral pledge. The court determined that John made an enforceable oral pledge to the church, which the church accepted prior to his death. The beneficiary appealed.

The court’s decision. A state appeals court classified John’s oral pledge as a “charitable subscription,” which it defined as “an oral or written promise to do certain acts or to give real or personal property to a charity, or for a charitable purpose.” Charitable subscriptions are “considered under contract principles … [and so] there must be an offer or promise … and not a mere statement of intent. Mere declarations of intention, no matter how clearly proven, would not give rise to binding obligations.”

The court noted that in Iowa, like some other states, there is no requirement to show consideration or detrimental reliance. In general, a party’s obligation under a contract is enforceable only if he or she receives something of value (called “consideration”) in return. One exception to this requirement is the principle of detrimental reliance. Under this principle, a promise not supported by consideration can nevertheless be enforceable if the other party relied to his or her detriment upon it. The court concluded that neither consideration nor detrimental reliance was necessary to make an oral pledge legally enforceable. All that was needed was a definite promise to transfer funds or property. As the court noted, “where a subscription is unequivocal the pledgor should be made to keep his word.”

The beneficiary also argued that John’s promise was too vague to be enforceable. The court disagreed, based on the testimony of three other relatives to the effect that John committed to pay for the improvements to the church facilities. Further, it was clear that John was aware of the amount to be spent, between $115,000 to $155,000. As a result, there was “clear and convincing evidence in the record to show that John made an enforceable oral subscription to the church.”

The court also rejected the beneficiary’s argument that John’s death before the acceptance of the subscription terminated the offer. The court conceded that “the death of the subscriber before the acceptance of the subscription terminates the offer, and the estate of the subscriber will not be liable on the subscription.” But, the court concluded that the evidence clearly showed that the church did accept John’s offer prior to his death. Before he died, the church “had started the remodeling work. These projects would not have been undertaken by a small rural congregation without having accepted the generous pledge of one of its members to pay for the improvements.”

Relevance to church treasurers. Obviously, few churches would consider suing a member to enforce a pledge. But knowing that a pledge is legally enforceable may be useful. Note that pledges may be enforceable on two grounds:

1. In some states, like Iowa, oral and written pledges are legally enforceable so long as they constitute a definite promise or commitment to transfer funds or property to a church. They are enforceable even if the pledgor received no consideration or value in return for his or her pledge and the church has not acted to its detriment in reliance on the pledge. However, the church must accept the pledge, and one way for its acceptance to be expressed is for it to begin the project for which the pledge was made.

2. In some states a pledge is subject to the contract requirement of consideration, meaning that it will not be enforceable unless the pledgor received something of value in return for his or her pledge. One exception to the consideration requirement is the principle of detrimental reliance. A promise not supported by consideration is enforceable if the other party relied to his or her detriment on the promise. For example, a church that begins a construction project in reliance on a pledge has suffered detrimental reliance that makes the pledge legally enforceable even without consideration.

Case study. A New York court ruled that pledges made by members of a synagogue were legally enforceable. The court conceded that pledges, like any promise, generally are not legally enforceable unless the person making the pledge receives something of value (consideration) in return. But there are exceptions to this requirement, and one of them is detrimental reliance. According to this exception, if a charity relies to its detriment upon the pledges of members, then those pledges are enforceable even though not supported by consideration in a traditional sense. The court applied this principle to pledges made to the synagogue: “The synagogue entered into contracts and incurred liability in reliance upon the pledge made by [its members]. Thus, [members] became legally bound to pay the full dues when billed. Since the synagogue relies upon persons’ membership as of the time of budgeting, and the dues being billed, [members are] estopped from refusing to pay the dues.” Temple Beth Am v. Tanenbaum, 789 N.Y.S.2d 658 (Dist. Ct. 2004).

Case study. A Georgia court ruled that a person who promised to make a $25,000 contribution to a church could be compelled to honor his commitment. A church purchased property from an individual for $375,000. In the contract of sale the seller promised to donate $5,000 to the church each year for the next five years (for a total contribution of $25,000). When the promised donations were not made, the church sued the seller for breach of contract. The seller claimed that his promise to make the donations was unenforceable because of lack of consideration for his promise. A state appeals court ruled that the seller’s promise to make the charitable contributions was legally enforceable: “Although [the seller] asserts the promise to pay the church $25,000 was without consideration … nothing in the [record] shows that to be the case. [The sales contract] recites that the promise to pay $25,000 was made as additional consideration for the church to buy [the seller’s] property.” First Baptist Church v. King, 430 S.E.2d 635 (Ga. App. 1993).

This article first appeared in Church Treasurer Alert, July 2007.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold 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. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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