A donor to the University of Illinois at Chicago has threatened to withhold most of his remaining $6.5 million pledged contribution if the university does not act in a certain manner.
Richard Hill, a retired tech executive, made a pledge to the bioengineering department of the Chicago campus of the University of Illinois. The pledge was for approximately $8.8 million to be paid over time and he has already sent the university approximately $2 million. News reports are not specific as to whether this gift is restricted to a specific purpose or if it is for the general use of the bioengineering department. The gift is the largest ever received and the university named the bioengineering department for Hill as a result of the gift.
The Financial Accounting Standards Board (FASB) does consider gifts to be paid over time as restricted gifts even if they do not include a specific use purpose in the gift instrument. The FASB considers the gift restricted as to time. For example, if this gift was to be paid in $500,000 increments every six months over an eight year period, the uncollected receivable would be reported as a restricted resource.
The university has angered Mr. Hill, however, in its decision to rehire Professor James Kilgore. Kilgore, a former radical who spent about five years in prison for his part in a 1970s murder, worked as a lecturer and researcher at the university from 2010 until the spring of 2014, mainly teaching global issues. His employment was not approved for this fall semester after his criminal past became public and university board members expressed concern. But in early November, the university board members cleared the way for his rehiring by transferring hiring responsibilities down to academic units, two of which have made requests to hire Kilgore for the January 2015 semester.
Hill wants to terminate his pledge and sever his relationship with the university. "I no longer wish to be associated with University of Illinois," he wrote in a letter to top university officials after the board's decision. "The academy at the University of Illinois has clearly lost its moral compass."
But things aren't so simple.
In fact, the university may have grounds to compel Hill to continue making payments on his $8.8 million pledge. In the law there is something called the principal of estoppel, in which a court prevents a litigant (say, Mr. Hill) from taking an action the litigant normally would have the right to take, in order to prevent an inequitable result (say, for the university). In other words, even though the pledge contract between Hill and the university may have no consideration—it is a unilateral gift to be paid over time—the university may suffer an inequitable result if Hill does not make his pledge payments. This is especially true if the university has made expenditures or commitments in light of the pledged future support.
While it may be rare that charities sue donors over unfulfilled pledges, such is usually only the case when amounts are small and the charity decides the potentially unfavorable publicity is not equal to the unfulfilled financial support. In cases of larger donations, there have been court decisions compelling donors to continue payments. Mr. Hill may find himself in this situation.
A few relevant cases:
Allegheny College v. National Chautauqua County Bank: Mrs. Johnston promised to pay the college $5,000 if it would use the money to establish a memorial in her name. Johnston paid $1,000 toward the pledge and the college established her memorial fund. She later withdrew the promise and passed away. Allegheny College sued her estate for collection of the remaining $4,000. The court held that the promise to create the memorial created a binding and enforceable contract and her estate paid the remaining $4,000.
Congregation Kadimah Toras-Moshe v. DeLeo: Mr. DeLeo died before fulfilling his oral promise of an unrestricted donation of $25,000 to the congregation. The court held that the promise was not enforceable because the gift was unrestricted and the congregation could not demonstrate reliance on the gift in any of its actions. The mere expectation of using the funds to create a library did not amount to detrimental reliance.
Salsbury v. Northwestern Bell Telephone Co.: The defendant in this case promised to give $15,000 to the college. The college gave the pledge to a supplier to settle a debt. The college was later closed and the trustees sought to collect the pledge. The court held that the promise was binding since the college used it to satisfy a debt.
Interesting situations! Charitable giving, especially restricted charitable giving, is not as simple as you may have imagined.
Read about more sticky gifts at IP's new blog, The Gift Adviser.