Neither The Common Law Nor Equity Can Reliably Protect Donor Intent

There is an inherent tension between traditional common law and equitable principles, on the one hand, and on the other efforts to enforce restrictions on charitable gifts. And to the extent courts faithfully apply the former, the tension is insuperable. Here’s why.

The common law comprises “those principles and rules of action, relating to the government and security of persons and property, which derive their authority solely from usages and customs of immemorial antiquity … .”¹⁶³ Those principles and rules grew up around the generally recognized duties and interests that one person owes to another. Over time, we have developed a taxonomy to describe the different categories of those interests—contract, tort, property, et cetera. Upon a failure to perform an existing duty, the offended party may have recourse to the court for relief in the form of damages, an injunction, or a great variety of other remedies.

The necessary predicate to the whole structure of the common law and equity—and the Achilles heel in attempts to use those sources of authority to enforce restrictions on charitable gifts—is the existence of some type of continuing duty, interest, or relationship between the contesting parties. That predicate is a problem because a gift is a transfer of property that definitionally terminates all of the donor’s interest in and to the gifted property, and for which the donor receives nothing in return. Consequently, upon completion of a gift, there is no interest or relationship left upon which the common law or equity can operate. This is true without regard to how one classifies the purported common law or equitable interest. But it is most starkly apparent in the context of contract law and the equitable principles governing charitable trusts.

In what is probably a sign of growing impatience with the state of the law, several courts have been willing to stretch common law and equitable principles out of recognition in a drive to provide donors a forum and remedy when charitable organizations violate the gift restrictions to which they agreed. The common law and equity depend for their operation on the existence of duties, interests, or relationships between the contending parties, whether categorized as contract, trust, or otherwise. As described below, however, judicial impatience has been manifesting as a willingness to countenance enforcement actions even in the absence of cognizable interests.

A. Contracts And Donor Intent

Although each state is the custodian of its own common law, all states recognize three irreducible elements of a contract: (1) offer, (2) acceptance, and (3) consideration.¹⁶⁴ The third element—consideration—is what separates “contracts” from “gifts.” This is a capacious term, and is meant to encompass the bargained-for exchange of virtually anything of value, including promises.¹⁶⁵ Superficially, this construct may appear to describe a donor’s restricted gift to a charitable organization. The donor offers the gift, the charitable organization accepts it, and the consideration it gives in return is its promise to use the gift as specified in the restriction. Under this theory, in exchange for the gift, the donor receives an interest in how the gift is used (the promise). Should the charitable organization fail to honor the restriction, the obligation created by the promise to the donor would comprise the personal interest on which the common law would operate. And because the promise was made to the donor, he would have standing to enforce the obligation through a lawsuit.

The only problem with that accounting is it does not describe a gift. A gift is a transfer of property without consideration.¹⁶⁶ The defining characteristic of a gift is that the giver receives nothing in return for it. To qualify as a gift, the transfer has to be made with donative intent, which has been described as “[a] clear and unmistakable intention on the part of the donor to make a gift of his property”—an intent that “must be inconsistent with any other theory.”¹⁶⁷ So, to qualify as a gift, the transfer must be incapable of satisfying the elements of any other form of property transfer. If it can be described in contractual terms, then it cannot be a gift; if it is a gift, it cannot have the elements of a contract. The two common law theories are mutually exclusive. Consequently, because a gift cannot—by definition—create an interest in the donor, the donor has no basis upon which to demand that the common law compel the recipient to honor the restriction. Furthermore, blurring the common law distinction between contracts and gifts enough to create standing for donors—as some courts have done—can have serious downstream consequences. Without detracting from the altruistic desire to see their generosity have positive societal effects, philanthropists are presumably also interested in the tax consequences of their charitable gifts. A deduction for such a gift is generally not available unless the donor transfers the entire interest in the property. “‘The Code generally restricts a taxpayer's ability to claim a charitable deduction for the donation of an interest in property which consists of less than the taxpayer's entire interest in such property … .’”¹⁶⁸ And although retaining an “insubstantial” interest in the property will not defeat its deductibility, the test for insubstantiality provides that the retained interest “must not potentially interfere in any manner with the donee's interest.”¹⁶⁹ If a charitable organization receives all of a donor’s right, title, and interest in and to donated property, but cannot use that property as it chooses because of a gift restriction, then it naturally follows that the restriction interferes with the donee’s interest in the property. And if that restriction creates an interest in the donor (as opposed to the public) sufficient to support an enforcement action, it is likely the donor’s retained interest would not pass the insubstantiality test for tax purposes.¹⁷⁰

Nevertheless, some donors have risked this perilous path in attempting to protect their charitable contributions from being used for unauthorized purposes. And sometimes, when a court doesn’t carefully analyze a breach of contract claim relating to a donation gone awry, the donor can succeed.

California offers two illustrative cases within the last decade. In Cohen v. Kabbalah Centre International, Inc., the California Court of Appeals reversed the trial court’s summary judgment decision dismissing one of Cohen’s contract claims—but did so without analyzing the elements of such a claim.¹⁷¹ Nor did it appear to recognize the inherent contradiction in allowing a donor to pursue a contract claim to remedy a violation of a gift restriction. Similarly, the plaintiffs in Hastings Coll. Conservation Comm. v. State of California opted for a contract claim to enforce a gift restriction. Here, the objective was to restore Serranus Hastings’s name to the law school founded with his gift. The plaintiffs were unsuccessful, but not because the court recognized the incompatibility between contracts and gifts—or even mentioned the distinction. Instead, the trial court ruled that the plaintiffs hadn’t produced the necessary evidence to support a contract claim, and the Court of Appeals affirmed on the grounds that a state legislature cannot contract away its legislative powers. But if the defendant had not been a branch of government, and the plaintiffs had the evidence to support their contract claim, it seems that here, just as in Cohen, the Court of Appeals was prepared to let the claim proceed.

In New York, the Appellate Division mixed contract and charitable trust law to provide a path forward for a donor attempting to enforce a gift restriction. In Ohr Somayach/Joseph Tanenbaum Educ. Ctr. v. Farleigh Int l Ltd., the charitable organization argued the donor had no standing because only the attorney general has authority to enforce the public’s interest in charitable gift restrictions.¹⁷² The Appellate Division leaned heavily on Smithers v. St. Luke's-Roosevelt Hosp. Ctr.,¹⁷³ a landmark New York case governing donor standing, to deny the charitable organization’s argument. However, in the process of ruling that the donor had adequately pled a breach of contract claim, it completely neglected to address whether the donor had adequately pled the existence of the contract. This is significant because New York, like all other American jurisdictions, recognizes that contracts require consideration¹⁷⁴ and gifts forbid it.¹⁷⁵ Presumably, if the court had inquired into the contract’s existence, it would have had to wrestle with what to do with the question of consideration. And in Wildlands Tr. of SE. Massachusetts, Inc. v. Cedar Hill Retreat Ctr., Inc.,¹⁷⁶ a Massachusetts trial court engaged in the same admixture of contract and charitable trust law to conclude a donor had standing to pursue a breach of contract claim to enforce a gift restriction. Only by glossing over the categorical distinction between these two legal theories were these courts able to create an avenue for donors to proceed with contract claims to enforce the terms of a gift.

The different categories proved vexing for a Vermont trial court in the case Hon. James H. Douglas, Special Administrator of the Estate of John Abner Mead v. The President and Fellows of Middlebury College.¹⁷⁷ For the nature of gifts, it turned to the Restatement (Third) of Property: “‘To be a gift, a transfer must be made with donative intent. The requirement of donative intent is the essence of a gift.’”¹⁷⁸ The donative intent is an expression of gratuitousness—that is, the transfer “‘must be made without consideration.’”¹⁷⁹ This, it recognized, is in counterpoint to a contract. The distinction between the two categories is the “intent to transfer an ownership interest gratuitously, as opposed to engaging in an exchange transaction … .”¹⁸⁰ And that’s where the court’s analysis ended because it opted to punt the issue. It said “‘the distinction between bargain and gift may be a fine one, depending on the motives manifested by the parties,’”¹⁸¹ and so “[t]he issue must be determined on the evidence at trial.”¹⁸² The court later changed its mind, observing that “[i]f there is a contract in this case, all evidence of it would appear in records around the time of its formation over 100 years ago.”¹⁸³ The court dismissed the contract claim for lack of evidence.

The difference between gifts and contracts never arose in the In re Atwater Kent Museum case.¹⁸⁴ The donor (the Historical Society of Pennsylvania), had characterized its donation to the Museum as a contract in which it “irrevocably and unconditionally transferred to the Museum all of the Society's right, title, and interest in and to the Society's collection” subject to the condition (as relevant here) that the proceeds from the sale of any part of the collection would be split between them.¹⁸⁵ The closest the court came to the question of whether the Society’s transfer was a gift was to note the Museum’s objection that because “the Society ‘irrevocably and unconditionally’ transferred title to its artifacts, “it has no standing as a former owner.”¹⁸⁶ That line of inquiry, however, went no further. The Society was ultimately unsuccessful in its effort to intervene in the case, but only because the Museum’s transfer of the donated collection to Drexel University was not the type of disposition anticipated by the gift agreement. The court’s reasoning, however, suggested it was prepared to recognize a contract-based cause of action to enforce gift restrictions without worrying about the question of consideration.

The Texas Court of Appeals confronted the contract/gift dichotomy much more directly in Eshelman v. True the Vote, Inc.¹⁸⁷ Upon the plaintiff’s claim that he had made a conditional gift, the court quickly recognized the category problem. “The expression ‘conditional gift’ is something of an oxymoron, for ‘to constitute a gift inter vivos there must be a delivery of possession of the subject matter of the gift by the donor to the donee, and a purpose on the part of the donor to vest in the donee, unconditionally and immediately, the ownership of the property delivered.’”¹⁸⁸ Such a transaction is less of a gift (in which ownership of the gift passes immediately to the recipient), than a conditional transfer in which the recipient’s ownership doesn’t vest until satisfaction of the condition. “Unlike true gifts,” the court said, “‘conditional gifts,’ … are ‘premised upon the fulfillment of a condition by the donee’”; “[I]f the donee performs the condition, then the gift becomes the donee's property; if not, then the gift must be returned.”¹⁸⁹ That conditional vesting makes the transfer look like a contract, not a gift. “Because of the requirement that the donee agree to the conditions placed on the donor's contribution, ‘conditional gifts’ of personal property are sometimes characterized simply as contracts.”¹⁹⁰ Nevertheless, the court still got mired in the confusion between the categories when it came to the “standing” analysis. Because the recipient was a public charity, the court thought its analysis should be controlled by the law of charitable trusts rather than contract. The attorney general (according to Texas law) is the only one with standing to enforce gift restrictions—unless, that is, “the plaintiff seeks vindication of “some ‘peculiar or individual rights, distinct from those of the public at large.’”¹⁹¹ The court dipped back into the realm of contracts to suggest that the condition on the gift might satisfy the “peculiar or individual right” requirement for standing in the public charity context. Ultimately, the court made no definitive ruling because it concluded that Eshelman, as an evidentiary and procedural matter, hadn’t adequately supported his claim. But the court’s reasoning leaves the impression that, had he done so, this conflation of principles would have allowed his claim to proceed.

The Minnesota Court of Appeals rebuffed a donor’s attempt to recast an endowment given to Saint John’s University as a contract. “The formation of a contract,” the court explained, “requires communication of a specific and definite offer, acceptance, and consideration.”¹⁹² The donor said each element was present, and that because “[t]he agreement had specific terms which were accepted by SJU in exchange for the class-action settlement payments [the endowment], the amended criteria statement was a contract supported by valid consideration.”¹⁹³ The court concluded, however, that “an act or forbearance” counts as consideration only if it “induces a contractually binding promise.”¹⁹⁴ Because the endowment was made two years before the promise the donor was attempting to impose on the gift, the former could not be said to have induced the latter. Therefore, there was no consideration and no contract. The court’s reasoning, however, was not a categorical rejection of “contract” as a vehicle for enforcing gift restrictions. Perhaps if the endowment and the University’s promise had occurred contemporaneously the court would have inquired into whether a use restriction is capable of transforming a gift into a contract. As it stands, the court rejected the contract theory simply because, as a factual matter, there had been no bargained-for exchange of consideration.

* * *

The mutual exclusivity of contracts and gifts is universally accepted, and state trial and appellate courts have all the tools necessary to distinguish between them. So the muddling reflected by the cases discussed above doesn’t reflect a lack of an established body of guidance. It is more likely the consequence of two factors. First, frustration with the common law’s inability to straightforwardly protect donors from the misuse of their generosity has led practitioners to cobble together a chimera out of incongruous elements plucked from gift and contract law. Second, in the high-volume context of trial and intermediate appellate courts—where all of these cases were decided—the opportunity to reflect deeply on what to do with the chimera is limited. So the courts muddle through as best they can either by eliding the distinction or deforming gift and contract law enough to provide some relief.

Underlying these dynamics is the stark reality that the common law simply isn’t structured to handle this creature. The piece that causes courts to short-circuit when they try to accommodate it is the idea of a promise without a counter-party. When a donor makes a restricted gift, the recipient promises to use the gift consistently with the restrictions. But to whom is the promise made? It can’t be the donor because a gift is definitionally something for which the giver receives nothing in return, not even a promise. So the recipient’s promise is, on one end, free-floating—it attaches to no counterparty to the transaction. The donor is left with what the common law contemplates: nothing but the satisfaction that comes from an exercise of generosity (and, to be fair, a tax deduction). The donor no longer has an interest in the property he gifted because gifts require the transfer of all interests, and he has no promise from the recipient because that would destroy the gift. This is why courts cannot properly entertain his demand that the recipient abide by the gift restriction. The common law operates only on an existing interest—whether a retained interest in the property or an interest in the recipient’s promise. But because both of those are precluded by the nature of a gift, there is no work for the common law to do. The alternative is to recognize the recipient’s promise as attaching to the donor. Such an arrangement would provide something the common law could address, but that would also transform the transaction from a gift into a contract, with all the tax implications that would inexorably follow.

There is reason to believe this muddied water might grow clearer over time. But it will likely come at the expense of donor standing to enforce gift restrictions under a contract theory. Eventually, gift-restriction cases will filter up to state supreme courts. The purpose of such courts is to wrestle with the most complicated of issues in a thorough, rigorous, and complete fashion. The likelihood that the existing gloss on the irreconcilable differences between gifts and contracts will survive is low. Generally speaking, courts of last resort are loathe to introduce tectonic shifts in a state’s jurisprudence. Adjusting common law gift and contract principles enough to enable donors to maintain enforcement actions for restricted charitable gifts would require erasing a centuries-old distinction. Such judicially-engineered transformations are normally anathema. “Stare decisis,” the principle that courts should “stand by things decided,” fosters stability and continuity in the law.¹⁹⁵ Those attributes are key components to the foundational concept of the “rule of law,” upon which ordered liberty depends. In light of those principles, it would be a rare supreme court that would discard its prior decisions recognizing the categorical distinctions between gifts and contracts—a distinction so old it was well-developed before the existence of this country was even a speculation.

B. Charitable Trusts And Donor Intent

Restricted charitable gifts and charitable trusts are natural complements and provide none of the difficulties that donors encounter when trying to force such a gift into the mold of a common law contract. That does not mean, however, that they will necessarily find it easier to enforce their restrictions through such an arrangement. The difficulty here is more prosaic. Many states still adhere to the doctrine that, except in limited circumstances, attorneys general have exclusive authority to enforce a charitable trust’s obligations.

Restricted charitable gifts operate comfortably in a charitable trust context because, unlike the fundamental conflict in the gift/contract context, the elements are all designed to accomplish the same thing: Effectuate a complete transfer of property from a donor to a charity in a fashion that impresses on the property an enforceable limitation on its use. This device remedies the enforceability problem caused by the evanescence of the donor/recipient relationship by introducing a new relational aspect. This arrangement creates a trilateral gift relationship that is, with respect to two of the parties—and this is critical—enduring. Upon making the gift to the charitable organization, the donor still relinquishes all interest in the property and still receives nothing in return. But the transaction gives rise to something new—a fiduciary relationship between the charitable organization and the gift’s intended beneficiary.

Charitable trusts create this trilateral relationship by splitting the legal and equitable titles to the gift. The trustee receives the legal title, but the beneficial title vests in the beneficiaries.¹⁹⁶ Splitting the title in this manner gives rise to the enduring fiduciary relationship between the trustee (who holds the legal title to the gift) and the beneficiaries (who hold the beneficial title to the gift). “A charitable trust is a fiduciary relationship with respect to property arising as a result of a manifestation of an intention to create it, and subjecting the person by whom the property is held to equitable duties to deal with the property for a charitable purpose … .”¹⁹⁷

The fiduciary relationship between the trustee and the beneficiary is the ingredient that allows for the enforcement of restrictions imposed on gifts given in trust (the trust res). Recall that in the gift/contract context there is a merely bilateral—and temporary—relationship. It arises between the donor and the charitable organization when the former elects to make a gift, and it ends when the transfer is complete. The gift instrument may purport to impress on the property a restriction on its future use. But the lack of any persistent duties or interests between the parties after the transaction is complete make the restrictions more aspirational than enforceable. Giving a gift in trust leaves the donor in the same position with respect to the donated property and the recipient organization. But having given the gift in trust, the donor has left behind a recognized set of duties and interests between the recipient organization and the intended beneficiary.

Unfortunately, it is the nature of that relationship that frequently stymies donors’ attempts to bring enforcement actions when trustees fail to abide by the restrictions impressed on those gifts. Here, the relationship on which the court’s authority operates is the one between the trustee (the property recipient) and the beneficiary, which in the context of charitable trusts is the public. “The public or the community is the real beneficiary of every charitable trust.”¹⁹⁸ And although it was the donor’s gift that gave rise to the trustee/beneficiary relationship, he is nonetheless a stranger to that relationship, as well as the trust res, once the transfer is complete. So, just as in the gift/contract context, the donor has no enduring interest or relationship on which equitable principles can operate. In relation to the trust, the donor is indistinguishable from every other member of the public.¹⁹⁹

This is why the common law rule prohibits donors (with few exceptions) from bringing enforcement actions with respect to restricted charitable gifts given in trust. “Well established principles govern who has standing to enforce the terms of a charitable gift or trust. At common law, a donor who has made a completed charitable contribution, whether as an absolute gift or in trust, had no standing to bring an action to enforce the terms of his or her gift or trust … .”²⁰⁰ Standing to enforce the terms of a charitable trust, according to the general common law rule, belongs only to the attorney general.²⁰¹ As the Colorado Court of Appeals said, “[t]his limitation on standing exists because, in the case of a charitable trust, the beneficiary is the unspecified, indefinite general public to whom the social and economic advantages of the trust accrue.”²⁰² And because the attorney general is—by virtue of the very nature of his position—the custodian of the public’s interest, he is the inevitable and natural choice to vindicate that interest when a trustee goes astray.

The common law rule, however, is not absolute. When a party can establish a “special interest” in the operation of a charitable trust, courts will extend standing to the owner of that interest for the purposes of maintaining an enforcement action.²⁰³ But this has been, traditionally, a narrow category. It includes, most notably, the trust’s trustees. “[A] charitable trust by its very nature creates a narrowly defined class of persons who have a special interest in its enforcement or modification, namely, the trustees who have a legal obligation to administer the trust.”²⁰⁴ It could also extend, in certain circumstances, to beneficiaries of the trust. “Parties with special interests in the benefits of a charitable trust have been accorded standing to enforce the trust, but only when they are entitled to benefits different from those to which members of the public are entitled generally.”²⁰⁵

Other courts treat “special interest” standing more as a policy matter than an exercise in identifying a cognizable interest the plaintiff is entitled to protect. In Derblom, for example, the court opined that “[t]he special interest concept and its application involve a balancing of policy concerns and objectives.”²⁰⁶ In this telling, “special interest” standing “is justified by society's interest in … enhancing enforcement of charitable trusts, in light of the limitations (of information and resources, plus other responsibilities and influences) inherent in attorney general enforcement.”²⁰⁷

As an historical matter, those with a “special interest” in enforcing restrictions on trust properties have not included donors. Thus, for example, even accounting for the “special interest” exception, the Colorado Court of Appeals said the plaintiff’s “status as a donor to the Foundation and CU is … insufficient to give him standing.”²⁰⁸ Similarly, the Connecticut Supreme Court recited the traditional formulation of the “special interest” exception before concluding that the representative of the donor’s estate “did not have standing under the special interest exception to bring an action to enforce the bequest.”²⁰⁹ That ruling echoed a much earlier case in which the court said “it is well established in the context of charitable trusts” that an enforcement action may be brought “by a person who has a special interest in the enforcement of the charitable trust,” but “not by persons who have no special interest or by the settlor or heirs, personal representatives or next of kin.”²¹⁰

The “special interest” category, however, is losing its traditional cohesion. Indeed, some courts have used the “special interest” exception as a vehicle by which to come full circle on the question of donor standing in the context of charitable trust enforcement actions. In Musk v. Altman, for example, a federal trial court sitting in California decided that Musk, as a settlor of the OpenAI charitable trust, had a sufficient “special interest” in its operation to support standing to bring an enforcement action.²¹¹ Examining how the court reached its conclusion provides a classic illustration of how common law principles, through less than careful handling, can come loose from their historical and teleological moorings.

The Musk court’s reasoning started by reaching back to Holt v. College of Osteopathic Physicians & Surgeons, a 1964 decision of the California Supreme Court in which the justices considered the practical considerations involved in enforcing the administration of charitable trusts. The Holt court said “[a]lthough the attorney general has primary responsibility for the enforcement of charitable trusts, the need for adequate enforcement is not wholly fulfilled by the authority given him.”²¹² Then, after noting the risk of harassing litigation if just anyone could bring enforcement actions, Holt said “[t]his consideration is quite inapplicable to enforcement by the fiduciaries who are both few in number and charged with the duty of managing the charity's affairs.”²¹³ In light of those fiduciaries duties, the Holt court concluded “[t]he administration of charitable trusts stands only to benefit if in addition to the attorney general” “other responsible individuals”—such as trustees—were allowed “to sue in behalf of the charity.”²¹⁴ In confirming the trustee’s standing to bring an enforcement action, the Holt court kept faith with traditional equitable principles. It grounded its holding in the recognition of an interest on which equity could operate—to wit, the trustee’s fiduciary duty to administer the charitable trust according to its terms.

The Musk court then observed what the California Court of Appeals did with the Holt decision in a case involving the L.B. Research and Education Foundation. There, after a lengthy and verbatim recitation of the Holt court’s reasoning, the Court of Appeals concluded—without any further discussion—that the plaintiff had standing to bring a lawsuit to enforce a charitable trust.²¹⁵ The plaintiff, however, was a settlor of the trust, not, as in Holt, a trustee. Settlors of charitable trusts, of course, owe no fiduciary duty to the trust beneficiaries (the public). Indeed, they owe no duty of any sort to anyone with respect to the charitable trust or the property that endowed it.

Nonetheless, the impulse to grant standing to settlors in enforcement actions against charitable trusts has become so pressing that it is now a part of the Restatement (Third) of Trusts. The Musk court’s analysis turned to Autonomous Region of Narcotics Anonymous v. Narcotics Anonymous World Services, Inc.,²¹⁶ a case in which the California Court of Appeals favorably cited the Restatement (Third) of Trusts for the proposition that the pool of plaintiffs allowed to bring enforcement actions against charitable trusts should include “the attorney general or other appropriate public officer or by a co-trustee or successor trustee, … a settlor, or … another person who has a special interest in the enforcement of the trust.”²¹⁷ The Restatement does not identify what personal interest a settlor’s enforcement action might vindicate, noting only that “[i]t seems readily apparent that a living settlor has an expectation that the designated trust purpose will be carried out … .”²¹⁸ While obviously true, that isn’t the same thing as an equitably cognizable interest. The Restatement authors obliquely acknowledged this discrepancy when it admitted that “the settlor's special-interest standing stated in Subsection (2) and in this Comment represents a departure from the general insistence of traditional trust doctrine that the settlor, as such, lacks standing to enforce a charitable trust … .”²¹⁹

With those developments in mind, the Musk court concluded that, “in any event, Musk has standing through his special interest in enforcing the trust. Musk, as the settlor, has a ‘special interest’ in the performance of the trust's charitable purpose.”²²⁰ And that’s how the “special interest” exception to the common law rule that only the attorney general may bring enforcement actions against charitable trusts—an exception that specifically excluded settlors—came to be used as the rationale for granting settlors standing to bring enforcement actions.

* * *

The equitable principles governing charitable trusts do not suffer from the type of mutually exclusive legal principles that arise upon the effort to shoehorn restricted charitable gifts into the form of a contract. But the pressure to find some vehicle by which donors can enforce charitable gift restrictions has been building, and it is distorting the equitable principles that govern charitable trusts, too. The transformation of the “special interest” exception into an entry point for donors’ enforcement actions is opportunistic; it reflects the implementation of a new policy rather than a legal analysis. Although this development is not supportable as a faithful application of relevant equitable principles, it at least provides a datum suggesting that the issue needs to be addressed by state legislatures, which are the proper fora for turning policy considerations into law.

C. Torts and Donor Intent

Donors and courts have been characterizing restricted charitable gifts as either contracts or charitable trusts in an effort to hold charitable organizations accountable when they disregard a donor’s intent. But there is an alternative approach, although it’s a bit of a blunt instrument. Some donors have brought tort-based claims when faced with intransigent gift recipients. These theories aren’t meant to secure adherence to gift restrictions, per se, but instead are aimed at unwinding the gift from the beginning.

Tort claims, in this context, take aim at the formation of the charitable transactions, alleging either that the contributions were obtained through fraud or, upon receipt, were converted to unauthorized purposes. These theories are not subject to the common law rule that only the attorney general may bring enforcement actions because, functionally, they seek the return of the gift, not enforcement of a restriction. The court in the Carrier case, for example, specifically rejected the application of that rule because, it said, it does apply to “a scenario in which, like here, the plaintiff's charitable gift was allegedly obtained by fraudulent means.”²²¹ Likewise, the Texas Court of Appeals concluded a donor could pursue a conversion claim because, “[u]nlike the attorney general, who has standing to represent the general public's interest in the charity's administration, Eshelman has standing to assert his private interest,” which was damaged by the alleged conversion of the gift to unauthorized uses.²²² And in the Cohen case, the court said the donor had standing to pursue a fraud claim against the Kabbalah Centre. Cohen alleged she had relied on the Centre’s representation that her funds would be put to a specific use, that absent that representation she wouldn’t have made the gift, and that the Centre failed to use her gift for the agreed upon purpose. Even though her claim was ultimately unsuccessful, it wasn’t because the cause of action wasn’t viable, but because she failed to provide sufficient supporting evidence.²²³ Nothing in the court’s reasoning suggested that the cause of action was otherwise infirm.

Because tort theories are not specifically aimed at enforcing restrictions on charitable gifts, but on canceling or recovering the contribution, they have little to say about the effort to protect donor intent. Their most important contribution is, possibly, an in terrorem effect that dissuades charities from disregarding the donors’ wishes.

* * *

The pressure on the judiciary to find some mechanism to protect donor intent regarding restricted charitable gifts is undeniable. But using the common law or equity as a vehicle is like pouring new wine into old wineskins—neither one survives the exercise. The common law embodies customs, principles, and traditions whose origins are so old that “‘the memory of man runneth not to the contrary.’”²²⁴ So it’s no surprise it isn’t prepared to accommodate a concept that requires the blurring of its fundamental distinctions. And the equitable principles governing trusts, with their foundation in the ancient division of legal and equitable titles to facilitate the transfer of real estate in medieval England,²²⁵ are equally freighted with age-old forms that do not naturally lend themselves to conferring standing on a donor whose relationship to the trust res terminates upon completion of the gift.

Although the problem looks intractable from the standpoint of the common law and equity, it is susceptible to legislative solutions. Indeed, tackling subjects and problems that are not amenable to the common law or equity is a decent working definition of the legislature’s responsibility.²²⁶ The SEGA helps legislatures shoulder that responsibility with a straightforward, broadly applicable model act that replaces badly battered common law and equitable theories.

Neither The Common Law Nor Equity Can Reliably Protect Donor Intent

A. Contracts And Donor Intent

B. Charitable Trusts And Donor Intent

C. Torts and Donor Intent

Mentioned on this page