It’s a scenario no church wants to face. A large donor suddenly has a change of heart and demands that some or all of a significant gift be returned. Perhaps the donor is facing an unexpected financial crisis, or perhaps the church has done something to offend the donor. Whatever the reason, what happens if the donor threatens to sue?
For a donor to successfully sue a church for recovery of a donation there must be facts that support a sound legal argument to support the donor’s claim. An argument of “I need the money” is unlikely to stand up in court. But if a church’s representatives make promises that a gift will be used in certain ways, but it ends up being used for radically different purposes, a donor may have more of an argument.
If a church has a fundraising policy that spells out when gifts may be returned, it can protect itself from many types of refund demand. A large donor should be provided with the church’s terms, preferably before the gift is made, to put the donor on notice that its gift likely is nonrefundable. A church may wish to grant its board authority to approve refunds in rare cases where, for example, the board determines that the gift was the result of donor error or created undue hardship for the donor. But churches are not obligated to make such policies.
People and organizations that routinely make large donations are increasingly asking their charities to execute contracts that allow the donor an option to rescind or repurpose the gift in the event that the organization fails to meet certain requirements, or uses the gift in ways the donor does not approve. Churches that are asked to sign such agreements should consult with an attorney to analyze whether the terms of the contract are acceptable.
Having a clear, consistent approach to donors is the best way to avoid requests for refunds. If a demand is made despite clear policies, church leaders should consult with an attorney as soon as possible to discuss their options. Even if a disgruntled donor’s legal case is weak, it may still file a lawsuit in hopes of forcing the church’s hand. In some cases it may be preferable to offer a compromise than to fight to the bitter end.
The Church Law Center of California provides legal services to churches and secular nonprofits. Call us today if your church has questions about how to craft a donation policy or how to manage a difficult donor relationship. We can be reached at (949) 689-0437 or through our contact page.