Donors to nonprofits will sometimes make informal requests for how their gifts will be used. Fundraising professionals always need to pay attention to these requests, even if they aren’t necessarily enforceable obligations. After all, a donor who feels ignored is unlikely to give again.
When a donor’s gift restrictions are clearly spelled out in writing, there may be a strong argument that a contract exists between the nonprofit and the donor with respect to those restrictions. But what about oral promises to honor a donor’s request?
In California, an oral contract is just as enforceable as a written one, with certain exceptions. The exceptions, provided in California Civil Code Section 1624 (often referred to by lawyers as the Statute of Frauds), have been shaped by the key problem with oral contracts: how to prove the scope of the contract.
A private conversation between two people leaves no evidence of what was said other than the individuals’ memories. When misunderstandings, biases, and incomplete information come into play, a high potential exists for one person to believe a contract was formed while the other does not.
Perhaps the most important exception in the Statute of Frauds is the first one (Section 1624(a)(1)): a contract that will not be performed within a year of being made must be in writing to be enforceable. In a donor context, the key question may be whether the donor’s gift condition is something that the nonprofit can perform within a year’s time.
Bear in mind that performance under a contract can be doing something, like spending the donor’s money on a certain project, or refraining from doing something, like not using the gift to pay for something the donor expressly does not want to support.
Here are two examples:
- A donor hands a substantial check to the nonprofit’s president and says, “Please use this to pay the rent.” The president says, “Will do.” In this case, the president’s oral promise might be enforceable, especially if the gift amount will be completely used up by the organization’s rent before a year has passed.
- A different donor writes another big check and says, “Use this to help renovate the new office space, whenever that happens.” At the time, the new office space is understood by the donor and the president to be a year or two away. When in two years’ time the gift is used to pay for staff salaries, the donor may not be able to enforce the president’s agreement because the organization’s performance was known to not be possible in a year’s time.
As we mentioned earlier, the legal enforceability of oral promises to donors is perhaps of secondary importance to maintaining a relationship of trust. On the other hand, nonprofits sometimes need to make difficult choices. When in doubt, it can be a good idea to reach out to the donor and explain the nonprofit’s plans. But care needs to be taken to avoid cementing an argument that a contract exists where it might otherwise have not. The Church Law Center of California helps nonprofits of all kinds navigate the complicated legal landscape. Managing fundraising risk is a key part of the work we do. If your organization needs help with issues like these, call us at (949) 689-0437 or reach out to us through our contact page.