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In re Morton Shoe Co.

United States Bankruptcy Court, D. Massachusetts
40 B.R. 948 (1984)
ELI5:

Rule of Law:

A charitable subscription is an enforceable contract under Massachusetts law if the charity can demonstrate either the existence of consideration or that it took substantial action in reliance on the pledge.


Facts:

  • In 1976, 1977, and 1978, Morton Shoe Company Inc. pledged and fully paid $10,000 per year to Combined Jewish Philanthropies of Greater Boston (CJP).
  • In 1979 and 1980, Morton Shoe again pledged $10,000 per year to CJP, for a total of $20,000.
  • CJP solicits donations using pledge cards which state that a subscriber's pledge is made in consideration of the pledges of others.
  • Based on the total amount of subscriptions pledged, CJP establishes an annual operating budget, determines distributions to recipients, and hires personnel.
  • CJP also borrows money from banks to make immediate distributions to beneficiaries in reliance on receiving the pledged funds.
  • The $20,000 pledged by Morton Shoe for 1979 and 1980 remains unpaid.

Procedural Posture:

  • Morton Shoe Company Inc. initiated bankruptcy proceedings in the U.S. Bankruptcy Court.
  • Combined Jewish Philanthropies of Greater Boston (CJP) filed a proof of claim for $20,000 against the debtor's estate.
  • Morton Shoe, the debtor, filed a timely objection to CJP's claim, asserting it was unenforceable.
  • The Bankruptcy Court held a hearing on the debtor's objection to the claim.

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Issue:

Does a charitable pledge become an enforceable contract under Massachusetts law when the charity relies on it for budgeting, borrowing, and making commitments to beneficiaries?


Opinions:

Majority - Gabriel, J.

Yes, a charitable pledge becomes an enforceable contract when the charity relies upon it. Massachusetts law supports the enforcement of charitable subscriptions under either a consideration theory or a reliance theory. The court found consideration in CJP's implicit promise to use the funds for its charitable purposes as stated in its charter, and in the mutual promises of other donors. Furthermore, the court found that CJP substantially relied on Morton Shoe's pledge by creating budgets, making commitments to beneficiaries, and borrowing funds to make immediate payments, all based on the expectation of receiving the pledged amounts. This reliance makes the pledge enforceable to prevent injustice.



Analysis:

This decision exemplifies the modern judicial trend of enforcing charitable pledges to support philanthropic institutions, moving away from strict, traditional contract formation requirements. By recognizing both consideration and promissory estoppel (reliance) as valid grounds for enforcement, the court provides charities with two distinct legal theories to secure promised donations. This strengthens the financial stability of non-profit organizations by treating their pledges as legally binding commitments rather than mere gratuitous promises. The case solidifies that a charity's operational and financial actions taken in reliance on a pledge are legally significant and can create an enforceable contract.

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