A Donation Agreement is created when a party wants to donate an asset to another party. Through this agreement, the donor agrees to make gratuitous disposal of a particular asset to another person or to a charitable organization. Such assets may include property, shares of a company or may even be cash. When the parties agree to document the various aspects of the promise of donation, it results in a donation agreement.
When Do You Need a Donation Agreement
This agreement is needed when a person wishing to make a donation to another person or organization wishes to document his intention through an agreement. A contract to donate is always needed where the donation is made subject to certain restrictions over the future use of the donation or where the donation is to be used by the donee only in accordance with certain pre-decided terms. In such cases the terms of the donation must be clearly laid down to avoid any misunderstanding between the parties in the future.
The purpose of this agreement is to lay down the terms and conditions of the donation and how it will be given effect to. The agreement must set forth the expectations and understandings of both the parties. A written agreement helps to reduce the chances of misunderstandings between the parties and also makes the promise of donation by the donor a legally binding obligation. This helps to protect the interests of the donee.
Inclusions in a Donation Agreement
The agreement must clearly state the names of the parties between whom the agreement is entered into. This will include the names of the party who is making the donation (the donor) and the party who is accepting the donation (the donee). The date on which the agreement is entered into must also be mentioned along with the territory in which the agreement is enforceable.
The agreement must include the details of the donation – how it will be made, the date on which it will be made etc. It should also include a statement that the donation made by the donor is irrevocable.
Apart from this, the agreement must clearly mention under which law it will be governed and how the agreement shall be terminated. The manner in which the agreement is to be modified should also be described to avoid any confusion in the future.
How to Draft a Donation Agreement
The following are the steps to follow while drafting an agreement:
- The donor must decide the asset/s that he would like to donate to the donee.
- The donor must make an offer to donate to the donee and such offer must be accepted by the donee after he becomes aware of the offer.
- Both parties must decide the method through which the donation must be made and the date for the same.
- This agreement must be drafted keeping in mind that the interests of both the parties are protected.
- The agreement must include a nominal consideration or a substitute for consideration to make it a legally binding contract.
- The agreement must take into account circumstances such as the donor’s death etc.
Benefits of a Donation Agreement
- The agreement provides solid evidence that the donation has been made by the donor. In case of the donor’s death, his estate will be legally obliged to fulfill contracts made during his lifetime. The existence of the agreement is helpful in case his family does not want to honor his promise of donation.
- The agreement makes the promise of donation into a legally binding obligation.
Consequences of Not Having a Donation Agreement
- In the absence of this agreement there is no solid evidence that the donation has been promised by the donor to the donee.
- There is no remedy available to the donee if the donor fails to fulfill his promise of the donation.
- If an organization makes certain expenditure relying on a promise of donation, they may suffer financial losses if the donor does not keep his promise.
Key Clauses in a Donation Agreement
The following are the key terms:
- Donation and acceptance
- Donative intention
- Covenants – Use of donation
- Representations and warranties of the donor
- Donor’s documentation and delivery of instruments
- Commissions and fees
- Acknowledgment, release and indemnity
- Modification of the agreement
- Governing law and jurisdiction
- Termination of the agreement
What Happens When You Violate a Donation Agreement
In some cases, if a promise to make a future donation is not satisfied, the other party may enforce such promise through judicial action. For this it is necessary that the promise must be properly documented through a binding contract.
This agreement does not have a valid consideration may not be upheld in court, hence the agreement should include a nominal consideration or some other substitute for consideration. An agreement to publicly recognize the donor or to name a building after the donor can be considered as valid consideration.
A well-drafted donation contract form will include a description of the investment in time and money or other prospective detriment that the organization is likely to incur by reliance on the promised donation.
The agreement can also mention that all disputes arising out of the agreement will be subject to the exclusive jurisdiction of a specified court.
Sample for Donation Agreement
A donation contract sample can be downloaded from below.