On November 8, 2019, the Iowa Supreme Court issued an opinion in the Matter of the Application of Coe College for Interpretation of Purported Gift Restriction. The case involves a gift of seven paintings of Grant Wood in 1976 by the Eppley foundation to Coe College in Cedar Rapids. The gift letter stated that the paintings would be given to the college “and that this would be their permanent home, hanging on the walls of Stewart Memorial Library”.
The college treated the paintings on its books as an unrestricted gift that could be sold or otherwise alienated. In 2016 an audit resulted in the paintings being treated as a restricted gift which in turn had an adverse impact on the college’s endowment fund. The District Court ruled that there exists a restriction on the alienability of the paintings. The Court ruled that neither Iowa Code Section 540A.106, which is part of the Uniform Prudent Management of Institutional Funds Act, nor the common law doctrine of cy pres set out in the Iowa Code in Section 633A.5102, applied and accordingly the Court declined to modify the restriction.
The Supreme Court stated that in Iowa, a “donor of property for a charitable use may impose such conditions as he may choose, including a restraint on alienation. This right is an exception to the prohibition against restraint on alienation”. The Court went on to cite the Restatement (Third) of Property dealing with gift restrictions and donative intent. The Restatement provides that “the controlling consideration in determining the meaning of a donative document is the donor’s intention. The donor’s intention is given effect to the maximum extent allowed by law”. The Restatement further adds “in seeking to determine the donor’s intention, all relevant evidence, whether direct or circumstantial, may be considered, including the text of the donative document and relevant extrinsic evidence”. The Court went on to quote the following from the Restatement “Extrinsic evidence of the circumstances surrounding the execution of the donative document that might bear on the donor’s intention, directly or circumstantially, may always be considered”. The Court went on to note that it has not previously approved the cited portions of the Restatement. However, the Court noted that it has applied the same Restatement in other contexts. The Court went on to state that Iowa case law appears to have followed the Restatement approach. The Court set out a quote from a 1953 case of the Supreme Court which stated the following: “It is a well recognized rule, uniformly followed by all courts that gifts to charitable uses and purposes are highly favored in law, and will be most liberally construed to make effectual the intended purpose of the donor”.
The Court found that the Foundation made a gift subject to the restriction that the paintings would remain permanently in the Coe College library. The Court ordered out that a critical factor was that the gift letter described in detail how the donor would be recognized along with the paintings. Four of the five paragraphs of the gift letter were devoted to the donor’s memorial.
The Court went on to find that a gift should not be modified or removed under Iowa Code Section 540A.106 or 633A.5102. The Court found that Iowa Code Section 540A.106 did not apply because the gift was not “funds”. The Court found the gift to be “program-related assets”. Finally, the Court concluded it was premature to consider the application of cy pres because there was no showing the gift restrictions could not be carried out at present.