Request By:
Mr. Jim Manakee
Manakee Funeral Home, Inc.
Route 2
Elizabethtown, KY 42701
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Susan N. Mastin, Assistant Attorney General
This letter is written in response to your recent request regarding your proposed pre-need funeral contract. You have asked for an opinion as to whether your contract protects the consumer and also protects you as a funeral director. The particular contract which you have inquired about is entitled "Purchase Agreement and Pre-Need Funeral Service" . Under the Purchase Agreement, the funeral home sells to the purchaser casket, vaults, and other funeral merchandise. The contract then states:
The parties further agree that the terms of said 'Purchasing Agreement' are to be effective at the signing thereof and that the 'Funeral Home' shall be required to deliver, immediately, the above listed funeral merchandise to 'Purchaser' .
The said funeral merchandise shall be the sole and separate property of the 'Purchaser' at the signing hereof and delivery, and it shall not be deemed a part of the future services provided for hereinafter, except as involves the storage option of said merchandise hereinafter provided.
Your proposed contract also provides for a pre-need funeral service contract. Under this section, in addition to offering to sell what seems to be normal funeral services, your contract offers:
As an additional service the 'Funeral Home' will provide storage in an insured structure for the above purchased funeral merchandise until time of need or demand by 'Purchaser' . I desire this service at $1.00 per month for next five (5) years.
The contract goes on to provide:
The 'Purchaser' may use any of the merchandise purchased or services contracted to benefit any person or persons designated by the 'Purchaser' in writing.. . . The parties agree that 'Funeral Home' shall deposit 100 percent of the monies paid under the funeral services section above in the 'Funeral Home' Funeral Trust Fund until time of need or demand, nothing shall preclude the depositing of said money in Certificates of Deposit in the name of the 'Funeral Home' . Upon the death of the 'Purchaser' or the rendering of the funderal services, if such is assigned by 'Purchaser' , the said monies and interest thereon become the property of Manakee Funeral Home. In no event will 'Purchaser' be required to pay more than the principal and interest unless additional services not herein provided for are requested at a later date.
The Kentucky law which governs pre-need funeral contracts is found at KRS 316.310 through 316.991. The law defines a pre-need burial contract as:
A contract which has for a purpose the furnishing or performance of funeral services, or the furnishing or delivery of personal property, merchandise, or services of any nature in connection with the final disposition of a dead human body, for future use at a time determinable by the death of the person whose body is to be disposed of; but does not mean furnishing of a cemetery lot or mausoleum.
Kentucky law requires that all payments received under a pre-need funeral contract be placed in a trust fund account. KRS 316.320 states, in part:
(1) All payments of money made to any person, partnership, association or corporation upon any agreement or contract, or any series or combination of agreements or contracts, but not including the furnishing of cemetery lots or mausoleums, which has for a purpose a furnishing or performance of funeral services, or the furnishing or delivery of personal property, merchandise, or services of any nature in connection with the final disposition of a dead human body, for future use at a time determinable by the death of the person whose body is to be disposed of, are held to be in trust funds. The person, partnership, association, or corporation receiving the payments is declared to be a trustee thereof, and shall deposit all payments in a trust account with a bank or trust company or invest said payments in a savings and loan association. . . .
(2) All payments made under the agreement, contract, or plan are and shall remain trust funds with the financial institution until the death of the person for whose service the funds were paid and until the delivery of all merchandise and full performance of all services called for by the agreement, contract, or plan, except where payment is made pursuant to KRS 316.330.
(3) The funds shall not be paid by the financial institution until a certified statement is furnished to the financial institution setting forth that all of the terms and conditions of the agreement have been fully performed by the person, association, partnership, firm or corporation. Any balance remaining in the fund after payment for the merchandise and services as set forth in the agreement, contract, or plan shall be paid to the estate of the beneficiary of the agreement, contract or plan.
Your proposed agreement entitled "Purchase Agreement and Pre-Need Funeral Service" , is within the purview of KRS 316.320. Therefore, all payments of money received under the Purchase Agreement and under the Pre-Need Funeral Service Contract part of the Agreement shall be placed in trust fund accounts in accordance to KRS 316.310 through 316.340. It is our opinion that the terms of your proposed contract which requires the funeral home to deliver immediately the funeral merchandise, as cited above, does not take this contract to sell funeral merchandise outside of the purview of the pre-need funderal law. To begin with, in reference to the above cited law, KRS 316.320 applies to "any series or combination of agreements or contracts" and requires that "all payments made under such agreements remain in trust fund with the financial institution until the death of the person for whose service the funds were paid and until the delivery of all merchandise and full performance of all services called for by the agreement." (Emphasis added.) Certainly, the use of the word delivery of all merchandise in the statute is tied to the death of the person and necessarily interpreted to be delivery at the time of the burial of the deceased. Although there is no Kentucky law interpreting this section, there is foreign law which supports this interpretation. In People of the State of Illinois v. Memorial Consultants, Inc., Ill. App., No. 76-439 (1977), the defendant was arguing that the Illinois pre-need funeral statute did not apply to their contract because delivery of the funeral merchandise was at the request of the purchaser and was not dependent upon the death of any person. The Court stated:
It is apparent that in the usual course of defendant's business, vaults are delivered at the time of burial of a deceased. . . . We thus conclude that the provisions for delivery upon request do not change the character of defendant's contract. These sales agreements are for the purpose of furnishing burial merchandise for future use at a time determinable by the death of the person to be buried, and such are governed by the statute. . . . The statutory construction urged by defendant would emasculate the act and defeat the clearly expressed legislative intent to regulate all pre-paid burial contracts.
Similarly, in
State, ex rel. Attorney General v. Smith Funeral Service, Inc., Tenn., 145 S.W.2d 1021, 1023 (1940), the Court concluded that the delivery clause in a pre-need funeral merchandise contract must be interpreted by the nature of the business pursued and the usual course of the particular business rather than by the things that may possibly be done in that business or by things that possibly have been done. The Court stated at 1023:
Only a rare and eccentric individual would in person, or through an agent, purchase for himself a coffin and grave clothes before he died. Human nature is that an individual revolts at acquiring and possessing during his lifetime such gruesome tokens of his end. A person, not abnormal, would not have such things around him during his lifetime.
Again, in interpreting a pre-need funeral merchandise contract, the
Court in State v. Anderson, Kan., 408 P.2d 864 (1965), stated at 873:
Considering the subject matter, the contracts clearly contemplate delivery of the property when actually needed. No other interpretation can reasonably be placed upon them. The remote but highly improbable exercise of the right given to the purchaser to demand his burial vault in advance of death does not change the real nature of the contract. . . . A statute will not be construed so as to defeat its unmistakable intention.
It is clear from the above case law that the proposed contract which provides for immediate delivery of the funeral merchandise to the purchaser does not change the real nature of the contract. The fact that the proposed contract also provides for a storage option of the funeral merchandise purchased illustrates further that the required immediate delivery provided for in the contract is not practical or reasonable. The proposed contract would fall under the purview of KRS 316.320 even though its terms call for immediate delivery.
The storage option provided for in the proposed contract definitely does not meet the delivery requirement of the funeral merchandise; and, therefore, all payments of money made for the funeral merchandise, even though it is stored at the option of the purchaser by the funeral home, shall be placed in trust fund accounts as required by KRS 316.320. There is no provision in the Kentucky law for storage of funeral merchandise or warehouse receipts. The law simply states that all payments made under the agreement shall remain trust funds until the death of the person for whose services the funds were paid and until delivery of all merchandise and full performance of all services called for. Delivery, as discussed above, can only reasonably mean at the time of the burial. This same type of transaction was reviewed by the Iowa District Court in State of Iowa, ex rel. Attorney General v. Blackhawk County Garden of Memories, Inc., Equity No. 55130 (1977). The facts in this situation involved the purchase of funeral merchandise and storage of the same for the purchasers. The Court held that such delivery of the merchandise was not delivery as called for by the statute and did not negate the requirements of depositing any money in trust. The Court stated:
First of all, there is no provision in Section 523A of the Code for 'constructive' delivery and the Court can only construe in 523A its simple and ordinary meaning which must be actual delivery. There is no provision in this section of the law for warehouse receipts, storage, or any other means of constructive delivery. . . . To allow defendant its constructive delivery argument would be to introduce confusion into the statute and thwart the apparent legislative intent.
Therefore, it is our opinion that the proposed contract is a pre-need funeral contract as defined by KRS 316.310. Any monies received under the purchase agreement of this contract for funeral merchandise shall be placed in trust funds in accordance with KRS 316.320. The terms of the contract which require the funeral home to deliver immediately the funeral merchandise to the purchaser and also allow for a storage option do not negate the requirements that all money paid for funeral merchandise purchased be placed in trust funds. Therefore, this agreement needs to be amended in accordance to the law and state that 100 percent of all money paid under the entire contract will be placed in a funeral trust fund as required by KRS 316.320.
Additionally, as required by law, said deposits shall be made in the name of the funeral home as trustee for the particular individual beneficiary. These deposits shall never be placed solely in the name of the funeral home as suggested by the proposed contract. The payments shall remain in trust funds as required by statute and shall only be paid by the financial institution when furnished with a certified statement from the funeral home that all terms and conditions of the agreement have been fully performed by the funeral home, or upon receiving 15 days' written notice as provided for in KRS 316.330.
So much of OAG 76-651 as is inconsistent with this opinion is hereby withdrawn.