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Memorial Gardens Ass'n v. Smith

OPINION FILED JANUARY 23, 1959

MEMORIAL GARDENS ASSOCIATION, INC., ET AL., APPELLANTS,

v.

ELBERT S. SMITH, AUDITOR OF PUBLIC ACCOUNTS, ET AL., APPELLEES.



APPEAL from the Circuit Court of Sangamon County; the Hon. DeWITT S. CROW, Judge, presiding.

MR. JUSTICE DAVIS DELIVERED THE OPINION OF THE COURT:

Rehearing denied March 18, 1959.

Plaintiffs, Memorial Gardens Association, Inc., Glendale Memorial Gardens, Inc., and Evergreen Memorial Gardens, Inc., Illinois corporations, brought suit in the circuit court of Sangamon County against the Auditor of Public Accounts and the State's Attorney of Peoria County seeking to enjoin the defendants from enforcing the provisions of an act entitled "An Act concerning agreements for furnishing or delivery of personal property, merchandise or services in connection with the final disposition of dead human bodies and regulating use or disposition of funds paid on said agreements and providing penalties for violation thereof," passed on June 29 and approved on July 14, 1955. (Laws of 1955, pp. 2020-2022; Ill. Rev. Stat. 1955, chap. 111 1/2, pars. 73.101-73.108.) The complaint alleged that the act was unconstitutional and otherwise invalid for the reasons herein discussed. At the request of plaintiffs, the court issued a temporary injunction. Defendants answered, denying the charges of unconstitutionality, and admitting the other material allegations of the complaint. The cause was submitted upon an agreed stipulation of facts. After hearing, the trial court dismissed the complaint for want of equity, but continued the temporary injunction in force pending direct appeal to this court based on the constitutionality of such enactment.

The pertinent portions of the act provide that money paid to anyone on a contract for the purpose of furnishing or performing funeral services, or the furnishing or delivery of any 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 or persons whose body or bodies are to be so disposed of," shall be trust funds and the person receiving such payments is a trustee of such funds. It requires that monies so received be deposited within 30 days in a bank or trust company licensed to do business in this State; that the trustee furnish the depositary with the name of each payor and the amount of payment on each account; that persons or organizations receiving such payments obtain a license from the Auditor of Public Accounts, after giving specified information and filing a fidelity bond of not more than $10,000; that each licensee shall keep books and records of all transactions and shall make reports to the Auditor annually, or oftener if required; and that all records shall be subject to the Auditor's inspection and investigation. The act specifies that the amounts deposited and interest thereon shall not be withdrawn until the death of the person or persons for whose funeral or burial such funds were paid, unless sooner withdrawn and repaid to the original payor, or his legal representative, cases of forfeiture for nonpayment excepted. Forfeiture of payments made is limited to 25 per cent or $35, whichever is greater. The trustee and the depositary are authorized to receive from deposited funds their reasonable expenses and compensation in connection with custody and administration which shall not exceed in the aggregate 5 per cent of principal and 5 per cent of earnings of funds deposited in each case. Penalties are prescribed for violating the provisions of the act.

It appears from the agreed statement of facts that: The plaintiffs own and operate 12 cemeteries in this State and are members of Associated Cemetery Management, Inc., a service corporation which performs accounting services for its members, which are corporations owning and operating over 200 cemeteries in 22 States. Plaintiffs are authorized to dispose of burial plots and to deal in caskets, burial vaults, grave markers and other merchandise connected with a cemetery or burial establishment. In addition to the sale of burial space, the plaintiffs' business consists principally of contracting for the sale of burial vaults, family and individual memorials or markers, and services in connection with the opening and closing of graves. The contracts for merchandise and services provide for delivery and performance by plaintiffs when items are fully paid for "upon request of the purchaser, his heirs or assigns." There is no performance by the company until full payment is made under the contract. In over 95 per cent of the cases, payments are to be made in installments extending over a period of three years. A 50-cent service charge is to be paid on each installment payment. In the event of default in any of the installment payments for more than 30 days the company may, at its option, declare the agreement null and void and retain the payments theretofore made as liquidated damages. Exceptions, limited to one year, are provided in the event of illness, disability or unemployment, upon notice to the company, with the further stipulation that the prospective purchaser shall supply the company monthly with satisfactory proof of the continuance of inability to pay. All contracts contain an escalator clause which provides that if the costs of merchandise or services at the time of delivery are greater than the cost at the date of contract, the purchaser shall pay an additional sum sufficient to cover the difference in cost, and if the costs to the company upon delivery are less than at the date of contract, the difference shall be refunded.

The contracts also contain a guarantee-of-performance clause whereby the company agrees that it will set aside and place in a trust fund "sufficient money, based upon its present costs and its present wholesale costs with reliable manufacturers to pay for said merchandise and services when delivered," and that the income therefrom shall be used for the best interests of the company, as its board of directors may determine. However, plaintiffs do not agree, in the case of an installment payment contract, to deposit any amount in such trust fund until all installments have been paid in full. Presently, plaintiffs have deposited over $294,000, in an irrevocable trust fund to guarantee performance and have deposited over $96,000 in a special account for future trust funds. Total gross income of plaintiffs for the years 1953, 1954 and 1955 was $2,669,529.44 of which $1,679,048.02 was from the sale of personal property and $800,787.89 from the sale of lots, the balance being represented by charges for the opening and closing of graves, interest from trust funds and service charges.

Plaintiffs employ salesmen on a commission basis and their commissions are due and payable at the time a contract is signed. In sales of merchandise, sales commissions average 32.1 per cent, local office salaries 3 per cent, cost of merchandise 31.3 per cent and various operational expenses 33.2 per cent of the purchase price, and the balance of .4 of 1 per cent is profit. The average price of vaults is $85, family memorials $168.50, companionate memorials $237.50 and interment services $30. While contracts are made with persons of all ages, more than half are executed with persons in the 40 to 50 year age bracket, who have an average life expectancy of almost 29 years according to the standard tables of mortality submitted by plaintiffs. Approximately 5 per cent of plaintiffs' sales of merchandise or services are made at need or at death, and about 95 per cent on the "pre-need" or before death plan.

It is apparent that the transactions between plaintiffs and their customers do not constitute present sales. The company agrees "to obtain for the benefit" of the purchaser the merchandise specified or substitutes therefor. The contract does not contemplate that delivery will be made or services rendered until after the death of the purchaser. Delivery may be, and usually is, made to his "heirs and assigns" and then only upon request and after full payment of the purchase price. On the contract date, the merchandise is not necessarily in possession of the company or even in existence. Meanwhile, for a period of time as indefinite as life, the company has possession and control of the purchase money paid and, though a trust fund is to be created to guarantee performance, only sufficient money will be set aside to pay for merchandise and services and such indefinite sum will not be set aside until the installment contract is paid in full. Moreover, the income to be earned from the funds set aside between time of payment and the death of the purchaser is "to be used for the best interests of the company or its nominees, as its board of directors may determine." Thus the benefits from such funds inure entirely to plaintiffs, while the risk of increased costs between the date of the contract and performance rests upon the purchaser.

We also note that while plaintiffs contend that the successful operation of their business requires the immediate deduction from payments of 32.1 per cent for commissions and over 36 per cent for other operational expenses, the agreement fails to advise the purchaser of such fact. The provisions of the guarantee-of-performance clause, though indefinite, are bound to induce purchasers to believe that they are providing a fund to insure their proper burial. In view of such sales and operational expenses, the legislature undoubtedly considered the question of the ability of plaintiffs to fulfill their contractual obligations. In the light of this background, we shall examine the charges of invalidity brought against the statute.

Plaintiffs urge that the act constitutes an unwarranted exercise of the police power; and that it is confiscatory of plaintiffs' business and thereby violates the due process provisions of the State and Federal constitutions. We will first consider this contention. The police power is an attribute of sovereignty inherent in every government. It has been reserved to all the States by the constitution of the United States. (Union Cemetery Ass'n v. Cooper, 414 Ill. 23; 11 Am. Jur. p. 966, par. 245.) While it is not without limitation and may not be exercised arbitrarily, the legislatures of the States have broad discretion in the passage of statutes in its exercise. (Union Cemetery Ass'n v. Cooper, 414 Ill. 23, 32.) When the legislature has considered a problem and enacted legislation thereon, the act is presumptively a valid exercise of the power and the burden rests upon the one assailing the statute to show that it is without reasonable basis and entirely arbitrary. (Union Cemetery Ass'n v. Cooper, 414 Ill. 23, 32; Stewart v. Brady, 300 Ill. 425; O'Gorman & Young, Inc. v. Hartford Fire Insurance Co. 282 U.S. 251, 75 L.ed. 324.) The enactment of statutes having for their object the prevention of fraud, deceit, cheating, and imposition is within the police power of a State. 16 C.J.S. page 924, par. 187; Baim v. Fleck, 406 Ill. 193; Carolene Products Co. v. McLaughlin, 365 Ill. 62.

There can be no doubt that the act relates to a proper subject for the exercise of the police power. The public has a vital interest in the proper disposition of the bodies of its deceased members. Persons engaged in this business have been subjected to rigorous regulation specifying the place and manner in which their activities may be conducted and proscribing such activities without license or permit. This has been done, not only out of proper respect for the dead, but in the interest of public health. Such regulatory statutes have not been confined to the business of undertaking and embalming. In this State burial societies which are engaged in the business of providing burial benefits for the payment of funeral, burial or other expenses on behalf of their deceased members, are subjected to certain compulsions, including the maintenance of reserves in the form of deposits with the Director of Insurance. (Ill. Rev. Stat. 1957, chap. 73, pars. 950-963, incl.) Under the provisions of the Cemetery Care Act, (Ill. Rev. Stat. 1957, chap. 21, pars. 64.1-64.24 incl.) cemeteries within the purview of the act are required to place funds paid for "perpetual care" in trust to guarantee performance of the obligations undertaken. In Union Cemetery Ass'n v. Cooper, 414 Ill. 23, we held that act to constitute a valid exercise of the police power. In view of the provisions of the Insurance Code regulating the manner in which burial societies may conduct their business, and those of the Cemetery Care Act, exercising supervision over funds paid for the perpetual cemetery care, the provisions of the act in question requiring the deposit of funds in trust to guarantee contract performance are not unusual. There is nothing unique in requiring one who contracts for performance in futuro to give security for that performance. Thus, legislation requires contractors in public construction to give performance bonds, and compels insurance companies to maintain certain reserves and deposit security with administrative authorities charged with the supervision of their activities. The use of such bonds is generally accepted, and it is well settled that the insurance business is affected with a public interest and subject to control by the State in the exercise of its police power. 29 Am.Jur. p. 59, par. 22; People ex rel. American Bankers Insurance Co. v. Palmer, 363 Ill. 499, 508.

The contracts here involved are analogous to a form of insurance. By payments made during life, the purchasers seek to insure their burial. The net effect is the same as though a life insurance contract were purchased to provide a sufficient sum payable at death to accomplish that result. In the case of insurance, the right of the legislature to require reserves and the deposit of security is unquestioned. The trust fund provisions of the act in question are designed to accomplish the same purpose, that is, to assure the purchasers that the company will be able to complete their contracts when the time for performance arrives. When we consider that contract payments are to be made in a maximum of three years and that the average time until performance of the "pre-need" contracts is almost 29 years, the justice of the legislation becomes evident. Plaintiffs, themselves, have recognized the need of some protection for the purchaser by including in their form of contract certain vague provisions relative to setting aside a trust fund. These illusory provisions furnish purchaser appeal, but fail to provide the protection which the situation warrants.

Plaintiffs cite State v. Memorial Gardens Development Corp. (W. Va. 1957,) 101 S.E.2d 425, in support of their contention that the act in question is not a proper exercise of the police power. In that case, the Supreme Court of Appeals of West Virginia held that a similar statute constituted an unlawful exercise of the police power and was invalid. However, there was a vigorous dissent from the opinion which, we believe, contains the better reasoning and is more in accord with general judicial precedent upon the question. In Falkner v. Memorial Gardens Ass'n, (Texas, 1957) 298 S.W.2d 934, the Court of Civil Appeals of Texas unanimously upheld the validity of an act almost identical to ours. But we need not look to foreign jurisdictions for authority in that Union Cemetery Ass'n v. Cooper, 414 Ill. 23, amply sustains our act. We there held that the preservation ...


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