                       The Attorney                General of Texas
                                          August      26,   1980
MARK WHITE
Attorney General

                   Honorable Robert E. Stewart               Opinion No. NW-229
                   Banking Commissioner
                   Department of Banking                     Re: Time credit prices for prepaid
                   2601 North Lamar                          funeral contracts
                   Austin, Texas 78705

                   Dear Commissioner Stewart:

                          The Department of Banking is charged with the administration      of
                   article 548b, V.T.C.S., which regulates the sale of prearranged or prepaid
                   funeral merchandise.    Contracts therefor must be in writing on forms
                   approved by the Department and must set forth the particulars of the
                   merchandise, the professional services, and the facilities to be provided.
                   V.T.C.S. art. 548b, S2. You ask:

                                  May a time price differential    be included in a
                              contract for prearranged benefits when the payments
                              on the contracts are on a deferred basis?

                          The term “time price differential” is used in the Retail Installment
                   Sales Act, chapter 6, of the Consumer Credit Code, to mean the amount
                   paid for the privilege of purchasing goods and services, as there defined,
                   that are to be paid out in installments over a period of time. V.T.C.S. art.
                   5069-6.01(h). It signifies the difference between the seller’s “cash price” and
                   his “credit price” for the goods and services sold A time price differential
                   arising out of a credit sale does not constitute interest, and an authorized,
                   bona fide charge &es not constitute      usury. V.T.C.S. arts. 5069-1.01, 5069-
                   2.01(h); Rattan v. Commercial Credit Co., 131 SW. 2d 399 (Tex. Civ. App. -
                    Dallas 1939, writ rePd).

                          We heve concluded that contracts for prearranged funeral benefits
                   regulated by the department under article 548b may not properly include a
                   “time price differential,” even though payments on the contracts are
                   deferred,    because such contracts do not evidence “retail installment
                   transactions” within the meaning of the Retail Installment Sales Act, nor
                   “credit sales” within the meaning of articlea 5069-1.01 and 5069-2.01(h),
                   V.T.C.S.

                          Article 548b expressly provides that the date of death of the
                   beneficiary of such a contract shall be the maturity date of the contract.
                   y. S5(3). Moreover, it provides that the delivery of funeral merchandise




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Honorable Robert E. Stewart    - Page Two     (NW-229 1




prior to death shall not constitute performance or fulfillment, either wholly or in part,
of any such contract.    Id Sl. All monies paid by the purchaser cn the contract must
be deposited in a trust-&id     for the use and benefit of the purchaser or beneficiary,
except that a statutorily designated amount may be retained by the seller. Id. S5(1),
(2). The purchaser may cancel the contract at any time before maturity andxcover
back all monies paid except such amounts retained.     Id. S5t4). See Falkner v. Memorial
Gardens Assoc., 298 S.W. 2d 934 (Tex. Civ. App. - Ai&n 1957,writ rePd n.r.e.).

       In 1967 the Texas Legislature enacted the Consumer Credit Code,. declaring a
need for “a comprehensive code of legislation to clearly define interest and usury,. . .
to regulate credit sales and services, and place limitations on charges imposed in
connection with such sales and services” in consumer transactions.        Acts 1967, 60th
Leg., ch. 274 at 608. Chapter six thereof, the Retail Installment Sales Act, regulates
retail installment transactions and allows the inclusion of time price differentials
therein. See V.T.C.S. arts. 5069-6.01, 5069-6.02(9)(a). “Goods” are &fined in article
5069-6.01tomean     tangible personal property when purchased for personal, family or
household use and mt for commercial or business use, excluding money, things in
action or intangible personal property.      The definition of “services” excludes the
services of a professional person licensed by the state except when rendered in
connection with the purchase of “goods.” V.T.C.S. art. 5069-6.01(a), (b).

       Funeral directors and embalmers are professional persons licensed by the state.
V.T.C.S. art. 4582b.       Although funeral directors’ services are often rendered in
connection with the purchase of tangible property, such as caskets and grave vaults,
the purchaser of a prearranged funeral contract does not thereby acquire title to any
specific goods. He acquires only the right to have tangible goods, as well as services,
of a particular description provided at a future but uncertain time.

      The seller parts with no goods nor with the title to any specific goods prior to the
death of the beneficiary, and the contract forms approved by the Department of
Banking uniformly stipulate that the seller is under no obligation to deliver or provide
any merchandise for which the stipulated purchase price has not been fully paid. See
V.T.C.S. art. 548b, S2. Under such terms, no “sale” of funeral merchandise or servi=
occurs until that time, and when it occurs it is a “cash sale,” not a “credit sale.”

       A “sale” consists of the passing of title from the seller to the buyer for a price.
Bus. & Corn. Code 62.106. See First National Bank v. Ryerson & Son, Inc., 487 S.W. 2d
377 (Tex. Civ. App. - Texa&%a 1972, writ ref’d n.r.e.1. Goods must be both existing
and identified before any interest in them can pass. Bus. & Corn. Code S2.105. See
Bus. & Corn. Code SS2.102, 9.109, 9.203(d); 50 Tex. Jur. 2d rev. Sales S18 at 270 (196x
The codes do not define a “credit sale,” nor have Texas cases been found that define
the precise term, but Texas courts, in our opinion, would agree with the court in
Parnell v. Baham, 228 So. 2d 53 (La. App. - 4th Cir. 1969, writ rePd), where it was said:

                A ‘cash sale’ contemplates the concurrence of the payment
            with delivery and the transfer of ownership. . . . When delivery
            is made and ownership transferred by the seller to the purchaser
            upon an agreement that the purchaser will pay later - whether




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Honorable Robert E. Stewart     - Page Three      (Mw-229)




            it be hours, days, or longer - it is a credit sale. The seller parts
            with his goods upon the promise of the purchaser to pay.
            (Emphasis added)

Cf. Rush v. Smitherman,     294 S.W. 2d 873 (Tex. Civ. App. - San Antonio 1956, writ
i??d.)(similar facts).

      The effect of the contracts authorized by article 548b, V.T.C.S., and approved by
the Department of Banking is to give the purchasers thereof an option to later acquire
funeral goods and services of a particular description at specified prices, and to have
the consideration paid for the option applied against the purchase price of the goods
when acquired and the services when performed.

        An option to purchase is a contract supported by consideration whereby one party
sells to another party the right, at the election of the latter, to purchase certain
described property, for the price and upon the terms and conditions of the contract.
Ferguson v. von Seggern, 434 S.W. 2d 380 (Tex. Civ. App. -Dallas 1968, writ rePd
n.r.e.). Cf. Clayton Brokerage Co. v. Mouer, 520 S.W. 2d 802 (Tex. Civ. App. - Austin
19751, wxdism’d,      531 S.W. 2d 8051 (Tex. 1975) (London option). It is not a sale of
tangible property; it is the sale of a privilege to acquire tangible property.   Knox v.
Brown, 277 S.W. 91 (Tex. Comm’n App. 1925). -See 50 Tex. Jur. 2d rev. Sales S40 at 304
(1969).

       Here, the buyer has a statutory right to elect at any time (prior to the maturity
of the contract) to cancel the arrangement and pass up the purchase, forfeiting only
the small retainage allowed the seller and recovering the remainder of all he has paid.
Clearly, the initial transaction is not a sale of tangible property; it is but the sale of a
privilege to acquire it later. As a consequence, neither the pie-code nor post-code
cases cited to us as authority for a different result can be applicable here. Whether or
not other distinctions might also be made, they all involved in contracts effecting bona
fide sales of tangible property. See International Harvester Co. v. Rotello, 580 S.W.
2d 418 (Tex. Civ. App. - Houston-t        Dist.1 1979, no writ); Anguiano v. Jim Walter
Homes, Inc., 561 S.W. 2d 249 (Tex. Civ. App. -San Antonio 1978, writ rePd n.r.e.);
                                                                         , 183 S.W. 2d 657
                                                                         redit Co., supra.

                                     SUMMARY

                A time price differential may not be included in contracts
            for prearranged or prepaid funeral benefits regulated by article
            548b, V.T.C.S.

                                            *M




                                               Attorney General of Texas




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Honorable Robert E. Stewart    - Page Four     (MW-229)




JOHN W. FAINTER, JR.
First Assistant Attorney General

Prepared by Bruce Youngblood
Assistant Attorney General

APPROVED:
OPINION COMMFTEE

C. Robert Heath, Chairman
Jon Bible
Cathy Frayer
Susan Garrison
Ride Gilpin
Bruce Youngblood




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