 The American Law Institute is producing an audiovisual history of persons active in its affairs over the years. Today we shall be interviewing Professor Homer Kripke. Professor Kripke served as associate reporter for the Review Committee on Article 9 of the Uniform Commercial Code from 1967 to 1971. And as a consultant on the American Law Institute Federal Securities Code from 1971 to 1978, he is now an emeritus member of the Permanent Editorial Board of the Uniform Commercial Code. I interviewed Professor Kripke on September 8th, 1989. I did some research on your background. Homer, I understand you got your JD at Michigan 1933. Right. Michigan Law Review? I was on the Law Review. In those days, the Michigan Law Review was a faculty-run review. So there weren't any president or note editors or the like. I was on it both in my junior year and in the senior year as one of four advisors to the juniors on the faculty. On the review, that's the nearest they came to having any officers. I was the top man in my class. And then you went into private practice for 33 to 38, according to who's who? Yes. In Chicago and New York? In Chicago. Originally in Toledo, Ohio, my hometown, for six months, and then in Chicago. I went from there to the SEC. Well, you were until 1944. I take it. And then Assistant General Counsel CIT Financial Corporation. Right. So 1960, private practice again. And back to Allied Concord, Finance Court. Financial Court. Financial Court. Until 66. And then... That 68 is wrong. I think it's 61. 61. And from there, you went to NYU. That's right. Well, you were a professor and became Professor Emeritus in 81. Then a distinguished professor in San Diego. You're also a member of the National... Remember, Emeritus National Bankers' Conference? And with that background, we come to the Uniform Commercial Code. How did that area of law become your area of expertise? Well, when I left the SEC, I had been Assistant General Counsel. I had argued some of the great cases. Well, I had been in charge of a public litigation at the SEC for about three years. I had argued the first cases on the famous death sentence under the Public Utility Owning Company Act and some other important reading cases. And I didn't mean to demean myself by going from there to just a money-grubbing organization. I talked to Henry Friendly, who was not yet a judge, but was a senior partner of the firm of Clary Gottlieb, Friendly, and later Hamilton. Originally, there was some other name instead of Hamilton. And he told me that he thought CIT was an excellent organization with excellent financial people. And talking to the person who was becoming General Counsel and who hired me, I got the picture, which I have always entertained and which I mentioned in my lecture yesterday, that here was the process of distributing our enormous outpouring of goods. And that it took a lot of financing, and the banks had not seen either the need or the opportunity and were leaving it to organizations like CIT. CIT was then the leading independent organization in the field. There was General Motors Acceptance Corporation, owned by General Motors, limiting itself to General Motors financing exclusively. There was a General Electric Credit Corporation limiting itself to products of which General Electric Motors or the like were at least important parts. There was similarly a Westinghouse Company. There was Commercial Credit, CIT's biggest rival, Associates Finance, which was a smaller rival. But CIT was the biggest independent, and it was extremely prosperous at that time, so much so that there was at least one year in which CIT made more money than any bank in the country. The banks, as I said, were missing a great opportunity. Not only that, but CIT recognized that they were business dependent on building a body of law that would be useful. The remarkable thing about General Motors Acceptance, the biggest company, is that it had no lawyers. It had a couple people with law degrees who functioned as political people, keeping an eye on legislatures, but it had no lawyers. It sort of depended on CIT to take care of the law. Commercial Credit had no lawyers in its employment, but it did have law firms in both New York and Baltimore, which primarily did commercial credit work. When their senior partner, Mr. Dills, died, one of their most important ableist men, Jack Levinson, left commercial credit and came to CIT, strengthening our legal department. So we were pleasantly engaged in consciously developing the law of the field, when other companies like General Motors and General Electric literally did not understand that this was necessary. So how did you get involved with... Pardon me? How did you become involved with UCC, with Carl L. Elwin, the ALI, the commissioners? Yes, well, I had been told by the fellow who was primarily keeping an eye on the development of the law that there was a uniform commercial coding process, and did I have any pet provisions I'd like to try to get in it? I ignored that, I didn't have any. And then Milton P. Kupfer of New York, who was the first general counsel of an organization whose present name is National Financial... National Commercial Finance Association. Its prior name was forgotten. Went to an American Bar Association meeting in Seattle in 1948, followed by a meeting of the commissioners at Uniform State Laws, and he brought back the first published draft of a chapter in our field of secured credit. It was a chapter on inventory, and he sent it to me. I read it, and Carl L. Elwin, who was the chief reporter of the Code, had used the expression in an article in 1948, inventory in the broader sense, including accounts receivable, and I hadn't thought much of that. I'll come back to Llewellyn's earlier exploration in this field in a moment. I hadn't thought much about that because he had recognized in the earlier law the close relationship between inventory and the accounts or other receivables arising from sale of inventory, so that remark was not exceptional. But in his draft, he defined inventory to include accounts receivable. Having written the draft, he forgot about his definition. The treatment of inventory was an excellent first draft and translated into understandable English, an excellent statute he had written in the field before the Uniform Trust Receipts Act, which was usable but ununderstandable, and I'll explain in a minute. And this time he wrote to a reasonable good first draft of inventory, but when you remember the definition and applied it to accounts, it gave you nightmares, because inventory is primarily a two-person relationship, a dealer and merchandise and a lender, and accounts receivable is a three-party relationship, a seller and a buyer, and a third party and takes over the credit obligation from the seller. And since he had totally ignored his definition, this draft gave me nightmares. I didn't know whether one dared to approach the famous Carl Llewellyn, but Allison Dunham I knew was working with him, and I knew Allison Dunham because we both lived in Westchester, New York, and we had met socially. So I asked Allison whether Llewellyn would talk to me. He said yes, I called Llewellyn, he invited me out, and he agreed readily that his draft had to be changed because of that definition, and then he started talking generally. He said that he knew that he had no touch-feel for these problems in what we now call asset-based financing, although that is a fairly new term. And he had tried to get the feel of it by talking to the banks, and then he quoted to me what I will try to repeat the way he said it. The banks told him, we don't know anything about shadow mortgages and that kind of stuff. We only deal with persons who come well-recommended. And he said that the banks gave me no help, and fortunately there was a fellow at CIT named Harold F. Birnbaum, whom he had known and who had been very helpful to him in understanding this business realistically. Unfortunately for him, fortunately for me, Harold F. Birnbaum had left CIT because he didn't get the general councilship that had gone to Los Angeles to practice law, and I was his successor, so it was just natural for Llewellyn to attach himself to me as someone who could give him guidance in the realistic application of this business. That was in 1948 that I had been working on the code, the financial part of my time ever since. Just as an aside, Harold F. Birnbaum is still alive, living, retired in Hawaii. He must be about 92 years old. His mind is still excellent. I came to know him when we were both working on the code together. He's always anxious to be briefed on anything that's going on, and he made some very valuable suggestions on Article 9, which are reflected in Section 9103. Harold is a member of the Institute, and each year when we sent out the annual meeting drafts, we received a note or two from him commenting on what might be done. I saw him in Hawaii several years ago. I didn't realize he was now 92. His handwritten notes come talking about suggestions how to improve a draft. 92 is just my guess as to his date, but he's certainly in his 90s or 89 or something like that. Was Allison Dunham the reporter at the time for Article 9? Was Allison Dunham and Grant Gilmore were co-reporters for Article 9? Not very long afterwards before I got very deeply into it, Dunham, who had been chosen because he was basically a real property lawyer, decided that there was no similarity between the law of real property and this field of law, and withdrew from the Wellam's team. Dunham left Gilmore as his drafting assistant on Article 9. Now, Gilmore had been a teacher of French. He went to law school and became a professor of law. The field, I think he has described this himself somewhere, the fields that he was to teach were originally unknown, and he got assigned to teaching personal property law, and that's how the Wellam picked him up when I saw him first, which was either that first time I went over or my next trip. He had a new draft of chapter on inventory, and it looked pretty good, but it wasn't complete, and it wasn't perfect by any means, and the Wellam sent him back for a redraft. I might mention that his theory was that their theory was that they would have separate chapters on inventory financing, a cost-receivable financing, consumer goods financing, and so on. As these separate drafts progressed, it became apparent that there was a lot of duplication in them and that the proper structure was not by types of goods or types of transactions, but by basic aspects of a securities transaction, such as the making of the agreement, the perfection, the rights of third parties, and so on. And the structure of Article 9 gradually evolved to what it presently is. Asaya Wellam was, of course, the associate chief reporter, and Carl had very great respect for her. Asaya was suspicious of anybody from the finance industry from the start, and when the New York City Bar began to organize to deal with the code, Charlie Willard was the first chairman of a committee, and I showed up at the organization meeting of the committee. Charlie Willard told him that Asaya had instructed him not to let the finance companies capture the committee, and I was excluded from that committee. It wasn't until later that Asaya recognized I was trying to do my best, as she and Grant both subsequently said in written documents, I always knew whether I was representing my client in the industry, and when I was acting pro bono, and I left no doubt with them if I was ever representing the industry that I was doing so in that particular time. So I got along fine after that with them. Was Asaya on Article 9 from the beginning when you started? I think Asaya was a floating half-back. It was on everything. The chemistry among all of you must have been very interesting. Carl was at least up, and until he began to get ill, he was very active in it, and we would talk about these problems together later as he got ill. Asaya became his executive assistant, and Grant and I, and Jerry Ayerton of Commercial Credit, Milton Kupfer, to a limited extent, although I think he never got beyond representing his industry, would kick these problems around. And so we ultimately produced that part of Article 9, that first version of Article 9 which was embodied in the code. I should say we had a lot of trouble with it. We soon recognized the proceeds problem and the priorities problem resulting from it, and we tried to solve it. We never could solve it. I sort of hoped that we could perfect a code and do what has recently been suggested, say that adopting states, in adopting states it will become effective five years from now, and in the meantime, I and others working in the field would try to apply it to pending developments and see if it worked right. So that, of course, was impossible. They had a problem budget, and Mr. Schneider and Judge Widrich were very anxious to finish the code, because they had not only budgetary problems, but maintaining the interest of the advisory committees and all the chapters. So at one point when I was puzzled by something, I told Schneider that Article 9 was not yet ready. We had to go through at least another draft. He said, well, we've got to get this thing out. Article 9 is not yet ready. We'll drop it. Fortunately, it didn't happen that way, because I think undoubtedly while the other chapters are highly meritorious, the novelty and coordination achieved by Article 9 as against the fragmentary diverse laws in the field has been the greatest achievement of the code. I have your... I understand there was a committee to review... a subcommittee to review Article 9 before the 1958 edition. Did you mention that Arton, he was the chairman of that, and the other names on there I had there was Yourself, Tony Felix, Peter Cougan, Grant Gilmore, and then Harold Bernbaum and Richard Walters. Remember that subcommittee that reviewed Article 9 before the 1958 edition? Before the 1958 edition. That was after the New York Law Revision Commission had come out with its report. I don't remember much about that. I don't remember who Richard Walters was. Walters, Richard Walters, I don't remember him either. Of course the other names. When did Peter Cougan come out? I meant to tell that story. I can't give you a definitive date, but Walter Malcolm of Boston had come into the discussions at an early date and was a frequent speaker on the background of the code. I don't think he got down into the nuts and bolts of Article 9 very much, but he was a strong supporter of the code. Then one day, fairly early in the game, as early perhaps as 19... let's see, the code was adopted in Massachusetts in 1854, and I mean Pennsylvania, effective 54. This must have been as early as 52. Walter Malcolm invited Carl and me to meet at the Association of the Bar of the City of New York, 44th Street, with Peter Cougan who we brought along. Now Peter and he are in effect rivals, their law firms were rivals for the business of the First National Bank of Boston, but they were very good friends together. Peter was a very adventurous lawyer in asset-based financing, doing innovative financing on moving pictures, television which was just then beginning for a very adventurous vice president of the bank whose name slips me. Is that the Russian name? Who? It was a Russian... Yes. I don't remember his name, but I remember Peter talking about it. The name will come to me. And Peter came to us and said in substance, I have an enormous problem, any firm guidance as to what I have to do to perfect a lien, what we now call a security interest, on some of the intangible assets which are my security in moving picture or television financing. In the beginning all I have is the contracts of the producer and the director and the star and other actors and the rights to the story, all of which are intangible. And when I'm all through, all I have is a can of film which in itself is worthless. It's the product that is valuable and we just don't know what we have to do to give us a firm legal hold is what we now call a security interest on them. They don't fit into any normal categories. They don't fit into your categories and your drafts of accounts receivable or equipment or consumer goods are the like. They don't fit as notes or a shuttle paper. What you need is some catch-all for this kind of valuable intangible and so we concocted the name General Intangibles but it in the code provided for filing to perfect it and give Peter a firm hold in the future and Peter became a loyal supporter of the code, the hardest worker, most productive writer, the best technician and he and Walter Malcolm put the code through in Massachusetts in 57 or 1958 when it had faltered with no enactments than Pennsylvania since 1952 enactment and I think the two of them saved the code. Peter was a very vigorous worker there, became the great star of the code and as you know published and maintained a book which drew the four volumes on the code. Walter Malcolm was a pretty take-charge person. I remember he used to drive Judge Goodrich wild with trying to take over and run the project and Goodrich would tell me that he doesn't know how he's going to cope with Walter and just wants to run away with the ball. Well, that was good because frankly some of us used to say Goodrich and Schneider were running around making speeches about this and we sometimes wondered whether they had ever read it. It had to be slowed down until the technical knots were gotten out and let me tell you a story there. There was a fellow who drafted Article 6 named Charlie Bunn. He was a professor at the University of Wisconsin I think, I didn't really know him but I saw him presenting Article 9 and he explained at one, I mean Article 6, he explained at one stage there are two present types of bulk sales laws. One is the New York model in which the buyer does not have to see to the application of the proceeds of the bulk sale. The other is the Pennsylvania model in which the buyer has to see to the application and if he doesn't he's going to be liable and most of the states have the New York model about 17 or 19 have the Pennsylvania model and naturally goes with a hand of which one does the reporter recommend Bunn puts up his hand like this. Obviously he never anticipated the question or knew what he was going to answer. That formed my judgment on Bunn. Then as Article 6 worked toward final form some matter arose. I can't remember what the detail was but I was convinced that Bunn had an error in his draft so I wrote him about it. I never got an answer but the next draft had the same answer so I wrote him again. The next draft had the same error and I wrote him at third time. This time I did get an answer but it came not from Bunn but from Dutch Goodrich and what he said was a paraphrase of a sentence that is connected with Oliver Cromwell. I looked this up once and I can't remember whether Cromwell said it or whether somebody said it to him but what Goodrich said to me was Homer I beseech you in the bowels of Christ rethink yourself that you might be mistaken. Goodrich is great on these quotes. I remember I was his law clerk and he would turn out an opinion with great dispatch and some of the other judges were considerably slower especially a chief judge and it would exasperate Goodrich and he would say God made the world in six days and on the seventh day he rested and it shouldn't take any longer to write an opinion. And he stuck to that. You mentioned Snader several times. He wrote her on the code all the way through he wrote her on getting it through and had to get it completed. As I said he never volunteered in any substantive comment either good or bad or said you missed this or I had this problem and I don't see that you handled it. Nothing like that but he was concerned with getting it enacted which was his problem and as I said if we weren't ready to go he was going to drop out article 9 and go ahead with what he had and once he had some enactments and the problem arose of completing them he was furious to have people known as those who had drafted the code criticizing it and suggesting that it was imperfect because that just multiplied his problems in getting it enacted in the remaining states. The three biggest defenders were Coogan, Gilmore and I. Remember Dunham too he was quite upset with Dunham one time. Dunham had he may have been but Dunham dropped out very early in my contact. I know that Dunham wrote some articles on the code after 1948. Absolutely infuriated, Senator. At any rate one problem that we knew we had not settled right and that caused considerable pain was the problem of fixtures. Section 9313 which was essentially modeled on the fixture provision of the Uniform Conditional Sales Act which was essentially modeled on a New York statute of 1904 which for the first time instead of saying once personal property is affixed to real property and becomes real property all personal property, financing on it disappears instead of saying that as most states said it said that under certain circumstances that personal property financing can be preserved. There were problems with it. For instance it took for granted that the debtor in the personal property financing was the owner of the real estate to whom the goods were fixed and yet on its face it would apply even if the debtor was a contractor who had bought the bathtubs from a supplier and executed Conditional Sales Contracts on them and then affixed them to real estate that had no connection with the contractor. So there were problems out there. Cougan dealt with some of the defects in a 1962 article in the Harvard Law Review. Gilmore came back with a 1963 article in the Harvard Law Review which like Gilmore went way back to the historical foundations of this problem in Fosdick against Shaw and other ancient railroad doctrines. And in 1964 I, just being a pragmatic guy dealt with what was wrong with the Uniform Conditional Sales Act and what was wrong with the 19th in the first version of 9.3.13 and what we had to do to correct it. Schneider was furious at us for writing these articles and in 1963 the American Bar Association met in Chicago and at that meeting we had the first of many subsequent meetings in which a group of the article 9 specialists Gilmore and Cougan, Haydoch or Morton Malcolm whoever else was around at the time a referee in bankruptcy had written some notable article on leases got around a table and in each case I was the interlocutor no doubt because they figured it was safer to let me ask the questions and try to answer and we had an informal unrehearsed free for all discussion on the existing problems of article 9. These three published versions of that kind of discussion. That first one is published in 19 Business Lawyer and there are these two others which are published in separate volumes and here at this session we were picking apart flaws in the code and the Gilmore and Cougan articles and fixtures had already been written and Schneider was furious he summoned Cougan and me to his hotel room he would have summoned Gilmore but Gilmore was not in Chicago at the time and he gave us hell for making his enactment job difficult by criticizing the product he was trying to sell and he said I want you to stop criticizing it so until we get all the states except Louisiana to enact it and we said when will that be? In 1967 he was exactly right because by the end of 66 he had all states but Louisiana and he kept his word in the fall of 66 we began organizing the review committee which functioned from 67 to 71 and produced 1772 amendments to article 9 now there's a bit of history there it was we three people who were the worst defenders and we showed our respect for Gilmore, for Schneider's view because I published my article in 64 after that meeting and in 66 before the review committee project was announced and organized I wrote an article in the New York Review on suggestions for revising article 9 in the Intangibles field and of course Gilmore and Coogan had not been muzzled either so when it came to picking the personnel of the review committee on reflection Schneider showed his teeth an exacted retribution I was in Alamogordo in New Mexico visiting my son who was a captain in the Air Force which had a big base there and had on view my first grandchild and I got a call from Bob Browker of Harvard Law School announcing that there was going to be a review committee and he Browker was going to be the reporter I was going to be the associate reporter but because he Browker was also at the same time the reporter for the restate of contracts I would be expected to do the work and carry the ball so I accepted that and didn't think much about it there was only a list of names of the ten people selected for the committee which included two judges and people like Millard Roode whom I didn't know very well Dave Henson whom I did not know as well then as I have come to know him Harold Marsh and there were so many potential people who could be chosen I failed to be impacted as I should have been by the absence of Gilmore and Coogan I must say I just overlooked it so I agreed with Browker and then I realized that some later time that Gilmore and Coogan had been omitted purposely and on reflection I realized that I had been chosen as a reporter but with Browker sitting over me to keep me from going wild so there was some to do about it some people threatened and I joined them not to go ahead on this committee unless Gilmore and Coogan were brought in and an arrangement was made to have them designated as consultants to the committee but without a vote that was their punishment and my punishment was to have Browker sitting over me I don't want to dwell on that because Browker was very able he did his share of the work if you read the 24 or so working reports I wrote to the committee in preparation for meetings you'll find that Browker seldom got around to reviewing them in time to joining them so they are mostly under my name alone but he was a meticulous ultimate reviewer he knew the style of the commissioners for drafting and enforced it vigorously on me so that it was acceptable to the commissioners and he was a better draftsman than I he solved some problems that I was stumbling on so I have no complaint about my interconnection with Bob Browker in that four years it was an excellent experience I'll give you a post script you know story about Cougan and the Gilmore when they weren't designated I got together with Herb Wexler and I said we must have them on there in some capacity you may recall that you Cougan were doing a lot of CLE programs for us that time around the country talking about the code and Herb agreed that they should be on there and working with her they were made consultants when Schneider found out that I had been instrumental in having them as consultants he didn't speak to me for a half year and he was absolutely furious with me I finally went up and met with him at his office and I said Bill I had Mr. Schneider I never called him Bill I said I really didn't do this to offend you as you think I explained to them their participation in the CLE programs their contribution their interest and I said I didn't think this project would have legitimacy it ought to have if they weren't involved in some way or he sort of softened up and forgave me and after that we were friends again as it happened Cougan who recognized how invaluable a good article 9 was and could be in practice worked very diligently on it I think Gilmore's mind was already off on other things for one thing he had written his book by then and it meant an early obsolete of his book that's not quite true because his book is so penetrating as the fundamentals that even after its discussions cease to be accurate and do changes in the code his book is still a penetrating discussion with broad historical background of many of these problems incidentally his book is supposed to be being updated by Professor Baker of Alabama to whom I lent some of my working papers so many years ago and then recalled them I haven't seen his book yet some of these books never get produced of course, Schneider was driven by this uniformity concept to him that was the most important thing and I noticed when he created the permanent editorial board uniformity the large permanent editorial board uniformity was one of the five criteria for action the board might take I don't know Schneider wanted these reports of the board which are published as prefaces basically to have committees pronounce against even this latest variation which might conform to state drafting style and none of the rest of us were interested in that kind of thing and on certain things like fixtures we didn't see any great need for uniformity anyway we weren't going to jeopardize the code to fight for uniformity as to fixtures in states like Ohio and California which had that old approach to fixtures which said once goods are fixed to realty shuttle financing is dead because ultimately there was no way to make uniform a decision of a state as to when personal property had become real property we weren't going to vary in accordance with 100 years of background in each state you had to adopt the local state law on it and it didn't make that much difference anyway because real property law is not uniform and can never be uniform fixture law is part of real property law and it had no uniformity as the fixtures the code would survive so none of us got bothered by it we were bothered by having a workable provision and we dealt very hard we worked very hard on it Cougan and I took the lead on this broader more or less washed his hands except in drafting helping me very much in drafting the solution Cougan and I met with a joint committee of the real state section of the American Bar Association and the committee of the American Land Title Association the insurers, real state insurers we met the equivalent of at least two four weeks over a period of several weeks battling out the present section 9 3 13 and once we had it with minor exceptions accepted it and the states which had refused to enact 3 13 originally one by one fell in line even California which had long resisted it fell in line a few years ago through the work of George Richter of Los Angeles whose excellent work on the code has seldom been credited enough he was a quiet person but very able. George Richter and Al Al Berger of Buffalo BUER of while we were working on the code took the lead in drafting the uniform certificate of title law which conformed to code thinking long before the code had made very much progress and became the first workable certificate of title law and it integrates beautifully with the code because those two men took a lead in drafting it that you're I remember the article in the iron view but he worked very very hard had a number of meetings and I think it was chaired as I recall by Herb Wexler. It's chaired by Herb Wexler who is very frank just as our present chairman he's the chairman of the of the board now Jeff Hazard just as Herb Wexler and Jeff Hazard both took the position that they didn't know anything technically about the subject but when we were stumbling over a drafting problem Herb Wexler was remarkably able to solve a drafting problem even though he didn't know the subject substantive it I think he's unduly modest that he may not know a subject when it started out but after a couple meetings he was very conversant with it he would start out saying this is not something I know much about but halfway through he knew as much almost as anyone who was participating changed Mr. Schiff gives a minute you were also involved in another ALI project the Federal Securities Code a reporter for which was Louis Loss and you were engaged as a consultant there Well Herb Wexler refused to let me be appointed to the Federal Securities Code until we completed the 1972 revisions of Article 9 and once they had two years jump on me and once that one was wrapped up in a bundle he let me be appointed to Louis Loss's project and I take it there were some differences there that developed Yes I don't think Louis Loss would mind you having you put it on record Well as it happened Louis Loss made his project too comprehensive and thus it took too long and he missed his timing he really had the Democratic Congress and a at least neutral Democratic president ready to go on the code but the Democrats lost the 1980 election and that was the end of the code as you know of course nobody could have foreseen that result of taking too long by trying to encompass too many topics but Louis Louis's great mistake was in trying to be a codifier of everything there and I could see and I could welcome a codification of all of the disclosure sections of the several statutes not only in the 1933 and the 34 acts but also the related disclosure sections of the Public Utility Holding Company Act and of the Investment Company Act and the Investment Advisors Act and so on he insisted on also codifying the substantive provisions of those statutes the regulation of Public Utility Holding Companies the infinitely complex and tiresome regulation of investment companies and number of definitions and that kind of stuff sticking him into this statute messing up the simple flow of disclosure and filing provisions by provisions about the Public Utility Service Companies and the like many of which were dead materials by the time he got there the so-called death sentence the breaking up of the holding companies was substantially complete long before 1980 nobody was interested in it anymore just paperwork to do the necessary filing and even the SEC wanted to get out from under and at one point favored either repeal of that act in the alternative letting somebody else do it they wanted no part of it Louisette there insisting on codifying it all and did I think a beautiful editorial job but it lengthened the damn thing it lengthened the time it took to present it to the layers of review that he had it involved problems that were no part of a unified disclosure code and as I said the result was that he lost his timing Louis primarily an editor rather than one who dealt with substantive problems at least two of these statutes the public securities exchange act of 1934 the securities the public utility holding act of 35 definitely and I think also the investment company after 1980 have preliminary legislative recitals the purpose of which is to give congressional recitals the fact to serve as the basis of the constitutionality of the statutes by mentioning problems which required federal as against state enactment so Louis came along 30 years 40 years after these recitals had been written and put them together in height verba word for word as they had been written 40 years earlier so I had made a practice because our meetings sometimes were very wasteful of time while somebody argued about minor points and I determined I would never hold up a meeting with minor corrections that I could deal with correspondence with Louis so I kept my mouth shut on his behalf and I wrote Louis and I said if the congressional recitals of evils in 1934 and 1935 and 1940 are still in effect and can be described in the same words but today then these statutes have obviously been totally useless instead of revising it we should reveal them so he got the point and he dropped those recitals but that's in some respect the kind of unduly careful repetition of everything in the statutes that he did instead of judicious pruning in the process now he and I had one big argument in as I said the SEC at one point wanted to reveal or get out from under the public utility owning company at some public meeting Joe Weiner had been the director of the public utility division and other knowledgeable people in that field expressed a strong view that the public utility portions of this statute of this securities code ought to be deleted we should limit ourselves to the disclosure material and Louie would not hear of it I came back and advocated that I told Lou that others had advocated it publicly he would not hear of it because he was building his monument and so he wrote around who agrees with Homer that we ought to take out the utility in the investment company sections nobody has the courage to destroy Louie's dream by saying to his face what they had said elsewhere so all that stuff stayed in and as I said he lost his timing because of the XB years that he took another example was that he put in there the provisions of the securities investors protection act which had been put in by congress which is in effect a guarantee somewhat similar to the federal deposit insurance which is now plaguing us to protect securities investors because of the collapse of many brokerage companies in 1970 as a result of the so called back office problem and that statute is not administered by the SEC it's a guarantee statute rather than a regulatory statute it doesn't tell anybody how he must run his business it merely provides for charging the companies a premium based on some formula pooling that and providing insurance for investors up to a specified amount which I think is $100,000 or maybe $300,000 I forgot one between that insurance and the private additional insurance that some brokerage firms offer it had nothing proper to do with a federal securities but it did have the word securities and he was damn insistent that he was going to put it in but he didn't understand the problems at all actually it's general counsel whose name slips me down who had been an SEC lawyer and Roberta Carmel and I updated that statute for him but he insisted on putting it in his approach of that kind primarily an updating editorial job was I think he did a beautiful job of that but I don't think it was the greatest job in terms of maximum contribution a contribution that would have cleaned out a lot of that stuff examining it substantively instead of just rewriting and consolidating it would have been a much greater contribution Louis of course is recognized as the greatest authority in the SEC undoubtedly makes a fortune on his books has just published a new edition one in three volumes successfully and I am a poor speckling guy living on a pension so I might criticize it let's get back to the final phase of this little interview and talk about the commercial code again there's a process of re-examination of revision going on now is it worth the effort that's taking place how do you view this review process there's a new article there's a new article there's a new article six as you know I think we needed an article 2A I no longer had a vote when article 2A came before the board but I announced that if I still had a vote I would have voted against but I think we did need an article 2A but not that one uh uh what was wrong with it in your view well we had gone through a long history and Carl O'Ellen fought this battle uh in article nine of publicizing uh cases of split ownership of property he fought it on the question of fighting as to accounts receivable one middle cupfer and his group said that if we file accounts receivable we'll be out of business we can't live with it uh there's a transcript somewhere in the New York low revision commission in which Grant Gilmore called cupfer's group a lot of names for that and of course Carl was instrumental in providing for fighting of conditional sales we just way back in 1941 John Hannah wrote an article in the Columbia Law Review arguing that there was too much fighting going on and Carl took the opposite position and caused the fighting as to accounts receivable and authorized the fighting as to chattel paper in the code and a lease is so close to a security interest that you have to have arbitrary demarcations to separate and that being so it seems to me that the simple way to avoid a lot of heading is to require filing on leases as you didn't work for uh conditional sales and other security interests of course if a person rents a punch bowl and punch cups for a week for a wedding you don't want a filing there so someone would have to work out a de minimis provision for short terms and small amounts that could be done nobody would argue very hard as to where you draw the line but that you have leases that are close to uh conditional sales that you have to provide arbitrary definitions to draw the line then say you can avoid filing by doing it in the lease form I think is a fundamental mistake now 30 years ago there was a practice of avoiding filing on what were really sales by couching in the form of a lease uh which as to which there were then no filing rules and make sure that at the end of the lease the lessee kept the property by writing an option on a separate piece of paper either in favor of the lessee or in favor of an affiliate of the lessee that's to be sure he got the property at the end the reason for doing it that way was that if the lease was for a fairly short term he got the deduction of his whole cost as rent because rent is deductible while it was frankly a sale transaction with security uh instead of deducting the payments you could only deduct depreciation and depreciation could be much longer than the period of payments so that the contractor's association published a form of lease with a separate option uh which was used to cheat the government and taxes now that problem ultimately was wiped out when accelerated depreciation came along and you didn't have to you could get the same deductions substantially either way but now if you recreate a situation in which you can avoid filing the disclosure with that kind of unethical device I think you're going to see it and I think the reason that the contractor's association and the other SOAs associations fought so vigorously for this code and against filing was precisely that we haven't seen it yet but hypothetically you're going to see it what do you think of the revision process an article by article or do you think they ought to do the whole code at one time I think Marty Aronstein has a concept that the entire code ought to be done as a unit rather than separate pieces that was Marty Aronstein's contention and he undoubtedly figured that he might play a leading role in it uh no one else got strongly behind it it's an awfully big project and the needs are not uniform obviously the sales article is ripe for revision Grant Kilmore used to comment that the real problems of sales were not dealt with in the present sales article because the real problems of sales are in franchising and that kind of thing code just doesn't deal with them uh article six certainly required something to be done down Rapson after having for years contended that the best thing to do with six was to repeal it in his victory but I asked Harris who was the final draftsman about it just yesterday he told me so far as appears from limited exposure that abandonment option is not going to meet with favor and apparently the new revision is not being enthusiastic either so I don't know what's going to come of article six is comparatively unimportant and might well have been left out of the code so it's not important but let's see where we are article eight uh is important and I'd like to talk about an incident there uh when we had drafted uh the revised article nine in seventy one reporters in the review committee we took it to the then permanent editorial board on which I think none of us sat and on the day of the appointment on the day of that appointment as we sat down we were in effect pushed out of our chairs by representatives of the American bankers association American bar association who seized the opportunity of that meeting of the board to say we have a national crisis in the paperwork debacle in the bank offices of the brokers and bankers in the securities field and we must revise or get rid of the stock certificate because someone had figured out that it takes nineteen different motions to sell hundred shares of stock from one client to a broker through his broker to another broker to the second client that's the minimum you have to have a new stock certificate prepared by a transfer agent and a registrar uh where there were nineteen but there were and the lower Manhattan was crowded with messengers running back and forth with stock certificates so they said we must get rid of the stock certificate so we want you immediately to draft amendments to article A which will make it possible to run stocks on book account well it's easier said than done of course and you remember a famous controversy between Aaron Stein between Cougan who belatedly criticized it in the Harvard Law Review and Aaron Stein paid and Hale was it Philadelphia I know who the guy Hale is not quite the right name Defending the statute Scott? Wait, Don Scott was it? Yeah I think it was Don Scott it took much longer than those people originally wanted and in the meantime the need had been achieved in other ways for one thing part of the crisis was due to the fact that the banks and brokers had just computerized and the computers couldn't talk to each other so it was a mess another part of it was that there were no provisions for immobilizing the stocks in the meantime the depository trust company had been created so that all the nominees put their stock in the depository trust company and the stocks and there is one big stock certificate and it never changes hands it's just the question of who they're holding it for they're holding for a broker who's holding it for his clients and so now even federal bills and notes are done that way and stock is done that way and article the article 8 amendments have not been widely used because by the time they were drafted other devices came along to immobilize the stocks to make it unnecessary but it's interesting that when a crisis arose instead of appealing to congress they came to the code authorities the fastest and best way to get it done correctly now we've got lots of other projects that come to the code authorities primarily because the drafting of the code has been well done and so we have article 4a as a part of the code Federal Reserve and the clearing houses seem content with that proposals for intellectual property to be drafted into the code and electronic messaging whatever that is as part of the code I don't even know what it is so the code has proved itself in all these things the code is just too big to be revised all at once it would take forever it would take too soon too many subcommittees which would have to be coordinated but what it does need even better better done than was done the first time is some coordinator who knows the code pretty well when you get a new articles on sales there are new 4 or 4a and so on be sure that the definitions in one are appropriately changed and if it affects 2 or 4 or 9 the changes are coordinated Bob Browker was the coordinator of the final article code the first time and I don't criticize Browker it's an enormous job but there are some mistakes in it we still struggle with the fact that the definition of security interest uses the term leon as being a form of security just when the code practices to use a leon to use the term leon for judgment and not for any substantial security interest so that was missed and there are other that's the definition of security interest 1 to a 1 37 and that was missed and I have come across a couple other things oh yeah purchase and purchaser purchase includes one who takes by leon our concept is that a leon is a judgment not anything that is part of what the code recognized that was missed you can't criticize it the code was just too big but the old mistakes would help us to be alert the next time around and a lot of people are better coordinated on it can I tell one interesting anecdote absolutely shortly after the code was promulgated I was at New York University New York University had two summer programs for judges one of them for state supreme court judges and a circuit court of appeals judges another for lesser judges and the code having just been adopted I was asked to speak to the senior judges for an hour about this code of course in one hour you couldn't begin to talk about substantive issues so I talked generally about differences in drafting style I said article nine was largely influenced by lawyers who practiced and they wanted to get from article nine answers to the specific questions article two was drafted by the lewellands and they favored odd statements which would be interpreted by the courts I once said in an article in 1962 in the Illinois law form that the lewellands were actually anti-statute what they wanted was to reverse certain directions in which the common law had been taking give it a fresh start and with some generalities and let the courts take over from there ten years later Sawyer in the lecture at the New York state bar association said that that article of mine was the only intelligent understanding as to what they had tried to do so in this coming back to my lecture to the judges in this I said article two is in broad generalities and it doesn't pin anything down to precise answers in fact it's worse than that because the structure and in rights saying everything twice article three of article two is on formation of the contract and article two is on performance obviously what the contract is and whether it's formed or two sides of the same coin so when you say the same thing twice in different language there's going to be some shades of difference and it permits argument as to what the code really means similarly article part five on performance and part six on default are two sides of the same coin and again you have everything said twice in somewhat different ways and an element of ambiguity keeps in and again part six on default and part seven on remedies are two sides of the same coin and again everything is said twice and you have ambiguities of minor conflicts with the result you can never look to article two and get a firm answer to a question but everything is said twice in somewhat different ways so I said that may have been Carl Wellins broad strategy because he believed in that in commercial cases there were usually something to be said on each side the best thing to do was to settle them and if he didn't give any solid answers in these cases it would be settled so when I got through two of the great state judges of this century Judge Shaffer of Illinois and judge trainer of California both came up and they gave me hell for having thrown mud at the statue of one of the great saints of American jurisprudence good story earlier professor quickly referred to the fact that the banks were not helpful in Carl Wellins code drafting what follows is a fuller explanation of the then existing situation and the codes impact I mentioned in the beginning that the Wellins had said that the banks told them they didn't know anything about channel mortgages and that stuff because they did business only with people who came well recommended that meant that they were dealing only with high class balance sheet risks and they were excluding two vast groups of potential credit users one was consumers the other was the small business man vast users of credit if they could get it the banks reasoned that the consumer had no assets was probably in debt and was obviously an unsafe credit and I come back to my former company CIT not merely because I am more familiar with them than any other but because I genuinely believe that they were a pioneer in both of these fields the CIT began interestingly enough in 1908 as a so called accounts receivable company its founder Henry Edelson had worked as a credit man for the Schoenberg furniture store whatever the name was which became the May department store company the Mays and the Schoenbergs were related they backed Edelson in founding this company and the Mays and the Schoenbergs became the largest stockholders of CIT except the Christopher Edelson so in 1916 Edelson saw an opportunity he dropped essentially out of the accounts receivable business except for very large deals and pioneered the business of extending credit to consumers on the security of automobiles being purchased on the so called installment plant he had the field almost to himself at first because as I say consumers were not balanced for credits and for years as late as 1948-44 when I came to the business people were writing articles saying comes the depression the consumers won't be able to pay and the automobile finance business will collapse it was never true and the people at CIT knew that it wasn't true because the thing had been severely tested at the very bottom of the biggest collapse the 1933 bank holiday when all of the banks were closed and when I came to CIT they told the story that when all the banks were closed consumers came to CIT's main office by the hundred with cash and pumped it down to the director's meeting table hundreds of thousands of dollars with the cash to maintain their payments when there wasn't a dollar available in any of the banks of the country that proved that consumers would maintain their accounts as they humanly could and that the big consumer asset is his job not necessarily any balance sheet assets but at a similar point the CIT people saw was true of the small business man and somewhere for the end of the 1920s or early 1930s CIT established some so-called industrial lending offices in which began to finance the purchase of machinery tools road building machinery construction machinery almost any kind of hard machinery that was durable and had a resale value and again the debtor was frequently not a balance sheet risk but CIT saw what the banks did not say that he was going to be able to pay out of the earnings of the machine being financed and out of the depreciation which protected some revenues from taxation and those credits proved to be very sound and when I left CIT in the early 1960s the original three offices in Chicago and San Francisco I had grown to well over 30 offices and I understand that in the late years they had something like 50 or 60 offices now why did the banks overlook these huge opportunities the banks as I say simply did not see that these were sound credits and secondly the complications that the banks were not prepared to face as to automobiles you had a vast confusion you had no in some states no special rules for automobiles and they were very mobile and it was hard to keep track of them in other states you had an original certificate of title law which was no good and finally there was an effective home certificate of title law which happened to fit in very well with the code because as I said it was drafted by two people who were fully familiar with the code George R. Richter Jr. and Alfred Burger so that was one aspect of the law that was straightened out for the banks without any help from them the second part was the lack of uniformity in the standard form of legal contract for sales on the so-called installment plan the conditional sale contract the uniform conditional sale that was enforced in only 13 or 14 states some states did not recognize conditional sales others had various variations some required acknowledgments some required affidavits some required witnesses etc CIT had gone to the trouble of working out all of those variations with a manual for completion and filing and a set of forms which provided all the variations on the formal requirements of the different states so that lay people could operate with them similarly when I came to it CIT had begun to make so-called capital loans substantial loans on the security of machinery already owned by a prospective debtor and my first major deal and my first travel CIT was during 1944 to close a loan for several hundred thousand dollars made by a 4C by a far-sighted man who wanted to buy a hosiery machine company in Tennessee somewhere because he realized that right after the war there was going to be an enormous demand for silk stockings again and he wanted to have the plant that could produce them and so we made a channel mortgage loan on a huge variety of machinery so before long I drew a second manual for CIT on all of the variations in channel mortgage law in the 48 states which was even more complicated as to the variations than the conditional sale book which we already had and it was in use so that any of our people could make a channel mortgage loan without the aid of lawyers now the code came along and wiped out all of these states variations and all of these complications thus making it easy for the banks to repair their error and get into these businesses which as I have described consisted of making possible our enormous flow of goods through financing the inventory financing the buyer and secondly enabling the dealer to cash in the buyer's obligation so he got the cash which he could pay off his inventory loan three stages the banks were able to get into that but there remained one obstacle the doctrine of Benedict against Ratner that case was a united states supreme court case purporting to decide New York law in a bankruptcy context New York had a 19th century doctrine which said that a channel mortgage on a stock of goods and inventory was fraudulent as a matter of law if the lender permitted the debtor to keep the proceeds of inventory as inventory was sown off because it was inconsistent with the concept of lien that the debtor could keep the proceeds of collateral when the collateral disappeared Judge Brandeis in Benedict against Ratner which is cited and discussed in the comments to section 9-205 of the code said the same thing holds true as to accounts receivable by analogy with the channel mortgage doctrine in New York if a pejor of accounts receivable can collect them and keep the money and exercise dominion over the money that makes the transaction fraudulent as a security interest as a matter of law now that doctrine spread throughout the country and the worst area for it was the New York second circuit area where the cases were unusually and unreasonably strict and one reason that they were so strict with Judge Brandeis usually a great commercial lawyer and the leader of the court said that in his opinion Brandeis's doctrine made no sense and therefore he could not undertake to apply it in terms of its purpose and the cases in the second circuit were perfectly hideous so the finance companies learn to deal with it exercising dominion by requiring the proceeds of collection to go into special bank accounts custodians and the like the banks never bothered to learn how to comply with it and that again excluded the banks from this necessary financing now we did ultimately abolish Benedict against Ratner by section 9205 of the code and that again made it possible for the banks to re-enter this field on a personal note I will mention that when that proposal to wipe out Benedict against Ratner was made and before it happened the finance company industry knew that I was working on the code and they approached me and said you block that to keep the well and from repealing Benedict against Ratner if you do that we'll never have to face bank competition and we'll have this lucrative field to ourselves I refused and other finance lawyers to take that attitude and we took the position we were representing the public and knocked our industry in that respect with Benedict against Ratner out of the way the banks have entered this field as a matter of fact they entered it not so much by competing with the finance companies but not buying the finance companies even CIT the biggest independent finance company is now a subsidiary of the bank most of the smaller ones are the banks bought them not to get the money but to get the trade personnel so as I look back on the code simplification of finance law I see it as having done what was necessary to bring in the vastly greater resources of the banks into this enormous field of financing our enormous distribution of goods I don't think it would have been possible without the code and it was a very necessary thing April 1981 issue of the New York University Law Review which I think was dedicated to you and there's a nice essays in there in the introduction one especially by Carla what by Grant Gilmore and I want to read you something he said said Homer and I had often found ourselves in disagreement both on points of substance and policy and on points of drafting more instances than I really like to think of I had been forced conclusion that Homer was right and I was wrong I like to think that there may have been some instances in which the reverse was true if there were such instances Homer would be the first to acknowledge and indeed to assist on them in a profession in which intellectual theft is not unknown Homer has always been generous to a fault and giving credit to others I think that's a great tribute I hope you agree yes I do I'm very pleased with that that I think is the nicest part of that introduction you know the whole volume was dedicated to me and the last two issues were a combined issue they were a a a best trip Louis lost an odd issue a large stop where a pleasant introduction to it Bob Drauper I had agreed to contribute and die just at that time in the four or five fields that I have specialized article nine consumer credit securities and accounting I guess those are they there were articles by each people in each of the fields I still cherish that issue well I think we ought to conclude this session by my reading the last paragraph of what Grant says nearly 20 years ago in the course of acknowledging my own considerable debts I wrote of Homer Kripke that his comments always remind me that he has mastered the useful art of shedding the greatest light with legal darkness is most intense it is a useful art indeed and Homer in the several fields of law that have engaged his attention has for a long time been one of its ageless practitioners that's very nice I think what Grant said there I prized perhaps the highest because Grant was one of the greatest intellects I ever encountered Homer thank you very much I thoroughly enjoyed this I did too