A History of the Uniform Commercial Code 1949-1954

Buffalo Law Review Volume 49 Number 1 Article 6 1-1-2001 Downtown Code: A History of the Uniform Commercial Code 1949-1954 Allen R. Kamp John Marshall Law School Follow this and additional works at: https://digitalcommons.law.buffalo.edu/buffalolawreview Part of the Commercial Law Commons Recommended Citation Allen R. Kamp, Downtown Code: A History of the Uniform Commercial Code 1949-1954, 49 Buff. L. Rev. 359 (2001). Available at: https://digitalcommons.law.buffalo.edu/buffalolawreview/vol49/iss1/6 This Article is brought to you for free and open access by the Law Journals at Digital Commons @ University at Buffalo School of Law. It has been accepted for inclusion in Buffalo Law Review by an authorized editor of Digital Commons @ University at Buffalo School of Law. For more information, please contact [email protected]. Downtown Code: A History of the Uniform Commercial Code 1949-1954 ALLEN R. KAMPt TABLE OF CONTENTS Introduction ........................................................................ 360 I. Before The Struggle ........................................................ 371 A. The Two Visions .................................................... 371 1. The Academic Reformers ............................ 371 2. The Representatives of Business .................... 374 B. The Plans for Enactment ...................................... 375 1. The Proposed Federal Code ............................. 375 2. The Hopes for Adoption ................................... 377 C. The Players ............................................................ 380 1. The Change in Personnel ................................ 380 2. Les Liaisons Dangereuses ............................... 385 D. Limitations of the Drafting Process ..................... 388 E. The Political Realities ........................................... 392 II. The Issues, The Debate, and the Outcome ................... 398 A. The Controversial Sections of the 1949 Code ...... 398 B. The Debates and the Outcomes ............................ 404 1. Contract Law ........................ 406 a. Mandatory or Permissive ............................ 406 b. Trade and Judicial Regulation of Contract ....................................................... 412 (1) The Interlocking Sections .............. 412 (2) Unconscionability ........................... 415 (a) The Version of Spring 1950 ...... 415 (b) The 1951 Changes in § 2-302 .... 420 t Professor of Law, John Marshall Law School; A.B., University of California, Berkeley, 1964; M.A., University of California, Irvine, 1967; J.D., University of Chicago, 1969. The article was written with the help of many, but I would especially like to thank John Dolan, Lawrence Friedman, Duncan Kennedy, and John Henry Schlegel, for their encouragement and criticism; Melissa Backes, Cynthia Arkin, and Elizabeth Kelly for their assistance with the American Law Institute (A.L.I.) archives; and Gwen Konigsfeld for her secretarial assistance. 359 360 BUFFALO LAW REVIEW [Vol. 49 (c) The Change in the Comments: "Unreasonable" to '"Unconscionable" .. 422 2. The Change From Objective to Subjective G ood Faith ....................................................... 424 3. The Warranty Provisions ................................ 427 4. Secured Transactions ...................................... 435 a. The 1949 Code ............................................. 435 b. The Background of the Controversy ........... 438 c. The Floating Lien ........................................ 440 (1) The Arguments for the Floating Lien ............................................... 440 (2) The Statutory Changes-The End of Restrictions ................................ 442 d. The Consumer Provisions ........................... 443 (1) Waiver of Defenses ......................... 443 (2) The Disclosure Provisions .............. 444 5. The Banking Article ......................................... 448 a. The Opposition of the Bankers ................... 448 b. Malcolm Steps Into the Breach .................. 450 c. The Article 4 Rebellion ................................ 458 III. The Code From 1952 to 1954 ....................................... 464 A. The Failure of Immediate Enactment .................. 464 B. Initial Response to the NYLRC Proceedings ....... 468 C. The Assumptions of the NYLRC Proceedings ...... 471 D. Where are They Now (or the Return of the Repressed) ............................................................. 474 Conclusion ........................................................................... 475 INTRODUCTION My article studies a critical era in the history of the Uniform Commercial Code: the era in which the proposed Code of 1949, a product of the academic drafters, entered into the political world and changed to meet political realities.' Marking the end of this era was the start of the New York State Law Revision Commission's (NYLRC)2 study of the 1. For a general description of the 1949 Code reception, see J. Francis Ireton, The Commercial Code, 22 Miss. L.J. 273 (1951). "At that time several affected industries came out with strong pleas against it and publicized their position all over the country." Id. at 279. 2. Zipporah Wiseman points out that the conventional analysis of the Code's history starts at the NYLRC's Report of 1954-56, at which time the Code had already gone through significant compromise. Zipporah Batshaw Wiseman, The 2001] HISTORY OF THE U.C. C. 1949-1954 361 U.C.C. in 1954. In these few years, the drafters of the U.C.C. made several fundamental decisions about its nature which today form the basis of the nation's and the world's commercial jurisprudence.3 Uptown Act and Downtown Code, the titles of my two articles in the history of the U.C.C., represent my view that the present Code is a product of two conflicting visions of what commercial law should be-one, a regulatory system based on self-regulation by the trade, judicial supervision according to commercial norms, and legislative dictate, as opposed to one based on an autonomous business world operating under a regime of unregulated contract. The history of the Code's drafting during these years can be seen as the triumph of the latter vision. In the words of Soia Mentschikoff, "special interests" won over the drafters' desire to protect small merchants and consumers. The drafters in the main placated those commercial interests they had to in assuring the Code's passage. There was some rebellion among the drafters, especially concerning the banking provisions of article 4, and some holding the line, as in keeping the unconscionability section,5 but generally bankers, manufacturers, retailers, and secured financiers got what they wanted. A metaphor of two colliding tectonic plates serves to describe the collision of the two visions, and a great deal of the problematic sections of the U.C.C. exist along the fault lines formed by that collision. Commercial issues that were the subject of debate, compromise, victory, and defeat in the years 1949 to 1956 constitute the troublesome Code sections today.6 Limits of Vision: Karl Llewellyn and The Merchant Rules, 100 HARV. L. REV. 465, 467 (1987). 3. "Judged by its reception in the enacting legislatures, the Code is the most spectacular success story in the history of American law." JAmEs F. W=rTE & ROBERT S. SUIMMERS, UNIFORMI COMMERCIAL CODE 5 (3d ed. 1988). 4. The title of Gilmore's Death of Contract (1974) is ironic in that he witnessed the triumph of contract over regulation in the Code's drafting. See, e.g., Meeting of the Enlarged Editorial Board 284 (Jan. 27-29, 1951) (on file with American Law Institute (A.L.I.) Archives, University of Pennsylvania Law Library and the Buffalo Law Review) [hereinafter Enlarged Editorial Board] (statement of Soia Mentschikoff). 5. See infra p. 415. 6. See the following portions of JAMES J. WHITE & ROBERT S. SUMIERS, UNIFORM COMMERCIAL CODE (4th ed. 1995): Chapter 4, "Unconscionability"; Chapter 9, "Warranty"; Chapter 11, "Defenses to Warranty Action"; Chapter 12, 362 BUFFALO LAW REVIEW [Vol. 49 This story, which is a political one, differs from the generally accepted history of the Uniform Commercial Code. The Code's drafting "continues to be represented, as a neutral, balanced, expertise-based process."' The reality is that the Code is a political document-the product of political realities of the early 1950s on the state level. Overall, the 1949 Code contained much more regulatory law, much more control over commercial activity then does the modem U.C.C. The earlier code's consumer protection sections, the pervasive good faith provisions, the mandatory application of trade usages, the presumption that Code sections were mandatory, all worked to control merchants' conduct. These sections empowered judges to regulate the reasonableness of contract and to police commercial behavior. How we got from the primarily academic draft of 1949 to that of 1954 is a complicated story which has to be pieced together from the American Law Institute (ALI) archives, the Llewellyn Papers, the Code drafts, the records of meetings, and the secondary literature. As Professor N.E.H. Hall points out, academic lawyers engage in private as well as public discourse.8 The private discourse in the correspondence and the private meetings reveals many more drafting conflicts "Disclaimers of Warranty Liability and Modification of Buyer's Remedies"; Chapter 17, 'The Effect of Regulations J and CC"; Chapters 18, § 18-2, "The Deposit Contract"; and Chapters 22-25. 7. Edward L. Rubin, The Code, The

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