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Mr. HUDDLESTON. Thank you, Mr. Monk and Mr. Anderson. Next we shall hear Judge Jo. Morgan, of the District of Columbia Tax Court.

STATEMENT OF HON. JO. V. MORGAN, JUDGE, DISTRICT OF COLUMBIA TAX COURT; COMMISSIONER OF UNIFORM STATE LAWS OF THE DISTRICT OF COLUMBIA; CHAIRMAN, COMMITTEE ON UNIFORMITY OF JUDICIAL DECISIONS OF THE NATIONAL CONFERENCE OF COMMISSIONERS OF UNIFORM STATE LAWS Judge MORGAN. I appear here, not as a judge of the District of Columbia Tax Court, but as Commissioner of Uniform State Laws in the District of Columbia, and also as chairman of the Committee on Uniformity of Judicial Decisions of the National Conference of Commissioners of Uniform State Laws.

I am tremendously interested in the adoption of the uniform code for the District of Columbia. I think the gentlemen who have prepared it and submitted it deserve a great deal of credit and the thanks not only of Congress but of all the District of Columbia. They have done a wonderful job, especially in the portion dealing with the repeal. As a matter of fact, there was a general committee of the bar association on uniform laws, and that committee approved the uniform commercial code in its entirety, but they never got around to the tremendous and tedious job of picking out what acts ought to be repealed. I assume that the very able president of the bar association, Mr. Jackson, got a little impatient, and he appointed a more active committee which brought forth this act.

While I think the commercial law of the District of Columbia, commercial transactions, and business in general in the District of Columbia would be greatly improved by the adoption of this act, I must in honesty believe that it would be immensely better if it were a uniform act. As it stands, it is not uniform. Where you have variations from the uniform act, while it may be commendable and very desirable, it is not a uniform act.

Mr. Monk stated the advantages in the improvement of commercial law. One of the principal advantages intended by the Conference on Uniform State Laws and the American Law Institute was uniformity. There are so many advantages to uniformity that I do not think I need to recite them. I would remind you of two of them. Businessmen can understand what they have to do in other jurisdictions where they carry on business, and there are great advantages in the interpretation of statutes by other courts. Once you indulge in variation, then you lose a good deal of uniformity.

Mr. HUDDLESTON. Judge, do you favor the enactment of H.R. 5338 in its present form?

Judge MORGAN. I approve it if you do not enact

Mr. HUDDLESTON. In other words, a half load is better than none. Judge MORGAN. That is it, exactly. I think it is a vast improvement over the present commerical law of the District of Columbia, and I thnik it would do a great deal of benefit.

I have no statement, but I do wish to incorporate in the record a statement by Mr. William A. Schnader, who is a very good friend of mine, whom I have known for many years, one of the most able

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attorneys in the United States. Before I introduce it, I would like to read the introductory statement in the record. I would like to impress on the gentlemen of your committee Mr. Schnader's qualifications.

Mr. HUDDLESTON. Judge, we are a little pressed for time. Is that very long?

Judge MORGAN. No. It is about one paragraph.

Mr. HUDDLESTON. As I mentioned, the full committee meets at 11:15, and we must do our best to dispose of the bill by then.

Judge MORGAN. Let me say that Mr. Schnader's qualifications are there in the introductory portion of this paper, and this includes his article. I would like to introduce it.

Mr. HUDDLESTON. Without objection, we will insert that in the record.

(The article referred to follows:)

[Reprinted from State Government, winter 1963, published by the Council of State Governments] Just over a decade ago, in 1952, the uniform commercial code, most massive of all the uniform laws, was adopted by the National Conference of Commissioners on Uniform State Laws and the American Law Institute. As of April 11, 1963, 23 of the 50 State legislatures had adopted it, and it is expected to be before many of the remaining legislatures this year. The article that follows is by William A. Schnader, who originally proposed the writing of the code and who has led since then in its completion and revision. He here explains its purposes and progress, urges its adoption in States that have not enacted it and, underscoring the need for uniformity, recommends that the code in each State, whether adopted in prior years or henceforth, be made to conform with the official text as now revised by a permanent editorial board for the code. Mr. Schnader, former attorney general of Pennsylvania, and former president of the National Association of Attorneys General, is now president of the Pennsylvania Bar Association. He was president of the National Conference of Commissioners on Uniform State Laws when he proposed the code and a member of the original editorial board for it. Currently he is chairman of the Commercial Code Committee of the NCCUSL and acting chairman of the permanent editorial board for the code. THE UNIFORM COMMERCIAL CODE-WHAT IS ACCOMPLISHED WHAT REMAINS

(By William A. Schnader)

It is to be hoped that most readers of State Government have absorbed the excellent article in the summer 1962 issue by Walter P. Armstrong, Jr., president of the National Conference of Commissioners on Uniform State Laws. His article was entitled "Uniform State Laws and the National Conference." Perhaps I shall be pardoned if I begin where Mr. Armstrong ended.

On page 189 of the summer issue, Mr. Armstrong stated a historical fact: that our Federal Constitution evolved from a conference of representatives from several of the colonies called to consider the possibility of unifying the laws of commerce so as to promote trade between them. On the next page, Mr. Armstrong concluded his article with this paragraph:

The greatest single achievement of the conference to date lies in this same field in the form of the commercial code, the product of more than 10 years of cooperative effort [by the NCCUSL] with the American Law Institute. This compendium of the laws of commerce is already the law of 18 States and is clearly destined to become that of many others in the very early future. The commercial code will greatly simplify and expedite interstate commerce. Moreover, in view of the fact that it is under the guise of authority granted by the commerce clause that the Federal Government most frequently undertakes to intervene in what would otherwise be exclusively State affairs, it may be that uniformity of State legislation in this field will prove a salutary antidote to this type of encroachment.

STATE OR FEDERAL ACTION?

Are the States going to surrender to Congress one more field in which they have hitherto had a free hand? Are they going to delay in making the uniform com

mercial code the law of every State until Congress is forced by pressure from business and financial interests all over the country to regulate such transactions as sales, the negotiation of commercial paper, the issuance of letters of credit, and most of the other facets of commercial law with which the code deals? And, even if the 50 States enact the commercial code, will individual State action, as in the making of scores of nonuniform amendments, indicate to those calling for adequate solutions that the States cannot satisfactorily continue to function in what has thus far been an important area of States rights?

That these questions are not mere figments of the imagination was rather definitely demonstrated by the fact that in the 1930's a Federal Sales Act was introduced in Congress because the Uniform Sales Act (a) had not been universally enacted by the States and (b) was not fluid enough to take account of new practices in trade and commerce which had developed since the act was drafted many years before, and which were continuing to develop at a more rapid pace than ever. It was only because the late Karl N. Llewellyn, then chairman of the Commercial Acts Section of the National Conference of Commissioners on Uniform State Laws, assured the proponents of the Federal Sales Act that the Uniform Sales Act would be modernized, that they agreed to withdraw the Federal act and give the conference another opportunity to show what it could accomplish.

WHAT THE CODE IS

Here let us stop for a moment to review what the uniform commercial code is. It is a code regulating a great variety of commercial transactions, all of them of first importance. The code takes the place of all or parts of nine uniform acts which had been promulgated by the National Conference of Commissioners on Uniform State Laws before the task of preparing the code was undertaken, in 1942. These acts were the Uniform Sales Act, the Negotiable Instruments Law, the Uniform Bills-of-Lading Act, the Uniform Warehouse Receipts Act, the Uniform Stock Transfer Act, the Uniform Conditional Sales Act, the Uniform Trust Receipts Act, the Uniform Written Obligations Act, and the Uniform Fiduciaries Act.

The commercial code deals with sales, commercial paper; bank deposits and collections; letters of credit; bulk sales; documents of title, including warehouse receipts and bills of lading; investment securities; and secured transactions, including sales of accounts, contract rights and chattel paper.

Although the code is long, it is not nearly as long as the combined length of all of the acts it supersedes. The code, moreover, deals with several subjects which were never covered by uniform legislation. These additional subjects are bank deposits and collections, letters of credit and bulk sales. There are 400 sections in the code, but the nine uniform acts previously listed, which are superseded in whole or in part by it, contained 492 sections. When these facts are kept in mind, the code's size is not at all stupendous.

WHY A SINGLE CODE?

The question naturally arises, Why was it necessary to abandon the nine uniform acts, some of which were enacted by every State in the Union?

There are several answers. First, the most important uniform commercial acts which are being superseded were drafted in the early part of this century and modeled after English legislation, which had been drafted still earlier. They were not adapted to the business practices which followed in the wake of the tremendous development of methods of communication and transportation that has characterized the past 40 years. In addition, some of the acts were drafted rather hurriedly. By the year 1940, 80 of the 198 sections of the negotiable instruments law had different meanings in different States because the highest courts of different States had construed them differently. Finally, experience had taught the commissioners on uniform State laws that, while they might propose sets of amendments to these several uniform acts, legislatures were slow to pass the amendments and bring the acts up to date.

Therefore it was felt that it would be much more feasible, if the States were to remain in control of this field of legislation-the regulation of commercial transactions to embody in one great commercial code all of the important facets of commercial law. It was thought that it would be much easier to have the code amended from time to time than it would be to have six or eight separate uniform acts, each dealing with one phase of commercial law, kept up to date by the process of amendment.

Whether this will prove to be true only the future will tell.

DEVELOPMENT OF THE CODE; FIRST ENACTMENTS

The uniform commercial code was proposed in 1940. Shortly afterward, the American Law Institute and the National Conference of Commissioners on Uniform State Laws undertook the task as a joint project. An editorial board consisting of representatives of both bodies was created, and the code was drafted under its supervision. There were draftsmen for each of the articles of the code, and there were committees of advisers to assist the draftsmen as the work progressed. The code was almost the sole subject on the agenda at meetings of the institute and the conference for at least 5 years, and during most of those years there were two joint meetings each year. At last, in the fall of 1952, at a joint meeting of the commissioners and the institute, the code was finally adopted by them. Promptly thereafter it was endorsed by the American Bar Association. When the Pennsylvania Legislature met in 1953, the code was one of the first bills introduced, and it was the first bill to be enacted and signed by the GovenorAct No. 1 of the 1953 session, which appears on page 3 of the 1953 laws.

It was hoped that New York also would enact the code in 1953. However, the New York Legislature referred it for study to its expert statutory drafting agency, the New York Law Revision Commission.

That action by the New York Legislature effectively stopped the progress of the code for the time being. Everyone outside of Pennsylvania awaited the verdict of the New York commission. That verdict was announced in February 1956. The commission's conclusion was that a code of commercial law was entirely feasible, but that in its then form the uniform commercial code was not ready for passage by the New York Legislature.

The staffs of the code's editorial board and the New York commission were in constant communication while the New York study was proceeding, so that the board was not surprised by the New York pronouncement. It immediately resumed work, reviewed the recommendations made by the New York commission, and in the fall of 1956 promulgated a revised uniform commercial code. The revised code was introduced into the Massachusetts Legislature early in 1957, and was enacted in September 1957, to become effective on October 1, 1958.

RECENT ENACTMENTS; STATE AMENDMENTS

Enactments of the code did not really gain momentum until 1961. Kentucky enacted it in 1958, Connecticut and New Hampshire in 1959, and Rhode Island in 1960. Then, in 1961, Wyoming, Arkansas, New Mexico, Ohio, Oregon, Oklahoma, Illinois, and New Jersey became code States, and they were followed in 1962 by Georgia, Alaska, New York, and Michigan. Meantime, in 1959, the Pennsylvania Legislature completely reenacted the code, substituting the revised for the original version.

While it is true that the 18 States which have enacted the code will have, generally speaking, the same law regulating commercial transactions when their codes all become effective,' it is also true that in some of the States a number of nonuniform amendments have, to some extent, impaired the chief value of the code, which is uniformity in State law regulating commercial transactions.

That the nonuniform amendments are by and large of a freakish nature is evident from the fact that only one section of the code has been amended in as many as 10 States. This is section 9-401, which relates to the place of filing financing statements. Unfortunately, the section was promulgated with a number of alternatives, and the alternatives were published in the official text in a manner which was highly confusing. That is being corrected in a new edition of the official text which is about to be published.

One section of the code was amended in seven States and another in six. Three sections were amended in five States, four sections in four States, and five sections in three States. The remaining amendments modified the same sections of the code in not more than two States. In most cases there is little similarity between the language or substance of amendments made by two or more States to the same section of the code. Also, there is a great disparity in the total number of nonuniform amendments made by each of the 18 enacting States. Pennsylvania, with more than 8 years' experience under the code, has in its present code only one variation from the 1958 official text. The banking, business, and financial interests, and the credit associations in Pennsylvania were completely satisfied with the original code. There was no demand anywhere in 1 The code was not to be effective until after Jan. 1, 1963, in four of the States which had enacted it.

2 That variation is due to the fact that one phrase in the 1952 version of art. 9 was deleted in the 1958 official text, but was unchanged in the reenacted Pennsylvania code.

Pennsylvania for the code's revision. The revised version was substituted for the original in 1959 solely in the interest of uniformity.

Turning now to the other States, we find that Alaska and Michigan each have but one variation from the official text. Illinois has only three, Kentucky and New Mexico have four each, and the other States have larger numbers.

WORK OF THE EDITORIAL BOARD

In an effort to stop the making of miscellaneous unauthorized amendments to satisfy the draftsmen's vagaries in a single State, the suggestion was made in 1961 that a "Permanent Editorial Board for the Uniform Commercial Code" be established. An application was made by the American Law Institute to the Maurice and Laura Falk Foundation of Pittsburgh for a fund, the income of which would endow the work of such a board. The fund was granted, and the board was created early in 1962. It will review the code not less often than once in 5 years and, with the approval of the Executive Committees of the National Conference of Commissioners on Uniform State Laws and of the American Law Institute, will make recommendations for amendments to the code to keep it up to date. This board will also examine and report on any unauthorized amendments which are made by the States which either have enacted the code or will enact it in the future.

The permanent editorial board and three subcommittees have studied all amendments to the code made in the 18 enacting States.

As of October 31, 1962, the board made its Report No. 1. It recommended 23 amendments to the code, offered three new optional provisions, and rearranged the alternative provisions in section 9-401 in such a way as to render them more understandable. It also rejected 180 amendments made by the 18 States and gave its reasons for rejecting them.

It should be made clear that the fact that the permanent editorial board is recommending several dozen amendments at this time does not mean that it is going to recommend amendments with great frequency or in large numbers henceforth.

The code as a whole was reviewed by the original editorial board in 1956 after the report of the New York Law Revision Commission became available. Until 1962 there had been no further official review of the entire code. The agreement between the conference and the institute enjoins the permanent editorial board to promulgate a minimum number of amendments and places strict limits on the board's jurisdiction. There is no danger whatever that the board will undertake to write a new code.

LOOKING TO THE FUTURE

Of the 32 States which have not enacted the code, only 5 seem to have done nothing whatever looking toward its enactment. The code will be introduced into the legislatures of many of the remaining 27 States in 1963, and it is safe to predict that when the 1963 sessions have come to an end there will be no less than 30 code states-and those of us who have been assiduously urging the universal adoption of the code by the States certainly hope that the number will be greater.

NEED FOR UNIFORMITY EMPHASIZED

We cannot urge too strongly that the texts of the codes introduced into and enacted by 1963 legislatures be the 1962 official text with no variations. This will be the 1958 official text with the amendments recently promulgated by the permanent editorial board.

In the 18 States which have enacted the code there is substantial work to be done to make the codes conform to the 1962 official test. We do not understand the fear which has been expressed in some quarters that legislatures will resent having the most recently promulgated amendments introduced in 1963 and being asked to repeal all nonuniform amendments or to state it differently to "clean up" their codes.

The commercial code project would never have been undertaken except in an effort to bring about uniformity in State law regulating commercial transactions. Unless the importance of this is emphasized all around, then, of course, a legislature may be annoyed by the introduction of a bill to bring the code of its particular State up to date, especially if it is only a year or so ago that the code was enacted. This foundation contributed more than $275,000 toward the original cost of preparing the code. In 1958 several amendments to two articles of the code were promulgated. These amendments are included in the 1958 Official Text.

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