After Mr. Jefferson reads "Rip Van Winkle," Rip Van Winkle appears to him in a reverie as an idle young fellow whose wife labors at the washtub to make a scanty livelihood for their daughter Meenie and herself. Rip spent all the money he obtained in mortgaging his property to Derrick von Beekman, the wealthy money lender of the village of Fallen Waters, who has taken all of Rip's lands. The property was only mortgaged, but if it were sold to pay off this mortgage, it would sell for more than enough to pay off the loan on the land, and the balance would revert to Rip Van Winkle. Derrick von Beekman, being notified of this by his counselor, tries to get Rip to sign away all claims on the mortgages. To induce Rip to do this, he voluntarily lends him 16 pounds to be paid 20 years from the date, without interest. Rip is persuaded by von Beekman to accept the money and starts anew by standing treat to the whole village. Von Beekman tries to get Rip to sign away all his claims, but Rip places the document in his game bag and decides to think it over. Then he goes home to face his wife Gretchen and tries to make up for staying out all night in the mountains. He finds no one at home but the children. They come to him and ask him to make a boat for them. He does so. Having no sail to the boat, he thinks of the paper in his game bag, and places it on the mast. While sailing it in the tub, little Hendrik Vedder, son of innkeeper Nick Vedder, tells Rip there is writing on it. Rip reads the letter that Derrick von Beekman is trying to get him to sign, and finds out why Derrick was in such a hurry. Rip later attends a dance. Amid the frivolities, Rip's wife Gretchen catches him embracing one of the girls. She chases him through the house with a club, throwing chairs at him, and Rip and his dog Schneider make their exit and take to the mountains. A storm comes up in which little Meenie and little Hendrik are afraid of lightning. Hendrik tells Meenie the cause of the lightning, saying that Hendrik Hudson and his crew, who live in the mountains, produce the lightning and thunder by playing ten pins and Hendrik Hudson lighting his pipe. Rip, who is in the storm, returns home and, as his custom is, he throws his hat in the window, the children try to warn Rip that Gretchen is hiding, but he is caught by the ear and dragged into the house. Gretchen, while scolding him, takes from his game bag a flask of whiskey, which she puts in her pocket. Rip, in turn, steals the bottle fro