JURISDICTION REVIEW PROBLEMS

1)         XYZ Co. (“XYZ”) is an Illinois corporation with business locations in Illinois, Texas, and Michigan. The corporate headquarters of XYZ is in Detroit, Michigan. As collateral for its February 1, 2002 loan from Bank, XYZ executes a security agreement affecting the following: 1) accounts, 2) the rights to oil and gas from a number of wells in Texas upon their extraction, 3) inventory located in Texas, Michigan, and Illinois that is owned by XYZ for lease to third parties, and 4) equipment located in Michigan. XYZ maintains its business records at its Chicago, Illinois, location.

            In which jurisdiction should Bank file the financing statement that is necessary to perfect its interest in XYZ’s accounts, oil and gas rights, inventory, and equipment?

2)         ABC Co. (“ABC”) is an Illinois corporation with offices in Springfield, Chicago, and Houston, Texas. The corporate headquarters of ABC also is located in Houston. ABC applies for a $100,000.00 line of credit loan with First Bank (“Bank”) to purchase equipment. Bank agrees to extend the line of credit and take as collateral the accounts and equipment of ABC. ABC expects to acquire new items of equipment for its Houston office within a couple of months after the loan documents with Bank are signed. At the loan closing, ABC’s duly authorized President executes the $100,000.00 line of credit note, a security agreement covering all now existing or hereafter acquired accounts and equipment, and financing statements. As Counsel for the Bank, explain to the Bank how it must perfect its security interest.

3)         Juarez, who lives in Chicago, operates a circus in that city as a sole proprietorship.  In January 2002, Juarez borrowed $25,000 from Bank One and properly granted a security interest in the circus rides to Bank One to secure repayment of the loan.  Bank One filed a complete and accurate UCC-1 financing statement in the Illinois Secretary of State's office, correctly naming the debtor:  “Juarez.” 

            Six months later, without informing Bank One, and in violation of his security agreement with Bank One, Juarez sold one of his rides, the “Rio Loco,” for $5000 to Smith, another local amusement park operator.  Actually, the buyer of the Rio Loco was Smith’s company, “Ride 'Em High, LLC,” a single-member limited liability company (SMLLC) formed under Delaware law, through which Smith operates his amusement park in Chicago (Smith is the sole member and manager).  Smith understood that Juarez had granted a security interest in the Rio Loco to Bank One, but relying on advice from his cousin, Smith disregarded this information. 

            Six months after the sale, Juarez has defaulted on his loan to Bank One, and Bank One asks you to advise it on the following:

            A)  Did Bank One properly perfect its original security interest in Juarez’s rides?

            B)  Right now, does Bank One have a continuously perfected security interest in the ride in Smith’s hands?

            C)  Should Bank One take any action to protects its rights in the future, and if so, what?