Martha borrows $20,000 from SLU Bank to open her lawn and gardening store. She grants SLU Bank a security interest in all of her equipment, inventory, and accounts, including after-acquired. After both parties sign the security agreement and Martha receives the loan, SLU Bank files a financing statement in the appropriate filing office on June 1st. However, the filing officer rejects the financing statement, indicating that the mailing address for Martha is incorrect. SLU Bank tries to get in contact with Martha to fix this. Martha, however, is hard to get a hold of because she is so busy with her new business.

Martha didn’t realize how much money she’d actually need to get started, so she goes to Hulston Bank to obtain another loan for $20,000. Hulston Bank checks the UCC records and finds no financing statements in Martha’s name, so its extends her the loan, which she secures by granting Hulston Bank a security interest in all of her equipment, inventory, and accounts, including after-acquired. Hulston Bank files a financing statement in the appropriate filing office on June 10th.

SLU Bank finally gets Martha's correct address on its financing statement, and successfully files its financing statement with respect to Martha’s loan on June 20th. This time the filing officer accepts the financing statement.

Unfortunately Martha does not have a green thumb, and her business goes under. In addition to the loans Martha owes Hulston Bank and SLU Bank, Martha also owed Pearl, her landlord, unpaid rent. Pearl had obtained a judgment for the unpaid rent, and had the sheriff levy against the equipment and inventory of Martha's business on June 15th.

Assume it is now July 31. Which of the following accurately describes the relative priorities of SLU Bank, Hulston Bank, and Pearl as to the equipment and inventory of Martha's business?

1) Pearl’s judgment lien is subordinate to Hulston Bank’s security interest, and SLU Bank’s security interest is subordinate to Pearl’s judgment lien.

2) Hulston Bank’s security interest is subordinate to SLU Bank’s security interest, and Pearl’s judgment lien is subordinate to Hulston Bank’s security interest.

3) SLU Bank’s security interest is subordinate to Hulston Bank’s security interest, and Pearl’s judgment lien is subordinate to SLU Bank’s security interest.

4) Hulston Bank’s security interest is subordinate to Pearl’s judgment lien, and SLU Bank’s security interest is subordinate to Hulston Bank’s security interest.