In exchange for receiving a line of credit from Bayside Bank, The Max, a local diner, granted Bayside Bank a security interest in all its “equipment, inventory and accounts.”  On May 1, Bayside Bank filed a proper UCC-1 financing statement covering the collateral. The Max subsequently borrowed $50,000 on the line of credit to spruce up the place before hosting Bayside High’s Prom.

Ten days later, on May 11, Zach Morris, hardened by a life on the streets outside of Bayside and without any regard for his former high school hangout, had the sheriff levy on The Max’s prized jukebox in an attempt to execute on a judgment against The Max. Zach Morris sent notice to Bayside Bank of the levy that same day.

On June 14, Bayside Bank allowed The Max to borrow another $20,000 on the line of credit to pay for repairs necessitated by a rowdy Prom.  On June 30, Bayside Bank allowed The Max to borrow an additional $30,000 in preparation to host Kelly Kapowski and Lisa Turtle’s fashion line debut. 

Which statement is correct?

1. Bayside Bank has priority over Zach Morris only to the extent of the May 1 advance.

2. Bayside Bank has priority over Zach Morris to the extent of the May 1 advance and the June 14 advance, but not the June 30 advance.

3. Bayside Bank has priority over Zach Morris for all of the advances made under the line of credit.

4. Bayside Bank's security interest is entirely subordinate to Zach Morris’s lien.