What is the Debtor's obligation regarding holding cash, notes, chattel paper, or other property in trust for 1-800-GOT-JUNK??
1_800_Got_Junk Franchise · 2025 FDDAnswer from 2025 FDD Document
3.1
The Debtor shall have no right to sell, lease or dispose of any of the Collateral except for a sale in the ordinary course of business upon customary sales terms for value received and then only upon the express condition that on or before delivery to a third party the Debtor shall secure full settlement of the entire purchase price for the Collateral so sold in cash, notes, chattel paper or other property in form satisfactory to the Secured Party.
Until the Debtor shall have made settlement with the Secured Party of the full amount due to the Secured Party with respect to all such Collateral sold or disposed of by the Debtor, the Debtor shall aggregate such cash, notes, chattel paper or other property and hold the same in trust for the Secured Party and the Secured Party shall have a security interest therein.
The Debtor shall be entitled to transfer such notes or chattel paper free of such trust if at or prior to the time of such transfer the payment due from the Debtor to the Secured Party shall be assured to the satisfaction of the Secured Party.
Source: Item 22 — Contracts (FDD page 24)
What This Means (2025 FDD)
According to the 2025 1-800-GOT-JUNK? Franchise Disclosure Document, the franchisee, referred to as the Debtor, has specific obligations regarding the handling of proceeds from sales of collateral. If the franchisee sells any of the collateral, they must secure full settlement of the entire purchase price in a form satisfactory to 1-800-GOT-JUNK?, which is referred to as the Secured Party. This settlement must be in the form of cash, notes, chattel paper, or other acceptable property.
Until the franchisee makes a full settlement with 1-800-GOT-JUNK? for the sold collateral, they are required to aggregate the cash, notes, chattel paper, or other property received and hold it in trust for 1-800-GOT-JUNK?. This means the franchisee acts as a custodian of these assets, with 1-800-GOT-JUNK? retaining a security interest in them. This arrangement ensures that 1-800-GOT-JUNK?'s financial interests are protected in the event of a sale of collateral by the franchisee.
However, the franchisee is allowed to transfer notes or chattel paper free of this trust if they assure 1-800-GOT-JUNK? that the payment due to them will be made. This provides some flexibility for the franchisee in managing their sales proceeds, provided they can satisfy 1-800-GOT-JUNK? that the owed payment is secured. This clause is designed to protect 1-800-GOT-JUNK?'s interest while allowing the franchisee to operate their business efficiently.