What is the Debtor's obligation regarding the purchase price when selling collateral in the ordinary course of business for 1-800-GOT-JUNK? according to the General Security Agreement?
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 1-800-GOT-JUNK?'s 2025 Franchise Disclosure Document, specifically the General Security Agreement, a franchisee (the Debtor) has specific obligations when selling collateral in the ordinary course of business. The franchisee can only sell collateral under certain conditions. These conditions include selling the collateral in the ordinary course of business, using customary sales terms, and receiving value for the collateral.
Furthermore, before the collateral is delivered to a third party, the 1-800-GOT-JUNK? franchisee must secure full settlement of the entire purchase price. This settlement must be in a form satisfactory to 1-800-GOT-JUNK? (the Secured Party), such as cash, notes, chattel paper, or other property. Until the franchisee settles with 1-800-GOT-JUNK? for the full amount due regarding the sold or disposed collateral, they must hold any received cash, notes, chattel paper, or other property in trust for 1-800-GOT-JUNK?, which maintains a security interest in these assets.
The agreement allows the 1-800-GOT-JUNK? franchisee to transfer notes or chattel paper free of the trust, but only if the payment due to 1-800-GOT-JUNK? is assured to the satisfaction of 1-800-GOT-JUNK? at or before the time of the transfer. This ensures that 1-800-GOT-JUNK?'s security interest is protected even when the franchisee deals with third-party payments.
This arrangement protects 1-800-GOT-JUNK?'s interests by ensuring that proceeds from the sale of collateral are used to settle any outstanding debts the franchisee owes to them. For a prospective franchisee, this means understanding that selling secured assets requires careful management of the proceeds and adherence to the franchisor's requirements to maintain good standing and avoid default under the General Security Agreement.