What is the Debtor's obligation regarding settlement with the Secured Party for Collateral sold or disposed of, according to the 1-800-GOT-JUNK? General Security Agreement?
1_800_Got_Junk Franchise · 2025 FDDAnswer from 2025 FDD Document
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 or disposing of collateral that secures their debt to 1-800-GOT-JUNK? LLC (the Secured Party). The franchisee can only sell, lease, or dispose of collateral in the ordinary course of business, using customary sales terms, and for value received.
Critically, before transferring the collateral to a third party, the franchisee must secure full settlement of the purchase price. This settlement must be in a form satisfactory to 1-800-GOT-JUNK?, which can include 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 payments or assets in trust for 1-800-GOT-JUNK?, and 1-800-GOT-JUNK? retains a security interest in these assets.
The franchisee can transfer notes or chattel paper free of this trust only if the payment due to 1-800-GOT-JUNK? is assured to 1-800-GOT-JUNK?'s satisfaction at or before the transfer. This arrangement ensures that 1-800-GOT-JUNK?'s security interest is protected even when collateral is sold, and it places a responsibility on the franchisee to manage the proceeds of any sale in a way that prioritizes settling their obligations to 1-800-GOT-JUNK?.
This clause in the General Security Agreement is designed to protect 1-800-GOT-JUNK?'s financial interests by ensuring that proceeds from the sale of secured assets are used to settle outstanding debts. For a prospective franchisee, this means understanding that selling business assets requires careful management of the resulting funds and clear communication with 1-800-GOT-JUNK? to ensure compliance with the agreement.