What is the effect of other security interests on the security interest created by the 1-800-GOT-JUNK? General Security Agreement?
1_800_Got_Junk Franchise · 2025 FDDAnswer from 2025 FDD Document
- OBLIGATIONS SECURED 1.1 This Security Agreement and the assignments, mortgages, pledges, charges and security interests hereby created are in addition to and not in substitution for any other assignment, mortgage, pledge, charge or security interest now or hereafter held by the Secured Party from the Debtor or from any other Person whomsoever and shall be general and continuing security for the due performance of all debts, liabilities, and obligations of the Debtor to the Secured Party, including the obligations contained in one or more franchise agreements (the "Franchise Agreement") made between the Secured Party (as Franchisor) and the Debtor (as Franchisee) and this Security Agreement (all of said debts, liabilities and obligations are hereinafter collectively called the "Obligations"). ARTICLE II - SECURITY INTEREST 2.1 As general and continuing security for the payment and performance of the Obligations, the Debtor hereby grants to the Secured Party a security interest in, and assigns, charges, mortgages and pledges to and in favour of the Secured Party, all of the Debtor's present and after acquired goods, securities, instruments, documents of title, chattel paper, licenses, intangibles and money located on, relating to or arising in connection with a Franchised Business (as defined in the Franchise Agreement) including, without limitation, all vehicles, equipment and accessories and all proceeds from the foregoing wheresoever situate (collectively, the "Collateral"). 2.2 The security interest created hereby shall be a purchase money security interest to the extent that any of the Obligations are monies advanced by the Secured Party to enable the Debtor to purchase or otherwise acquire any of the Collateral and were so used and, without limitation, a certificate of an officer of the Secured Party as to the extent that the Obligations are monies so advanced shall be prima facie proof of the purchase money security interest created hereby.
Source: Item 22 — Contracts (FDD page 24)
What This Means (2025 FDD)
According to the 2025 1-800-GOT-JUNK? Franchise Disclosure Document, the General Security Agreement's security interest is in addition to, and not a substitute for, any other security interest held by 1-800-GOT-JUNK? from the franchisee or any other person. This agreement serves as a general and continuing security for all debts, liabilities, and obligations of the franchisee to 1-800-GOT-JUNK?, including those in the franchise agreement.
1-800-GOT-JUNK? is granted a security interest in all of the franchisee's present and after-acquired goods, securities, instruments, documents of title, chattel paper, licenses, intangibles, and money related to the franchised business. This includes vehicles, equipment, accessories, and proceeds from these items. The security interest is a purchase money security interest to the extent that 1-800-GOT-JUNK? advances money to enable the franchisee to acquire any of the collateral, and a certificate of an officer of 1-800-GOT-JUNK? serves as proof of this interest.
However, the General Security Agreement does allow for "Permitted Encumbrances" in the form of Purchase Money Security Interests held by lessors or creditors pursuant to Vehicle Leases. These permitted encumbrances are limited to (i) encumbering no more than the minimum number of Vehicles required under the Franchise Agreement, and (ii) only encumbering the particular Vehicle, and no other property of Debtor.
In practical terms, this means that while 1-800-GOT-JUNK? maintains a broad security interest over the franchisee's assets, certain vehicle leases can take precedence, provided they meet specific conditions. A prospective franchisee should carefully review the General Security Agreement and consult with legal and financial advisors to fully understand the implications of these security interests and how they might affect their business and financial obligations.