Does the 1-800-GOT-JUNK? General Security Agreement specify what happens if the Debtor does not secure full settlement before delivery to a third party?
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, the General Security Agreement outlines specific conditions regarding the sale of collateral. The agreement stipulates that a franchisee, referred to as the Debtor, can only sell, lease, or dispose of collateral, such as vehicles and equipment, in the ordinary course of business. This is allowed only if the sale occurs under customary terms and for reasonable value.
Critically, before delivering the sold collateral to a third party, the Debtor must secure full settlement of the entire purchase price. This settlement must be in a form acceptable to 1-800-GOT-JUNK?, the Secured Party, such as cash, notes, chattel paper, or other agreed-upon property. If the Debtor fails to secure full settlement before delivery, they are required to aggregate the received payments and hold them in trust for 1-800-GOT-JUNK?. The franchisor maintains a security interest in these aggregated assets until full settlement is made.
Furthermore, the agreement allows the Debtor to transfer notes or chattel paper free of this trust, but only if the payment due to 1-800-GOT-JUNK? is assured to the satisfaction of the company at or before the transfer. This provision ensures that 1-800-GOT-JUNK?'s financial interests are protected even when the franchisee uses notes or chattel paper in their transactions. This arrangement provides 1-800-GOT-JUNK? with a mechanism to control the franchisee's handling of secured assets and sales proceeds, reducing the risk of financial loss.