Does the 1-800-GOT-JUNK? General Security Agreement specify what happens if the Debtor sells Collateral for less than value received?
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 General Security Agreement addresses the sale of collateral. Specifically, Article III, Section 3.1 states that the Debtor (the franchisee) can only sell collateral in the ordinary course of business, under customary sales terms, and for value received. Furthermore, the franchisee must secure full settlement of the purchase price in a form satisfactory to the Secured Party (1-800-GOT-JUNK? LLC).
If the franchisee sells or disposes of any collateral, they must hold the proceeds (cash, notes, chattel paper, or other property) in trust for 1-800-GOT-JUNK? until full settlement is made. 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 their satisfaction.
However, the document does not explicitly state the repercussions if the Debtor sells the Collateral for less than value received. It only specifies that sales must be for value received. A prospective franchisee should seek clarification from 1-800-GOT-JUNK? regarding the specific actions or penalties that would be enforced if collateral is sold for less than its actual value or under non-customary terms, as this scenario is not directly addressed in the provided documentation.