What happens to cash, notes, chattel paper, or other property received from the sale of Collateral before settlement with 1-800-GOT-JUNK? according to the 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 selling collateral in the ordinary course of business must secure full settlement of the purchase price in a form satisfactory to 1-800-GOT-JUNK?. This settlement must be in the form of cash, notes, chattel paper, or other property.
Before the franchisee settles with 1-800-GOT-JUNK?, they are required to aggregate the cash, notes, chattel paper, or other property received from the sale. The franchisee must then hold these aggregated assets in trust for 1-800-GOT-JUNK?, which maintains a security interest in them. This arrangement ensures that 1-800-GOT-JUNK? has a claim on these assets until the franchisee fulfills their financial obligations related to the sold collateral.
However, the franchisee can transfer notes or chattel paper free of this trust if, at or before the transfer, they assure 1-800-GOT-JUNK? that the payment due to them will be satisfied. This provides a mechanism for the franchisee to manage their assets and conduct business, provided they can guarantee 1-800-GOT-JUNK?'s financial security. This clause protects 1-800-GOT-JUNK?'s interests while allowing the franchisee some flexibility in managing sales proceeds.