What is a prohibited action related to the collateral under the Aerus consignment agreement?
Aerus Franchise · 2025 FDDAnswer from 2025 FDD Document
In addition, the following shall be "Events of Default" under this Agreement: (a) Consignee shall default under this Agreement or fail to perform or observe any of the agreements or covenants set forth in this Agreement or fail to pay when due any invoice or invoices covering products subject to this Agreement; (b) Consignee shall be declared to be in default under any material contract, agreement, or instrument to which Consignee is a party with Company or Aerus Franchising, or either of their affiliates or assigns, including without limitation the Franchise Agreement and documents incidental or related thereto, and such default shall continue beyond any applicable cure period; (c) Consignee shall sell, remove, or attempt to sell, remove, or assign Collateral not in the ordinary course of business; (d) any creditor of Consignee shall obtain possession of any Collateral by means including, without limitation, levy, distraint, replevin or self-help.
Source: Item 23 — Receipts (FDD pages 74–305)
What This Means (2025 FDD)
According to Aerus's 2025 Franchise Disclosure Document, a significant event of default under the consignment agreement is if a franchisee sells, removes, or attempts to sell, remove, or assign the collateral outside the ordinary course of business. This stipulation is in place to protect Aerus's security interest in the consigned products. The collateral refers to the consigned products and all proceeds from their sale or return.
This provision means that an Aerus franchisee cannot liquidate or transfer the consigned products to another party without explicit authorization from Aerus, except through normal sales to customers. Doing so would violate the agreement and trigger default conditions. This restriction ensures that Aerus maintains control over its inventory and the associated revenue stream.
Furthermore, the agreement specifies that any creditor of the franchisee obtaining possession of the collateral through means such as levy, distraint, replevin, or self-help also constitutes an event of default. This clause protects Aerus from the franchisee's creditors seizing the consigned products to settle the franchisee's debts. The security interest that Aerus retains in the consigned products is designed to be first and prior to all other creditors of the franchisee, reinforcing Aerus's priority claim on these assets.
These conditions are typical in consignment agreements, as they safeguard the consignor's (Aerus's) ownership and financial interests in the consigned goods. Prospective franchisees should understand these restrictions and ensure they can operate within these guidelines to avoid defaulting on the consignment agreement.