What is the purpose of the consignment agreement between Aerus and the consignee?
Aerus Franchise · 2025 FDDAnswer from 2025 FDD Document
WHEREAS, Consignee and Company ("Aerus Franchising") have entered into the Franchise Agreement, which agreement governs the operations by Consignee of a franchised business engaged in, among other things, the sale of certain consigned products and other related products and services as permitted by, and more particularly described in, the Franchise Agreement;
NOW, THEREFORE, for and in consideration of the premises and promises set forth herein and in the Franchise Agreement, and other good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, Company and Consignee agree as follows:
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- Consignment Arrangement. Company has consigned or agrees to consign to Consignee, and Consignee agrees to receive on consignment from the Company, the Consigned Products for sale, at Company's listed retail prices. This is intended to be a true consignment and Company shall at all times retain the full legal and equitable title to the Consigned Products. This Agreement is entered into as a precautionary measure to insure that Company's rights to the Consigned Products shall be first and prior to all other creditors of Consignee under all circumstances.
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- Security Interest. To secure the due and punctual payment of all amounts due to Company for the proceeds arising from the sale or return to Company of the Consigned Products, Consignee hereby agrees that Company shall have, and hereby grants to and creates in favor of Company, a security interest in and to the Consigned Products and all proceeds thereof, as more fully-described on the Schedule of Collateral attached hereto (the "Collateral"). Consignee shall pay the cost of filing or recording this Agreement and any related financing statement in all public offices and the cost of all searches of records, wherever filing or recording or searching of records is deemed by Company to be necessary. At the request of Company, Consignee shall, from time to time, execute additional or supplemental documents and agreements to confirm Company's security interest in the Collateral.
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- Covenants of Consignee. Without limitation of the obligations of Consignee to Company contained in any other agreement, Consignee hereby agrees that at all times that it shall:
Source: Item 23 — Receipts (FDD pages 74–305)
What This Means (2025 FDD)
According to Aerus's 2025 Franchise Disclosure Document, the consignment agreement between Aerus and its franchisees (the consignee) establishes a formal arrangement where Aerus provides products to the franchisee for sale. Aerus retains full legal title to these consigned products, meaning the franchisee does not own them outright until they are sold to customers. The franchisee is authorized to sell these products at Aerus's listed retail prices.
The primary purpose of this agreement, according to the FDD, is to protect Aerus's rights to the consigned products, ensuring that Aerus's claims to these products take precedence over any claims from the franchisee's other creditors. This arrangement provides Aerus with a security interest in the consigned products and any proceeds from their sale. The franchisee is responsible for covering the costs associated with filing and recording the agreement and any related financing statements, which further secures Aerus's interest in the collateral.
In practical terms, this means that if the franchisee faces financial difficulties or bankruptcy, Aerus has a legal advantage in recovering the value of the unsold consigned products. The franchisee is obligated to execute additional documents to confirm Aerus's security interest in the products if requested. This setup reduces risk for Aerus, as they maintain ownership until the products are sold, while allowing franchisees to offer a wider range of products without initially purchasing all the inventory.
Furthermore, the agreement outlines events of default, such as failure to pay invoices or violating the Franchise Agreement, which could lead to termination of the consignment agreement. However, Aerus's security interest in the consigned products remains in effect until full payment is received for all consigned items. This ensures Aerus can recover its assets even if the agreement is terminated due to franchisee default.