Acceleration Clause Definition:
A clause in a contract that states that if a payment is missed, or some other default occurs (such as the debtor becoming insolvent), then the contract is fully due immediately.
An acceleration clause triggers the entire debt as due and payable forthwith. They are prevalent in many contracts such as mortgages and automobile lease contracts.
Here is a typical acceleration clause in a loan contract:
"Miss 1 payment and the agreement to pay at regular intervals is voided and the entire amount becomes due and payable immediately."
Or this sample at issue in Emerald Christmas Tree Company before the British Columbia Court of Appeal in 1979:
"If default is made in the payment of any instalment of purchase money or interest or of any taxes, rates or of any taxes or assessments rated or charged against the said lands, or if the Purchaser is otherwise in default here-under and such default shall continue for a period of thirty days after notice thereof in writing has been given by the Vendor to the Purchaser, the whole of the balance of principal and interest then remaining shall forthwith become due and payable.”
An issue that arose was whether an acceleration clause makes a promissory note non-negotiable.
In Haven v Foskett, the California District Court of Appeals:
"An acceleration cause in a promissory note does not destroy its negotiability."
Also, consider these words in Carmichael v Rice:
"(A) court of equity will scan very closely the enforcement of an acceleration clause which will work great hardship on the debtor."
In a mortgage
, an acceleration clause typically allow the mortgagee
to commence foreclosure
proceedings to collect the principal owing in the event of a missed payment.
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