Also known as: acceleration on insecurity · insecurity clause · acceleration clause
Written by attorneys · grounded in primary & secondary sources — see below
An acceleration clause permitting a secured party to declare the entire obligation immediately due when the secured party deems itself insecure regarding repayment. The clause must be exercised only upon a good faith belief that the prospect of payment or performance is impaired. The debtor bears the burden of proving that the secured party failed to act in good faith.
Atlas Ventures held a security interest in Apollo Energy's equipment to secure a loan. After Apollo missed two payments and its revenues dropped sharply, Atlas sent notice accelerating the full balance because it deemed itself insecure. Apollo sued, alleging bad faith. The court required Apollo to prove that Atlas lacked a good faith belief that repayment was impaired before invalidating the acceleration.
Alpine Mining borrowed from Astra Aerospace and granted a security interest in mining equipment. Astra accelerated the debt after learning of a pending regulatory investigation into Alpine, claiming insecurity. Alpine contested the acceleration in court. Because the debtor must prove lack of good faith, Alpine had to show that Astra had no reasonable basis to believe its prospect of repayment was impaired.
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The secured party must hold a good faith belief that the prospect of payment or performance is impaired. The clause permits acceleration only when that subjective belief exists and is honestly held.
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The debtor bears the burden of proving that the secured party failed to act in good faith. The debtor must show that the secured party lacked a good faith belief that repayment prospects were impaired.
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A course of dealing in which late payments were accepted without objection can support a finding that acceleration upon insecurity violates good faith. The lender's prior conduct may undermine any later claim that it genuinely deemed itself insecure.
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…a home equity loan or additional mortgage; and can even place an existing mortgage in technical default where there is an insecurity clause. Nor does Connecticut deny that any of these consequences occurs. Instead, the State correctly points out that these effects do not amount to a complete, physical, or permanent deprivation…