Acceleration clause

A clause included in certain debt securities and swap agreements stating that the immediate collection of payment and termination of contract will take place should any number of clauses being violated by the borrower including default or a downgrade of debt.

Also referred to as "Acceleration Clause."

Investopedia Says:
This covenant helps to protect parties that extend financing to businesses in need of capital. Under an acceleration covenant, the borrowing party must maintain a specified credit rating in order to prevent termination of the contract and immediate repayment.

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Clause in a mortgage bond or promissory note stating that the unpaid balance is payable if specified conditions of default, defined in a loan Covenant or bond Indenture should occur. Acceleration, exercisable at the option of the lender, calls for immediate payment of the remaining balance, plus interest due. See also Credit Event.

A loan provision giving the lender the right to declare the entire amount immediately due and payable upon the violation of a specific loan provision, such as failure to make payments on time.
Example: Collins sells her house to Baker, who assumes the existing 8% interest rate mortgage. They do not notify the lender of the sale. Clause 17 in the mortgage states that the full principal accelerates unless the lender approves of the sale. Collins must now pay the balance of the principal.

The provision in a credit agreement, such as a mortgage, note, bond, or deed of trust, that allows the lender to require immediate payment of all money due if certain conditions occur before the time that payment would otherwise be due.

The agreement may call for acceleration whenever there is a default of any important obligation, such as nonpayment of principal or interest, or the failure to pay insurance premiums.

Contract law

Part of the common law series

Contract formation

Offer and acceptance · Mailbox rule Mirror image rule · Invitation to treat Firm offer · Consideration

Defenses against formation

Lack of capacity Duress · Undue influence Illusory promise · Statute of frauds Non est factum

Contract interpretation

Parol evidence rule Contract of adhesion Integration clause Contra proferentem

Excuses for non-performance

Mistake · Misrepresentation Frustration of purpose · Impossibility Impracticability · Illegality Unclean hands · Unconscionability Accord and satisfaction

Rights of third parties

Privity of contract Assignment · Delegation Novation · Third party beneficiary

Breach of contract

Anticipatory repudiation · Cover Exclusion clause · Efficient breach Fundamental breach

Remedies

Specific performance Liquidated damages Penal damages · Rescission

Quasi-contractual obligations

Promissory estoppel Quantum meruit

Related areas of law

Conflict of laws · Commercial law

Other common law areas

Tort law · Property law Wills, trusts and estates Criminal law · Evidence

v • d • e

An acceleration clause, in the law of contracts, is a term that fully matures the performance due from a party upon a breach of the contract. Such clauses are most prevalent in mortgages and similar contracts to purchase real estate in installments.

Suppose, for example, the contract was for A to purchase Blackacre from B for $100,000, to be paid in 5 monthly installments of $20,000. If A makes the first two payments, but fails to make the third payment, an acceleration clause would require that A must immediately pay B the entire balance of $60,000, or lose his right to purchase Blackacre (without getting a refund of his $40,000).

A sample acceleration clause reads like this:

In the event of default in the payment of any of the said installments or said interest when due as herein provided, time being of the essence hereof, the holder of this note may, without notice or demand, declare the entire principal sum then unpaid immediately due and payable.

External links

• Promissory Note - Installment - With Acceleration Clause
• Acceleration Clause (Investorwords.com)

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