Acceleration clause

A seller who takes back a note from the buyer may want the right to call the entire balance, not just the missed instalment, if payments stop. The acceleration clause is the term that gives that right. Check the note, and any security agreement behind it, for the clause and for the list of events of default. For the wider terms of such a note, see how to set the interest rate and term on a seller note.

Where the law frames it

• Alberta: under s. 16 of the Personal Property Security Act, where a security agreement lets the secured party accelerate if it considers itself insecure or the collateral in jeopardy, the agreement is to be construed to mean it may do so only if it, in good faith, believes and has commercially reasonable grounds to believe that the prospect of payment or performance is or is about to be impaired or that the collateral is or is about to be placed in jeopardy.
• Federal insolvency: once a notice of intention or a proposal has been filed for an insolvent person, s. 65.1 of the Bankruptcy and Insolvency Act says no person may claim an accelerated payment, or a forfeiture of the term, under any agreement with the insolvent person by reason only of the insolvency or the filing. This is subject to subsections (4) to (7), including a court power to declare it does not apply.
• Quebec: the Civil Code speaks of forfeiture of the term. Article 1514 names cases such as insolvency, bankruptcy and a debtor reducing, without the creditor’s consent, the security given, and article 1515 says forfeiture renders the obligation exigible immediately.

What to ask

This entry covers Alberta, Quebec and federal insolvency law; check the rules where you are. Ask what exactly triggers acceleration, whether notice must come first, and whether the clause works with a notice and cure period or on its own.