Brief Fact Summary.
Defendant granted a loan to Herriford. In the loan agreement, Defendant included a provision in which Herriford was not allowed to lease sold, transferred, mortgaged, or encumbered the interest in the airplane. Subsequently, Herriford allowed Plaintiff to use the plane and make payments to reduce Herriford’s debt to Defendant. Plaintiff had the option of paying the remaining balance of the mortgage to Defendant and purchase the plane. Plaintiff offered Defendant the remaining balance, and Defendant refused to accept Plaintiff’s offer. Thereafter, Defendant sold the plane to a separate party. Plaintiff brought suit alleging Defendant is liable for conversion. The jury reached a verdict in favor of Defendant. Plaintiff appealed.
Synopsis of Rule of Law.
A creditor may accelerate a loan only if the creditor has a good faith believe that the debtor’s payment or performance under the security agreement will be impaired.
Robert Herriford received a loan from AVEMCO Investment Corp. (Defendant). Herriford gave Defendant an interest in an airplane as security for the loan. Further, the security agreement contained a provisions stating that if Herriford leased, sold, transferred, mortgaged, or encumbered the interest in the airplane secured under the agreement, Defendant would be entitled to the full amount of the loan immediately. Later, Herriford, Brown (Plaintiff), and two other plaintiffs entered into an option and lease agreement. Pursuant to the agreement, Plaintiff was to pay Herriford an hourly rental fee to use the plane and for additional payments that would be used to reduce Herriford’s debt to Defendant. Likewise, the agreement between Plaintiff and Herriford contained a provision that stated Brown and the other plaintiff would have the opportunity to pay the remaining balance, purchasing the plane. A couple days later, Plaintiff and the other plaintiffs paid the remaining balance on Herriford’s mortgage debt to Defendant. Plaintiff informed Defendant that he and the other plaintiffs were asserting their option to purchase the plane, nevertheless, Defendant refused to accept payment. Thereafter, Defendant accelerated payment due on the Herriford’s loan. Defendant asserted that the moment Herriford leased the plane to Plaintiff, Defendant was entitled to the entire amount of Herriford’s loan plus interest and an insurance fees, a total of $5,078.97. Subsequently, Plaintiff and the other plaintiffs told Defendant that they did not accept Defendant’s refusal to accept their offer. Furthermore, Defendant repossessed the plane from Herriford and sold the plane to separate party for $7,000. Plaintiff and the other plaintiffs brought claiming Defendant is liable for conversion. The trial court refused to instruct the jury that Defendant’s acceleration would only be successful if Defendant reasonably believed in in good faith that Defendant’s security interest in the plane was impaired. The jury ruled in favor of Defendant, and Plaintiff and the other two plaintiffs appealed.
Whether a creditor my accelerate a loan when the creditor has a good faith believe that the debtor’s payment or performance under the security agreement will be impaired.
Yes, the creditor has a good faith believe that the debtor’s payment or performance under the security agreement will be impaired.
The necessity, extent and character of additional instructions are matters within the sound discretion of the trial court.View Full Point of Law
Defendant did not have a reasonable, good faith belief that its security interest in the plane was impaired. In this case, the trial court improperly refused to instruct the jury on the proper use of acceleration. A creditor may accelerate a loan only if the creditor has a good faith believe that the debtor’s payment or performance under the security agreement will be impaired.
Further, a creditor may not use an acceleration clause to obtain an advantage against the debtor.. Here, Defendant could have accelerated Herriford’s payments because Defendant wanted to sell the plane at a higher price to another party, thus, gaining a commercial advantage. Plaintiff and the other plaintiffs offered to pay Herriford’s debt to Defendant in full, eliminating the risk of nonpayment. Instead, the evidence suggests that Defendant may have been acting in bad faith. Therefore, the trial court improperly refused to instruct the jury on the proper use of acceleration. Thus, there was no prospect of nonpayment that would justify.