Unenforceable clauses. Courts won’t enforce an acceleration clause that is so grossly unfair as to be unscrupulous (or “unconscionable”). This issue is more likely to arise in a lease, because the acceleration clause forces the tenant to pay for something he has not yet received (time spent in the rented space or using the rented equipment), while in other loan agreements, the debtor has already gotten the money, home, car, or other purpose of the loan.
Minimizing the damages. In general, courts don’t like it when acceleration clauses are used as penalties. A court is more likely to enforce a clause that approximates, at least to some degree, the damages cause by the missed payment(s), as estimated when the contract was signed.
EXAMPLE:A company leased ATM machines. When one of its customers missed a payment, the company tried to enforce an acceleration clause that made all future payments immediately due. An Ohio Court of Appeal ruled that the acceleration clause was unenforceable because it did not impose any obligation on the leasing company to minimize (or “mitigate”) its damages. For example, if the leasing company repossessed the ATM machine and then immediately leased it to someone else, the amount it earned from the new rental should have been offset from the amount owed by the first customer. Otherwise, the ATM company is getting paid twice for use of the same machine.A court will also decline to enforce an acceleration clause if the parties have an honest dispute about the amount owed.
Mortgages. Most mortgages provide a grace period before the acceleration clause kicks in. During the grace (or “cure”) period, the borrower has the chance to make up missed payments. If the borrower is unable to bring the payments current, then the lender can demand full payment and start foreclosure proceedings or work with the borrower to avoid foreclosure. An acceleration clause in a mortgage may be triggered by other events besides a failure to make timely payment—for example, the sale of the property (sometimes referred to as a due-on-sale clause) or refinancing