Lincoln v. Corbett
31 Tex. Civ. App. 352, 1903 Tex. App. LEXIS 63, 72 S.W. 224 (1903)
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Rule of Law:
When a debt instrument contains an optional acceleration clause, the lender's exercise of that option upon the borrower's default makes the entire debt due, and the lender is not obligated to accept a subsequent tender of only the past-due amount.
Facts:
- On May 21, 1900, Garrett executed three promissory notes in favor of W. C. Corbett, payable in one, two, and three years.
- The notes contained an acceleration clause, stating that failure to pay any principal or interest when due would, at Corbett's option, mature all of the notes.
- To secure the notes, Garrett executed a deed of trust on his land, naming O. C. Drew as trustee.
- On May 21, 1901, when the first note and annual interest on the others came due, Garrett failed to make the payment.
- Garrett claimed he telephoned the bank where the note was payable but was told it was not there; bank employees disputed this claim.
- Following the default, Corbett exercised his option to declare all three notes immediately due and instructed Drew to sell the land.
- After Drew advertised the land for sale, Garrett tendered payment for only the first note, its interest, the annual interest on the other notes, and advertising costs.
- Corbett and Drew refused to accept Garrett's late and partial tender.
Procedural Posture:
- O. C. Drew, as trustee, advertised Garrett's land for a foreclosure sale.
- Garrett (appellant) filed suit against Drew and W. C. Corbett (appellees) in a trial court to enjoin the sale.
- The trial court granted a preliminary injunction, temporarily halting the sale.
- Corbett filed a cross-bill against Garrett, seeking a judgment for the full amount of the notes and a judicial foreclosure.
- Following a trial, the court dissolved the injunction and entered judgment in favor of Corbett on his cross-bill.
- Garrett appealed the trial court's judgment to the Court of Civil Appeals of Texas.
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Issue:
Does a lender's exercise of an optional acceleration clause, triggered by the borrower's failure to make a timely payment, become irrevocable, thus allowing the lender to reject a subsequent tender of only the past-due amount and proceed with foreclosure?
Opinions:
Majority - Garrett, Chief Justice
Yes. A lender's valid exercise of an optional acceleration clause makes the entire debt due, and the borrower cannot reverse the acceleration by simply tendering the amount of the original default. The court reasoned that Garrett defaulted by failing to pay the first note and interest when they matured. This default triggered Corbett's contractual right to exercise his option to accelerate the entire debt. Once Corbett exercised this option by instructing the trustee to foreclose, all notes legally matured. Therefore, Garrett's subsequent attempt to cure the default by tendering only the past-due amount was insufficient, as the entire debt was then due and payable. The trustee was lawfully exercising his power to sell the property to satisfy the full, accelerated debt.
Analysis:
This case solidifies the legal power of optional acceleration clauses in contracts and deeds of trust. The decision establishes that once a lender unequivocally exercises the option to accelerate, the borrower's right to cure the default by paying only the arrears is extinguished. This provides significant protection and certainty for lenders, allowing them to rely on the contractual remedy of acceleration without fear that a borrower's late tender can unilaterally undo it. The ruling clarifies that the act of acceleration transforms the nature of the debt from an installment obligation to a single, immediately payable sum.
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