In today’s financial market, institutional promissory notes with fixed rates almost always include terms that concern payment of the note in advance of its maturity date. For example, certain provisions may outline the circumstances in which a borrower may prepay amounts due under the note. Commonly referred to as prepayment clauses, these provisions generally require a borrower to tender a premium at the time of payment in exchange for the “right” to make a prematurity payment. Conversely, a second type of provision, known as an acceleration clause, considers the events that may entitle a lender to demand accelerated payment of the note some time prior to its maturity date. Usually, such clauses are triggered upon a borrower’s default and require immediate and full payment of all amounts to which the lender is entitled under the note.

In Bank of New York Mellon v. GC Merchandise Mart LLC(In re Denver Merchandise Mart), No. 13-10461 (5th Cir. Jan. 27, 2014) (unpublished), the U.S. Court of Appeals for the Fifth Circuit considered whether a lender was entitled to a prepayment premium under a promissory note that had been accelerated by the lender due to the borrower’s default, even though the borrower never actually made full or premature payment on the note. Affirming the decisions of the courts below, the appellate court concluded that pursuant to the plain language of the note at issue, the borrower could not be liable for any prepayment consideration absent an actual prepayment.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]