## Facts

- Robert Herriford borrowed money from AVEMCO Investment Corporation, granting AVEMCO a security interest in an airplane.
- The security agreement provided that if Herriford sold, leased, transferred, mortgaged, or otherwise encumbered his interest in the airplane, the entire loan balance would become immediately due.
- Herriford later entered a lease-and-option arrangement with Brown and two others, under which they paid hourly rental and additional sums intended to reduce Herriford’s debt to AVEMCO.
- The lessees were added as co-insureds on the aircraft’s insurance policy, and AVEMCO received copies of the policy.
- Brown and the others tendered the remaining balance on Herriford’s debt and notified AVEMCO they were exercising their option to acquire interests in the aircraft.
- AVEMCO refused the tender, treated the lease as a triggering event under the acceleration clause, and demanded additional amounts beyond the tendered balance.
- AVEMCO repossessed the airplane from Herriford and sold it to a third party.
- Brown and the other lessees sued AVEMCO for conversion, alleging repossession and sale were wrongful because the amount properly due had been tendered.

## Issues

1. Whether U.C.C. § 1-208 requires a secured creditor to have a good-faith belief that the prospect of payment or performance is impaired before accelerating, even when the acceleration clause is triggered by a specified act such as an unauthorized lease.
2. Whether the trial court erred by refusing to instruct the jury that acceleration was valid only if AVEMCO acted on a good-faith belief of impairment, and whether that instructional error warranted reversal.

## Decision

- The Ninth Circuit reversed the judgment for AVEMCO and remanded for a new trial.
- The court held that U.C.C. § 1-208 imposes a good-faith limitation on the exercise of acceleration power and bars acceleration based solely on a technical default absent a good-faith belief of impairment.
- The district court’s instructions improperly allowed the jury to uphold acceleration based only on the existence of an unauthorized lease, without requiring a finding of good faith or impairment.
- Because the conversion claim depended on whether AVEMCO was entitled to reject the tender and repossess after demanding an improperly accelerated amount, the instructional error was prejudicial.

## Legal Principles

- Under U.C.C. § 1-208, an acceleration term is enforceable only if the creditor in good faith believes the prospect of payment or performance is impaired.
- A technical breach of a security agreement, by itself, does not establish the creditor’s good faith or actual impairment as a matter of law.
- Whether the creditor acted in good faith and whether the conduct impaired the prospect of payment or performance are fact questions ordinarily for the jury when supported by the evidence.
- A secured party’s repossession and disposition of collateral may support tort liability (including conversion) if the secured party lacked a contractual or statutory right to accelerate and proceed against the collateral.

## Conclusion

The Ninth Circuit required that a secured creditor’s invocation of an acceleration remedy be conditioned on a good-faith belief that payment or performance is impaired, and ordered a new trial because the jury was not instructed to decide that good-faith impairment question.


Brown v. AVEMCO Inv. Corp., 603 F.2d 1367 (9th Cir. 1979)