Most mortgages contain a clause requiring immediate payment of all “moneys owing” should any default occur especially in relation to regular monthly installments.

In a recent Queensland District Court decision concerning a 10 year loan over commercial property, the defaulting borrower – solicitor Toni Churnov – contended that the acceleration clause extended only to the installment arrears, rather than to the entire principal and interest.

The default clause simply provided “If you default under this agreement we may require that you repay all the money owing to us immediately”.

Bank of Queensland contended that the amount due upon the instance of the default was the entire sum namely $357,000 and took enforcement action under the mortgage including recovery of possession on that basis.

The court agreed. “The term “money owing very clearly means the total of the facility amount which has not been repaid”.

As a second string to her bow, borrower Churnov contended that the accelerated payment default provision – requiring as it did payment of a sum higher than would have been the case had no default occurred – constituted an illegal penalty.

The court likewise dismissed that argument explaining that a creditor who allows a debt to be repaid over time may agree to accept a lesser sum if re-paid by a particular time. That does not mean that the acceleration of the over-time installment in the event of default of an installment, is a penalty.

“If a sum of money is payable by installments and it is specified that in the event that an installment is not paid punctually the whole sum shall immediately become payable”, the acceleration of payment is not a penalty because the debt is a “present debt”.

Judgement was entered against the borrower for arrears, interest and costs.

A Notice of Appeal has been filed.

Bank of Queensland Limited v Churnov & Anor [2013] QDC 275 Brisbane Reid DCJ 31/10/2013