Question

Differentiate between good faith and commercial reasonableness. Discuss the need for such terms in law.

What are prepayment and acceleration clauses? How do these clauses help the borrower?

Answer 1

Good faith : Good faith is a very popular teams in law and generally it used in a contract which can happen between two or between more than two parties, it is a presumption for parties in contract that they will remain honest, fair and good faith and they can't break right of other party or parties in regards to receive benefits of contract.

Commercial reasonableness : In this law term it describes, here a party would be provided the right to exercise or we can say here a contract allows to only one party to make decisions in contract and this can be effcted to both parties and the decision maker’s discretion will generally be limited as a matter of implication. This discretion must be in good faith and honest and not must be done by unreasonably.

Differences:

1. Good faith is something where both parties have same rights and in reasonableness only one party is having rights of changes.
2. Good faith law is for the honesty between both of the parties and on the other hand reasonableness is something where honesty is also important but here one party have more power.
3. Good faith is wider but reasonableness is a shorter.
4. If there is any change in contract then both of the parties should be agreed but in reasonableness one party can do change but it should be honest and in good faith.
5. In reasonableness there can be happen partiality due to power in one party but in good faith partiality can't be happen.

Needs of these kind of law.

• These kind of law can protect rights of contract parties.
• Parties can do contract easily and with trust because of these laws.
• None of the party can break rules of contract because of these laws.
• These laws promotes honesty and fairness between parties.
• Both of the parties can find benefits easily with these laws.

Prepayment: Prepayment is a term where a person who took loan can do settlement of his dues before it's due date or we can say prepayments are those payments which a borrower can settle before it become due.

Acceleration clauses : Acceleration clauses is kind of a contract provision where it allows lender to require a borrower to repay all of an outstanding loan if certain requirements are not met.

These clauses helps to borrower :

1. Prepayment clause can help a borrower to reduce the interest which he had to pay because In this term he is paying his loan amount before it's due date.
2. This clause also reduces its payment tenure.
3. Acceleration clause can help a borrower to reduce the risks as in this clause lender to require a borrower to repay outstanding loans if requirements not met and this can also help to a borrower to reduce more loss of interest.