Joe buys a sailboat from Kim. His agreement with Kim calls for payment in monthly installations of $1,000 over five years and grants Kim a security interest in the boat. The agreement states that missing four months or more in payments will constitute a default. The agreement also contains an insecurity clause which allows Kim to accelerate payments if she "in good faith believes that the prospect of payment or performance is impaired."

Joe is a well-known independently wealthy businessman. However, he is in the papers every day and is widely believed to be on the brink of bankruptcy. Though the average lender might be worried, Kim receives sufficient evidence, through a verifiable source, that Joe's finances are in order and her security interest is not in danger. 

Six months after the sale of the sailboat, Joe misses three payments in a row. Based on the insecurity clause, Kim sends Joe a notice of acceleration. Even though she knows Joe was likely forgetful, and she isn't actually worried, she thinks the false negative financial publicity surrounding Joe is enough to invoke the insecurity clause; any other lender out there, lacking her private insight, would do the same.  Joe thinks this acceleration is unfair and unwarranted under the circumstances—he's never missed or been late on a payment before these three. If Joe challenges Kim's acceleration in court, which statement is correct?

1. Kim will prevail. Any other lender in Kim's position would accelerate in good faith, and so Kim's private insight doesn't matter.

2. Joe will prevail, because Kim's behavior does not meet the "honesty in fact" standard required for Kim to be acting in good faith.

3. Joe will prevail, becuase Kim's behavior does not meet the "observance of reasonable commercial standards of fair dealing" required for Kim to be acting in good faith.

4. Kim will prevail. Joe missed three payments, and as such she is entitled to accelerate under the insecurity clause.