Trendy Terri has a $30,000 loan with First Rate Bank that enabled her to purchase inventory for her downtown shop which sells modern couture style clothes to the college community. The loan is properly secured by a security agreement, which granted First Rate Bank a security interest in the clothes purchased and all fixtures and equipment, properly perfected by a filed financing statement. The collateral's total value is $50,000. The security agreement contains a clause allowing First Rate Bank to demand additional collateral in its discretion, and a default clause which provides that missing a payment constitutes a breach of the contract, and that upon default First Rate Bank has the rights provided by Article 9 and its contract (including the right to accelerate the debt).

Trendy Terri does not miss any payments, or otherwise default, yet receives a letter from First Rate Bank requiring additional collateral. Does Terri have to provide additional collateral?

1) No, Terri is not in default so First Rate Bank has no right to additional collateral.

2) No, First Rate Bank is oversecured and thus has no right to additional collateral.

3) Maybe, depending upon the reason First Rate Bank is requiring additional collateral and the amount it requires.

4) Yes, because the security agreement contains an acceleration clause.