A clause in a loan contract that states "all due and payable upon the happening of a certain event" is known as what?

The correct answer identifies a clause that allows the lender to demand the full repayment of the loan if a specific event occurs. This is known as an acceleration clause. Such a clause typically comes into play when the borrower defaults on the loan or fails to adhere to other terms of the agreement.

Acceleration clauses serve to protect the lender by providing them a mechanism to recover their funds quickly in the event that the borrower's financial situation changes unfavorably or if they breach the terms of the loan. By allowing the lender to declare the entire balance due and payable, it minimizes the risk associated with long-term loans, which can involve significant financial exposure.

In contrast, the other options refer to different kinds of provisions: a default clause specifically addresses events of non-payment or other breaches by the borrower; a prepayment clause allows borrowers to pay off the loan early without penalty (or with a defined penalty); and a due-on-sale clause stipulates that the loan must be paid in full if the property is sold. Each of these has its own role within loan agreements, distinct from the protective mechanism provided by the acceleration clause.