Is a “Reasonably Acceptable” Provision in a Contract Enforceable?

By: Werner Sabo

A federal court in Louisiana recently held that a “reasonably acceptable” provision related to final payment was enforceable. The court reviewed the provision in Team Contractors LLC v. Waypoint Nola, LLC, 2019 U.S. Dist. LEXIS 45821 (March 20, 2019; below is the provision’s text.

§ 5.2 FINAL PAYMENT

§ 5.2.1 Final payment, constituting the entire unpaid balance of the Contract Sum, shall be made by the Owner to the Contractor when

.1 the Contractor has fully performed the Contract except for the Contractor’s responsibility to correct work as provided in Section 12.2.2 of AIA Document A201—2007, and to satisfy other requirements, if any, which extend beyond final payment;

.2 a final Certificate for Payment has been issued by the Architect;

.3 as a prerequisite to final payment, the Contractor shall submit (i) a release in form reasonably acceptable to the Owner of liens and claims executed by the Contractor and by each of its subcontractors on behalf of which payment is requested and (ii) a Contractor’s Environmental Certification in the form attached hereto as Exhibit F.

In this case, the contractor submitted three waivers of lien to the owner, along with a request for payment. The owner did not make payment until about a year later, after a fourth lien waiver was submitted. Litigation was filed over this and other issues between the parties. The contractor then sought to obtain summary judgment against the owner on various issues, including the issue of whether the owner could withhold payment if the documents were not “acceptable” to the owner. The contractor argued that the condition’s fulfillment that the owner accept the waivers was subject solely to the owner’s “whim.”

The court found that this condition is valid and not subject to the owner’s whim. The contract’s requirement that the document be “reasonably acceptable” imposes on the owner the duty of making a good-faith judgment on a reasonable basis whether the document is acceptable. It does not give the owner an absolute and arbitrary right to reject such a document.

The request for summary judgment on this basis was denied.

Chicago, Illinois 312-377-1501 | Schererville, Indiana 219-488-2590

Chicago, Illinois

312-377-1501


Schererville, Indiana

219-488-2590