Understanding“Best Efforts” And Its Variants …

1 CONTRACT PROVISIONS USING thephrase best effortsor one of its Variants are oftena source of contention and confusion when acontract is being negotiated. They can also be asource of dispute after the contract has beensigned. This article analyzes how lawyers usebest effortsand its Variants ; what best effortsandits Variants mean when not defined by contract;and how courts go about determining whethera party has made the required efforts . This arti-cle recommends that if you provide in a contractthat a party is subject to an effortsstandard, gen-erally you should specify by means of a definedterm what sort of actions would satisfy that re-quirement. This article discusses which definedterm to use and how to define it, and also ad-dresses issues relating to the wording of A. Adamshas written extensively on legal drafting. He is the author of AManual of Style for Contract Drafting(American Bar Association 2004), is a senior associate with the law firm Lehman & Eilen LLP, and is an adjunct profes-sor at Hofstra University School of Law.

2 His website is best efforts And Its Variants (IncludingDrafting Recommendations)Kenneth A. AdamsA standard feature of contracts is the best efforts provision and its Variants ,but there is a lot of confusion about what they , careful drafting allows you to avoid the FUNCTION OF best efforts PRO-VISIONS When accomplishing a certain goalis not entirely within Acme s control, Acmewould generally not be willing to enter into acontract that makes it Acme s absolute duty toaccomplish that goal doing so would poseundue risk of future liability for nonperfor-mance. In such situations, the parties might in-stead agree that Acme is to use best efforts , orsome other level of effort, to accomplish thatgoal. Contracts impose an effortsstandard inconnection with many different obligations,such as an obligation to cause a registrationstatement to become effective by a certain time,an obligation to obtain consents required forclosing, or an obligation to promote sales of from an explicit effortsprovision ofthis sort is an effortsstandard that a court im-poses even though the contract language atissue might be read as requiring that thepromisor actually achieve a specific E.

3 Allan Farnsworth, 2 Farnsworth on Contracts (3d ed. 2004). This sometimes occurs withagency Restatement (Second) ofAgency 377 cmt. b (1958) ( Under ordinary cir-cumstances, the promise to act as an agent is in-terpreted as being a promise only to make rea-sonable efforts to accomplish the directed re-sult ). An explicit effortsprovision can also bedistinguished from a duty to use efforts to ac-complish a goal that is read into a contract eitherby a court or by statute in the absence of an ex-plicit undertaking regarding that goal. See Woodv. Lucy, Lady Duff Gordon, 118 214 ( ); 2-306(2); Farnsworth, supra, at This article focuses on explicit effortspro-visions. best efforts AND ITS Variants ,AND WHAT THEY MEAN Public compa-nies are required to file with the Securities andExchange Commission any material contracts that they enter into. Contracts filed with theSEC are a source of useful information aboutcurrent contract-drafting efforts Variants andHow Often They re UsedThe following table shows the different ef-fortsphrases used in contracts filed with theSEC in January 2004, how many contracts usedeach phrase, and how many contracts treatedeach phrase as a defined term.

4 The table showsthat best effortswas the phrase used most often,but commercially reasonable efforts , reasonable bestefforts, and reasonable effortswere each usedoften, in the aggregate more so than best efforts , commercially reasonable best ef-forts, and diligent effortswere used significantlyless often, while good-faith best efforts , every effort,and an oddity, commercially reasonable and dili-gent efforts , bring up the ContractsNo. ContractsUsingDefining best efforts6271commerciallyreasonableefforts 4251reasonable bestefforts345 0 reasonableefforts3070good-faithefforts58 0commerciallyreasonablebest efforts460diligent efforts230good-faithbest efforts80every effort50commerciallyreasonable anddiligent efforts 31 What Lawyers Think best efforts MeansThe conventional wisdom among corporatelawyers is that best effortsis the most onerous of12 The Practical LawyerAugust 2004 efforts Clauses13the effortsstandards that the promisor is re-quired to do everything in its power to accom-plish the goal, even if it bankrupts itself in theprocess while other effortsstandards are R.

5 Kling & Eileen T. Simon,Negotiated Acquisitions of Companies, Subsidiariesand Divisions (2003) ( [P]ractition-ers, probably based on some of the broad inter-pretations given to best efforts , tend to view allthe other phrases, while perhaps not being toodifferent from each other, as being definitely dif-ferent from best efforts ); Charles M. Fox,Working with Contracts88 (2002) ( best efforts is the most stringent standard ).What Case Law Says best efforts MeansThe case law, however, paints a different pic-ture. Courts have not required that a partyunder a duty to use best efforts to accomplish agiven goal make every conceivable effort to doso, regardless of the detriment to it. See, ,Coady Corp. v. Toyota Motor Distrib., 361 50,59 (1st Cir. 2004) ( best efforts ..cannot meaneverything possible under the ); Triple-ABaseball Club Assocs. v.

6 Northeastern Baseball, Inc.,832 214, 228 (1st Cir. 1987) ( We have foundno cases, and none have been cited, holding that best efforts means every conceivable effort );Bloor v. Falstaff Brewing Corp., 601 609, 614(2d Cir. 1979), cert. denied, 485 935 (1988)( The requirement that a party use its best ef-forts necessarily does not prevent the partyfrom giving reasonable consideration to its owninterests ).Some courts have held that the appropriatestandard is one of good Triple-A Base-ball Club Assocs., 832 at 225 ( We havebeen unable to find any case in which a a party acted in good faith but didnot use its best efforts . ); Bloor, 601 at 614( best efforts imposes an obligation to act withgood faith in light of one s own capabilities);W. Geophysical Co. of Am. v. Bolt Assocs., Inc., 1164, 1171 (2d Cir. 1978) (stating that anobligation to use best efforts can be met by ac-tive exploitation in good faith ).

7 Good faith has honesty and fairness at its core. Farns-worth, supra, at ; see also Black s Law Dic-tionary701 (7th ed. 1999) (defining good faithas A state of mind consisting in (1) honesty inbelief or purpose, (2) faithfulness to one s dutyor obligation, (3) observance of reasonablecommercial standards of fair dealing in a giventrade or business, or (4) absence of intent to de-fraud or to seek unconscionable advantage ).But more recent cases have held that thestandard is higher than that of good Broad. Cable, Inc. v. Telefonica De Espana,807 F. Supp. 210, 217 ( 1992) (holding thatthe net effect of the best efforts clause atissue was to expand extra-contractual dam-ages beyond a mere good faith requirement );Kroboth v. Brent, 215 813, 814 ( 1995) ( [B]est efforts requires more than good faith, which is an implied covenant inall ).As an alternative to a good faithstandard,some recent cases have used a reasonablenessstandard.

8 See, , Coady Corp., 361 at 59( best efforts is implicitly qualified by a rea-sonableness ); Kroboth, 215 at 814( best efforts requires that plaintiffs pursue allreasonable ).Other recent cases have followed ProfessorFarnsworth (see Farnsworth, supra, at ) indescribing the appropriate standard as one ofdiligence. See National Data Payment Systems Bank, 212 849, 854 (3d Cir. 2000)(quotingProfessor Farnsworth); Holdings,Inc. v. Jenkins, 924 1239, 1250 (Kan. 1996)(same). That term is also used by the officialcomment to 2-306(b)(2), which statesthat the implied obligation to use best efforts re-quires that parties use reasonable diligence aswell as good faith in their performance of thecontract. 2-306(b)(2) official cmt. can be defined as the attentionand care required from a person in a given situ-ation.

9 Black s Law Dictionary, supra, at 468. Useof both good faithand diligenceto give meaning tothe term best efforts , not only in the official but also in case law, raises the questionwhether in such contexts a diligencestandardshould subsume, and therefore render superflu-ous, a good faithstandard. See, , Davidson &Jones Dev. Co. v. Elmore Dev. Co., 921 1343,1350-51 (6th Cir. 1991) (likening the promise touse best efforts to the implied duty of good faithand fair dealing imposed on each party to a con-tract under Tennessee law, and suggesting thatthis duty requires a party to make a reasonableeffort and exercise reasonable diligence); GreatW. Producers Co-op. v. Great W. United Corp., 200 Colo. 180 (Colo. 1980) ( The best efforts obliga-tion required that United and its board of direc-tors make a reasonable, diligent, and good faitheffort to accomplish a given ).

10 Anddiligence would seem to incorporate the conceptof reasonableness it is hard to imagine howperforming an obligation diligently could re-quire that you do more or less than act efforts Variants MostlyMean the Same ThingThe case law on the meaning of best effortssuggests that instead of representing differentstandards, other effortsstandards mean thesame thing as best efforts , unless a contract defi-nition provides otherwise. Reasonable best efforts Consider reasonable best efforts . Because recentcase law suggests that best effortsincorporatesthe concept of reasonableness, reasonable best ef-fortswould seem to mean the same as best is no case law on point, but two courtsthat have considered a contract provision refer-ring to reasonable best effortshave ignored theword reasonable. See Herrmann Holdings Ltd. Techs., Inc., 302 552 (5th Cir.)