“BUT
I’LL TRY REALLY, REALLY HARD!”:
USING “BEST
EFFORTS” CLAUSES
By: Daniel A. Batterman, Esq.
DISCLAIMER: This article is intended for informational purposes only and does not constitute legal advice. You should not rely or act upon any information contained in this article without seeking the advice of qualified legal counsel.
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“Best efforts.” These two simple words can cause many headaches
and a great deal of litigation. It’s a common standard used in many
different contexts, such as in licensing, sales, IT development, marketing,
consulting, franchising, and other agreements. It’s an important
term that can and should be subject to a great deal of thought and negotiation
by the parties. Unfortunately, this is often not the case.
For example, in contracts where exclusive rights are granted, the other
party is often required to use its “best efforts” when performing
its obligation, whatever it may be. This might be what the contract says,
but what does it really mean? What does it actually obligate the other
party (or you) to do? I’ll use—dare I say—my best efforts
to try and answer this question. I’ll also offer some tips on how
to perhaps use these clauses more effectively.
Keep in mind that contract law is state specific. What a Massachusetts
court considers to be “best efforts” may be rejected by a judge
in California. Different states emphasize different principles. Still,
despite these disparities, certain concepts have emerged that can provide
some general guidance. “General” is the key term. As noted
by one court, the best efforts standard “cannot be defined in terms
of a fixed formula; it varies with the facts and the field of law involved.”1 Thus,
each case is unique and could yield different results. Nevertheless, there
are some principles of which to be aware:
Energy, Exploitation, Good Faith, or Diligence . . . or Not
In Massachusetts and elsewhere, some courts have construed best efforts
as requiring a higher degree of affirmative conduct from the promisor.
In other words, doing the bare minimum or making “reasonable efforts” (a
common legal standard) is generally not sufficient.
In one Massachusetts case, the court noted that “best efforts” should
be construed “in the natural sense of the words as requiring that
the party put its muscles to work to perform with full energy and fairness
the relevant express promises and reasonable implications therefrom.”2 So
what’s “full energy and fairness?” This is a question
of fact for the court to decide in the context of the case. The reasoning
implies, however, that efforts where “some” or “reasonable” energy
is expended would be insufficient to meet the standard. The efforts need
to be more vigorous. Another court construed the phrase, “to use
its best efforts” as requiring “active exploitation in good
faith.”3 Again, what constitutes “active exploitation” is
a question of fact. The implication is that the promisor can’t sit
back passively and hope for the best. It must be proactive.
Some courts have focused entirely on a promisor’s “good faith” and
have held this to be essentially equivalent to best efforts.4 Yet others
don’t consider good faith to be enough and have focused on a “more
exacting” standard of “diligence as its essence.”5 Best
efforts have also been held to sometimes mean exclusive efforts, such that
the promisor cannot sell a competing product line.6 At a very minimum, one
court (as discussed below) noted that best efforts “means, at the
very least, some effort. It certainly does not mean zero effort.”7
No matter how best efforts are defined, be aware that there are many different
views. It’s essential to know what state law applies to your contract,
although this is only a starting point, not an end in itself. No one knows
what a court will actually do once it looks at the issue in the specific
context of your case. The idea is to try and make sure your contract never
makes it this far, but if it does, then at least you can make a persuasive
argument that your interpretation is the correct one.
Available Resources
As noted above, best efforts cases are very fact-specific. One factor
that a court will analyze is the capability and resources of the promisor.
This is only common sense. The best efforts of a company like Microsoft
will likely be viewed much differently than a small software company in
Boston with far fewer and more limited resources.
If you expect all companies to be held to a single universal standard,
you’re being unrealistic as to how a court will view the situation.
Best efforts require a party to behave in a particular manner “in
light of one’s own capabilities.”8 Consequently, this requires
careful evaluation by the parties of each other’s capabilities, resources,
and expertise in the negotiation phase and prior to consummating the deal.
As I’ve often told many clients, doing so after you’ve signed
the contract is too late.
Best Efforts ≠ Every Effort
Several years ago a client called me about a potential lawsuit against
a Boston IT developer who failed to deliver working software. The contract
required the developer to use his best efforts. When I asked what he expected,
he said that the developer wasn’t devoting all of his attention to
the project and should have done “whatever it took.” I told
him that—absent contract language to the contrary—a best efforts
clause doesn’t require a party to devote every moment to fulfilling
its obligations. He wasn’t happy with what I had to say, but he listened.
Indeed, many courts have found that using best efforts doesn’t mean
that a party has to drop everything. One court stated: “We have found
no cases . . . holding that ‘best efforts’ means every conceivable
effort.”9 Another court noted that a best efforts clause does not
eliminate a party’s “right to give reasonable consideration
to its own interests.”10 This is common sense. No party would ever
enter into any contract if it was required to take every imaginable course
of action and couldn’t factor in its financial self-interest. A company
isn’t required to spend itself into bankruptcy.11
Success is Not Required
Best efforts are just that: Efforts. While it may mean that the promisor
has to try harder, it doesn’t mean that it must actually be successful.
Best efforts are not equivalent to a guarantee. For example, in one case
the promisor encountered difficult problems fulfilling its obligations
under the contract. The court found, however, that there was no breach
and that the company had attempted to fulfill its best efforts obligation
in good faith.12
In another Massachusetts case, the court (interpreting language similar
to best efforts) noted that these efforts mean “such effort as in
the exercise of sound judgment would be likely to produce the most profitable
results to the [promisee] . . . .”13 “Likely to produce” doesn’t
mean “will produce.” Even likely courses of action can and
do fail. If the promisor can document its efforts while trying to fulfill
its obligations to the other party, it could easily prevail in a contract
dispute.
“That’s great, but what should MY company do?”
Given the varying interpretations courts give these clauses, it’s
always best to go back to the basics: Focus on using precise contract language
at the outset. Ambiguity, which is an inherent part of best efforts language,
should be eliminated as much as possible. If a party obligated to use best
efforts is required to take certain actions or reach particular goals,
these need to be stated specifically in the contract. Don’t assume
you’ll have legal recourse just because the other side has to use
its best efforts. Maybe you will, but maybe not. Write it all down just
to be sure.
If, for example, you expect the other party to spend a certain amount
of money to fulfill its obligations, try to specify how much. If a party
is supposed to market your products with its best efforts and you believe
that they should spend at least $50,000, say so. While the other party
may refuse to include a specific amount and want its best efforts to purposely
remain ambiguous, this in itself will help you gauge exactly what the other
side’s intentions are and what resources they’re willing to
commit. This will then allow you to further evaluate whether this is a
party with whom you want to do business. Managing expectations is, after
all, a key component of any business deal.
Of course, even in the absence of a specific dollar amount, a best efforts
clause could still obligate a party to spend money. As noted above, it
depends on the case and the jurisdiction. Thus, why not eliminate the uncertainty
as much as possible? While some may argue that defining a party’s
efforts could actually limit the impact of a best efforts provision, the
alternative of not doing so injects a great deal of ambiguity into the
process and could force both parties into expensive and time-consuming
litigation. Consider what happened in one case when the court was faced
with a vague best efforts provision:
The defendant agreed to use its “best efforts” to market the
plaintiff’s product “in a manner that seems appropriate.”14 While
the court found that the contract was enforceable, it noted that the language
was “obviously indefinite and could mean different things to different
people.”15 Had the parties agreed to specific actions that were to
be taken rather than leaving it open-ended, litigation might have been
avoided. If, for example, the contract stated that the company had to use
its best efforts to market the products: (1) in trade publications; (2)
at trade shows; (3) on the internet; and (4) with vendors, then both parties
would have been better able to manage their expectations from the outset.
In fact, the court’s decision that best efforts “means, at
the very least, some effort” and that it “certainly does not
mean zero effort”16 offers little useful guidance. It may reflect the
court’s frustration with the parties’ poor choice of language.
Finally, keep in mind that even a well-defined best efforts clause has
limits. This term does—for better or worse—give a party discretion
in the decision-making process, which is why most parties agree to it in
the first place.17 This discretionary element is not only difficult to remove
completely, but perhaps more importantly, it could be detrimental to the
negotiation to even try. Nevertheless, no matter how carefully you define
it, as is often the case in the law, nothing is certain. However, by having
a better understanding of how courts interpret this provision, a thorough
knowledge of your company’s business model, and a willingness to
define your contract terms with greater precision, you’ll be in a
much better position to evaluate if a particular opportunity is right for
your business. And that’s best for everyone’s efforts.
© 2007 Daniel A. Batterman. All rights reserved.
DISCLAIMER: This article is intended for informational purposes only and does not constitute legal advice. You should not rely or act upon any information contained in this article without seeking the advice of qualified legal counsel.
1. Triple-A Baseball Club Assoc. v. Northeastern Baseball, Inc., 832 F.2d 214, 225 (1st Cir. 1987).
2. Macksey v. Egan, 36 Mass. App. Ct. 463, 472 (1994).
3. Western Geophysical Co. of America v. Bolt Assoc., 584 F.2d 1164, 1169-70 (2d Cir. 1978).
4. Triple-A Baseball Club Assoc., supra, 832 F.2d at 225 (1st Cir. 1987).
5. National Data Payment Sys., Inc. v. Meridian Bank, 212 F.3d 849, 854 (3d Cir. 2000).
6. Joyce Beverages of New York, Inc. v. The Seven-Up Co., 555 F. Supp. 271, 277 (S.D.N.Y. 1983).
7. Hinc v. Lime-O-Sol Co., 382 F.3d 716, 721 (7th Cir. 2004).
8. Bloor v. Falstaff Brewing Corp., 601 F.2d 609, 613 (2d Cir. 1979).
9. Triple-A Baseball Club Assoc., supra, 832 F.2d at 228.
10. Bloor, supra, 601 F.2d at 614.
11. Id.
12. Western Geophysical Co. of America, supra, 584 F.2d at 1171.
13. Randall v. Peerless Motor Car Co., 212 Mass. 352, 374 (1912) (emphasis added).
14. Hinc, supra, 382 F.3d at 718.
15. Id. at 721.
16. Id.
17. See generally Western Geophysical Co. of America, supra, 584 F.2d at 1171.
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