Best Efforts - Friend or Foe?
By Tammi Franke
I draft a lot of agreements. I like writing and I enjoy working with business people to document the specific terms of a transaction. It's not always easy and can involve a bit of guesswork to get going. However, it is satisfying when, after of few rounds of back and fourth, viola, the party's agree on a final version and a new business relationship is launched.
Occasionally, I'm tasked with defining the indefinable. The parties want to document their agreement, but factors are unknown or they honestly can't state with certainty what will happen during the performance of the agreement. This is when our old friend, the "best efforts" clause comes into play. The parties propose using their "best efforts" or "commercially reasonable efforts" to address these unknown future factors.
While the various types of "efforts" clauses can be a convenient stop-gap measure, Lawyers often cringe at using the term. Courts have created a perfect storm of uncertainty by determining that "best efforts" clauses are indefinite, but not so vague as to be unenforceable. Illinois is an exception. Here, the courts have determined that best efforts clauses, without a further definition in the contract, are unenforceable.
According to Kenneth Adams, an expert and author on contract drafting, the conventional wisdom among corporate attorneys and business people is that "best efforts" is the most onerous provision and other "efforts" provision (e.g. "commercially reasonable" or "reasonable" efforts) are less onerous. However, courts have not followed this interpretation when deciding cases.
The case law, in general, has held that "best efforts" do not require a party to make every conceivable effort to fulfill the contractual provision. Rather, "best efforts" requires good faith by the performing party. Some courts have held that the slightly higher standard of diligence applies. Diligence is defined as "the attention and care required by the typical person in a given situation, or industry standard performance, if a business is obligated to perform". Both of these standards, good faith and diligence, are based on "reasonableness" – what a reasonable person or business would do in a similar situation. Therefore, whether you use the term "best efforts", "commercially reasonable efforts" or just "reasonable efforts", the court often applies the same standard.
"Reasonable" is a relative term and applies to that which is appropriate for a particular situation. Under the law, this is a fact-based determination that is best made by a jury. If there is a contract dispute, this means, worst case, expensive litigation and, best case, protracted negotiation of a settlement.
To avoid expensive litigation, protracted settlement negotiations or unenforceability in Illinois, the parties to a contract should include a clear set of guidelines for measuring performance of "best efforts" provisions. For example, a clause could state that the party who is required to perform with its "best efforts" is required to do X, but not required to go as far as Y.
In a technology support agreement, a clause might read: "Best efforts requires Tech Company to escalate problems to the highest level within its standard customer support organization, but not does not require Tech Company to send personnel to the customer’s location."
Best Efforts – friend or foe? A "Best Efforts" clause can be a friend when writing a contract just remember to take the time to incorporate specific parameters for measuring performance or you may end up with an unruly foe to contain if there is a dispute.
