Contracts often require parties to use their “best efforts” to execute obligations. But judges and lawyers disagree about the term and its variants.
Can you rank the following terms according to the burden they impose?
- Reasonable efforts
- Reasonable best efforts
- Best efforts
- Good-faith efforts
- Diligent efforts
- Commercially reasonable efforts
Unsure? You’re not alone. Although some authorities claim these terms fall into a neat order, case law suggests otherwise. Consider this best efforts provision, which came before then-Judge Samuel Alito and his Third Circuit colleagues:
Meridian and NDPS agree to use their best efforts to achieve satisfaction of the conditions to Closing set forth in the Agreement and to consummate the Closing on the terms and subject to the conditions set forth in this Agreement.1
Under this agreement, NDPS promised to buy Meridian’s credit-card business. Either party could terminate the agreement if the parties failed to close by a certain date. Four days before the deadline, Meridian decided to pursue another deal. To avoid closing, Meridian just “let the clock run,” as Alito put it, despite ongoing negotiations, and then terminated the agreement.
NDPS sued. It claimed that because Meridian had failed to exercise its “best efforts” to close the deal, it had breached the agreement.
Most lawyers would agree; they’ll tell you that best efforts means every conceivable effort short of measures that would create insolvency. But Alito and his colleagues held that best efforts did not require all possible efforts—even Meridian’s wait-and-see approach was effort enough. Nor was Alito bothered by Meridian’s failure to remind NDPS of the approaching deadline.
A few courts have even given up on best efforts and its variants; one Illinois court called the phrase “too vague to be fairly intelligible and too lacking in certainty to be enforceable.” Yet another court held that best efforts requires merely a reasonable effort.2
If negotiations allow, one solution is to create a defined term that indicates what best efforts entails or that cites industry standards as a benchmark. As one New York court advised, “the agreements [should] contain clear guidelines against which to measure such efforts.”3
- National Data Payment Systems, Inc. v. Meridian Bank
212 F.3d 849 (3d Cir. 2000)
- NBC Capital Markets Group, Inc. v. First Bank
25 Fed. Appx. 363, 365-66 (6th Cir. 2002).
- Strauss Paper Co. v RSA Exec. Search, 260 AD2d 570, 571 (2d Dept. 1999).