“Best Efforts” in Contracts

In a commercial transaction, the contract parties make certain promises to each other about the way things are and about what they will do in the future.  Some examples:  “I promise to obtain the software license by the end of the year.” “We promise that the machines will work as described.” “Seller will obtain a favorable tax opinion within 60 days of the sale.”   Many times these promises are qualified by what seem like common sense limitations on the obligation of the promisor, so we see terms like “best efforts” or “undertake to obtain”.  What do these phrases mean?  The answer should be clearer than it is.   “Best efforts” is sometimes taken to mean “no amount of effort will be spared”.  Taken to an extreme, this standard could bankrupt contract parties and produce absurd results.  So we sometimes see “commercially reasonable efforts” or even “commercially reasonable best efforts.”    Another variation is the “undertake” to act provision. It is not a guaranty of results, but a more like “we will not ignore it and we will ‘give it a shot’.”

Often clients will automatically accept (or ignore) a best efforts clause, but they do so at their peril. Counsel should discuss with the client the meanings and ambiguities of terms like: “best efforts”, “commercially reasonable efforts”, “undertake to provide” and, of course the simple, unqualified promises which populate all deal documents. (“Purchaser shall provide within 60 days….”) While parties can look to case law, such as the 2017 Williams Cos. case in Delaware (159 A.3d 264), uncertainty can lurk below familiar deal terms.  To avoid problems, it is often best to include details in the contract about what the promises mean in a practical sense and to build boundaries around what a party is really required to do.