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A standard feature of contracts is the "best efforts" provision and its variants, but there is a lot of confusion about what they mean. Fortunately, careful drafting allows you to avoid the pitfalls.
CONTRACT PROVISIONS USING the phrase best efforts or one of its variants are often a source of contention and confusion when a contract is being negotiated. They can also be a source of dispute after the contract has been signed. This article analyzes how lawyers use best efforts and its variants; what best efforts and its variants mean when not defined by contract; and how courts go about determining whether a party has made the required efforts. This article recommends that if you provide in a contract that a party is subject to an efforts standard, generally you should specify by means of a defined term what sort of actions would satisfy that requirement. This article discusses which defined term to use and how to define it, and also addresses issues relating to the wording of efforts provisions.
THE FUNCTION OF "BEST EFFORTS" PROVISIONS * When accomplishing a certain goal is not entirely within Acme's control, Acme would generally not be willing to enter into a contract that makes it Acme's absolute duty to accomplish that goal-doing so would pose undue risk of future liability for nonperformance. In such situations, the parties might instead agree that Acme is to use best efforts, or some other level of effort, to accomplish that goal. Contracts impose an efforts standard in connection with many different obligations, such as an obligation to cause a registration statement to become effective by a certain time, an obligation to obtain consents required for closing, or an obligation to promote sales of a product.
Different from an explicit efforts provision of this sort is an efforts standard that a court imposes even though the contract language at issue might be read as requiring that the promisor actually achieve a specific result. See E. Allan Farnsworth, 2 Farnsworth on Contracts §7.17c (3d ed. 2004). This sometimes occurs with agency contracts. See Restatement (Second) of Agency §377 cmt. b (1958) ("Under ordinary circumstances, the promise to act as an agent is interpreted as being a promise only to make reasonable...