Greetings from South Bend, Indiana!
I’m in the middle of teaching an “intensive” three-week course on contract drafting at Notre Dame Law School. Given that we’re cramming one semester’s worth of work into the course, for me it’s living up to its name, even with a small group of students—I feel like I’ll need a vacation when I’m done. As for the students, they’re experiencing powerful g forces, going from zero to MSCD in a few days.
I can think of two reasons why I offer to teach at law school. First, I have a general sense that I should have a hand in all constituencies involved in contract drafting. And more specifically, the work involved in preparing and teaching exposes me to new ideas, as do the students.
That brings me to reason for today’s post. During a discussion of efforts provisions in today’s class, one of my students, George Lilov, mentioned that he had encountered use of the phrase business efforts in contracts.
Business efforts? So this evening I turned to the grand flea market that is the SEC’s EDGAR system, and here’s what I’ve found.
The phrase is used in employment agreements:
During his employment, Executive will perform his duties faithfully and to the best of his ability and will, except as provided below, devote his full business efforts and time to the Employer.
I leave it to others to figure out how efforts relates to time. I can’t say I’m keen on the idea.
But that use is unrelated to our friend reasonable efforts and its variants, which is what I’m interested in. Here are five examples of business efforts used in the latter context:
Owner or its designee shall use commercially reasonable business efforts to honor and to cause the successor employer to otherwise honor the tenure of Business Personnel for purposes of all benefits, including severance benefits …
… the Company shall, upon the specific request of the Executive, use its reasonable business efforts to in good faith reform such provision to comply with Code Section 409A …
… use commercially reasonable business efforts to keep available the services of the current officers and employees of the Company and its Subsidiaries; …
Both Pfenex and Dow shall use reasonable business efforts to mitigate the effects of any force majeure on their respective part.
DUOJECT shall use its best business efforts to develop the RAA in accordance with the terms and conditions of this Agreement and as more fully described and set out in Annex A, Annex B and Annex C (the “Development Work”).
This use appears in perhaps only fifty or so contracts filed on EDGAR in the past year, so it’s not prevalent. But it’s not a complete rarity either. I wouldn’t be surprised if this use of business efforts is due to cross-contamination from employment contracts.
It appears that drafters add business to efforts for the same reason that they add commercially. It follows that business is redundant for the same reason that commercially is: Whether someone complies with an efforts obligation is a function of the context. Necessarily, that involves taking into account the business circumstances, so you’re not going to assess a business context using standards from some other field.
Of course, commercially reasonable business efforts is doubly redundant.
So don’t use business efforts.
(Oh, and if you’re new to me and my writings, all efforts provisions mean the same thing. Because best efforts promises more than it can deliver, you should use only reasonable efforts. That’s the case even in those jurisdictions outside the U.S. where courts have tried, and failed, to create a distinction. See chapter 8 of MSCD.)
Addendum: For you efforts fans, here’s a bonus. I found in an underwriting agreement filed on EDGAR this week the following use of efforts:
The Company will not take, and will use its commercially best efforts to cause its Affiliates not to take, directly or indirectly, any action which constitutes or is designed to cause or result in, or which could reasonably be expected to constitute, cause or result in, the stabilization or manipulation of the price of any security to facilitate the sale or resale of the Securities.
Using commercially to modify reasonable is … English. But using it to modify best? One might say, “That’s a commercially reasonable thing to do.” You’d never say, “That’s a commercially best thing to do.”
Ah, the endless variety of the contracts ecosystem. My thanks to George Lilov for fishing another wriggling specimen from the murky depths for us to marvel over. I’ll soon be writing about some other usage issues that have come to my attention while I’ve been here.
Your first example seems to be conflating a “full time and attention” obligation with a hint of a non-compete. Unclear, bad drafting, in my view.
As for commercially reasonable, this is one that seems to be embedded in US drafting. I agree with your comment but feel there must be some kind of semi-plausible reason for it developing, and would like to know what that is. Or did it just spring from the ether? If so, isn’t it extraordinary that it has gained so much purchase?
Hey, I’d be delighted if one could count on even semi-plausibility. After all, I defy you to find the semi-plausibility underlying the “successors and assigns” provision. (My article here.)
It is one thing to have a boilerplate clause lurk undisturbed at the back of a template agreement, another to have a lawyer negotiate to include a provision for which there is not even a semi-plausible justification. The use of “commercially reasonable efforts” has become widespread in the US. On several occasions I have been in negotiations with US lawyers who have asked to put “commercially” before “reasonable”. If there is not even the ghost of a reason for doing this, what should we conclude? That negotiations are done on auto-pilot with no-one at the controls? That many contract lawyers are incompetent? That they are in thrall to their ignorant clients who feel “comforted” for some unknown reason by the word “commercially”?
Following up on Westmorlandia’s suggestion, what would be considered (even if not justified by case law) an uncommercial yet reasonable effort? Does uncommercial in this context mean “leading to a loss of profit on the contract”? Or “what most businessmen would prefer/tend not to do”? Or does it have some other meaning? However misguided, there must be some common flavour of the meaning, unless my conclusions above apply.
Regarding your suggested causes, I say all of the above.
Another example of lawyers negotiating over an illusion is the notion of “double materiality.” https://www.adamsdrafting.com/double-materiality-is-a-figment-of-practitioner-imagination-qed/
I think that “business efforts” is possibly worse than “commercially reasonable”. While “commercially reasonable” is a redundancy, I never worry that it will mean anything different to “reasonable” when commercial parties are involved. Courts seems to look at it that way.
You must be right that “business efforts” gets added for the same reason as “commercially reasonable”, but I don’t think it can actually mean quite the same thing – the word modifies “efforts” rather than “reasonable”. I don’t know what a “business effort” is, and I have never seen a judge give a view about it, so I don’t feel any confidence as to how it might be interpreted by a court. It probably does get to the same place (i.e. it is an attempt to exclude any requirement to make non-commercial steps), but we have to base that on an educated guess rather than on how the phrase has actually been treated in court. So, unlikely “commercially reasonable”, I would delete the word if I saw it in a contract I was reviewing.
I don’t see what all the fuss is about:
1. In the employment-agreement example, “full business efforts and time” obviously means that the Executive is to work full-time for the company, with no second job and no side business, a.k.a. no moonlighting.
The word “business” might be unnecessary, but it reassures the Executive that the company isn’t expecting him or her to spend every waking hour in harness. Given that the first purpose of any contract’s language is to persuade each party to sign the contract, I don’t see any harm in using the word.
(On the other hand, I agree that the term “commercially reasonable business efforts” is nonsense.)
2. In the term “commercially-reasonable,” the first word is intended to “get [the reader’s] mind right” (to paraphrase The Captain in =Cool Hand Luke=). The contract drafter(s) want to remind readers that “reasonableness” is to be judged from the perspective of experienced business people, not that of reader, who might have little or no knowledge of commercial realities.
DC, I think you are loading too much meaning into individual words – business and commercially. In response to your numbered points:
1. Your comment doesn’t explain the need for the word “efforts”. I think it would be much clearer to just say “full time” and say that he can’t work for anyone else (or himself)?
2. “Commercially” may give that impression but is it a valid one? Reasonableness will be judged from the perspective of the judge. If you are saying he must decide what an “experienced businessman”, and not necessarily the judge, would consider reasonable (which from Ken’s previous articles and comments doesn’t seem to be what the US courts do when faced with different efforts standards), where is he to find this creature? Is he the owner of a small business in the state where the dispute is litigated or a middle manager (perhaps foreign-born) in a giant corporation? And is there a difference depending on whether the experienced businessman is expecting someone else to perform, or is required to perform himself? I don’t really buy the idea that there is a single standard of experienced businessmen.
Mark —
1. Your formulation — that the Executive will work full time and not work for anyone else nor for herself — certainly seems simpler and cleaner. But “better is the enemy of good enough.” The parties want to get to signature and go about their business, not spend time making “improvements” that are extremely unlikely to have meaningful real-world impact. If I were reviewing a draft that included the “full business efforts and time” language that Ken quoted, I doubt very much that I’d bother to revise the phrase, because it’s =adequate= as-is; changing it would send the wrong message to the other side, not to mention to the client.
2. As to “commercially-reasonable,” maybe I can’t achieve perfection in getting the judge / juror to see things the way I want. But if I were trial counsel, I’d be happy to have even a little bit of help in the contract language. The word “commercially” can provide such a little bit of help.
It brings to mind the old joke about the mathematician, the engineer, and the beautiful woman at the bar. The punch line is “I can get close enough for practical purposes” — http://www.cs.northwestern.edu/~riesbeck/mathphyseng.html
“Commercially reasonable” is a bleed-over from the Uniform Commercial Code, eg, section 9-627 (“Determination of Whether Conduct Was Commercially Reasonable”). (I’d snip the “of” from the section title.)
Good to know.