What the Heck Does “Best Efforts” Mean?

I suspect that the one usage that causes me most aggravation is best efforts. That’s because the way I see it is diametrically opposed to the way many practitioners see it.

I think the problem is that people approach it as an issue to be resolved by case law, whereas I see it first of all as a matter of semantics. What does best efforts mean in general usage? And what are the implications of seeking to have it mean something other than that?

I discuss best efforts in MSCD and have blogged about it a few times (seach for “best efforts” and “best endeavours”), but I realized that I hadn’t adequately explored the semantics. So here goes:

Drafters use a bewildering variety of efforts phrases. An informal survey of contracts filed as “material contracts” on the Securities and Exchange Commission’s EDGAR system suggests that the most prevalent efforts phrases are best efforts, reasonable efforts, commercially reasonable efforts, and reasonable best efforts. Also used are good-faith efforts, diligent efforts, commercially reasonable best efforts, and every effort. The mix-and-match quality of efforts terms can approach the bizarre, as in best good-faith reasonable efforts.

The conventional wisdom among lawyers is that best efforts is the most onerous of the efforts standards—that the promisor is required to do everything in its power to accomplish the stated goal, even if it bankrupts itself in the process—whereas other efforts standards are less onerous.

The rationale underlying this distinction is that in everyday language, best represents a higher standard than reasonable. But as a matter of semantics, that is—at least in the context of the phrase best efforts—a problematic proposition.

In the sentence Despite my best efforts, I wasn’t able to purchase any Superbowl tickets, the word best doesn’t mean that the speaker did everything possible to purchase Superbowl tickets, no matter how onerous, such as taking out a loan to purchase tickets from a broker at an exorbitant price. Instead, it means that the speaker did whatever made sense, taking into account not only the extent of his Superbowl enthusiasm but also his finances. The same applies to use of the word best in the statement I’ll do my best to purchase Superbowl tickets—the speaker isn’t required to do everything possible to purchase Superbowl tickets, just what makes sense, taking into account the circumstances. For contract-drafting purposes, the equivalent of I’ll do my best is Acme shall use best efforts.

Like any writing that seeks to regulate conduct, contracts are scrutinized far more closely than other forms of communication. In a dispute, an aggrieved party will seek to squeeze a desired but not necessarily evident meaning out of a given phrase or, if necessary, its constituent elements. It shouldn’t come as a surprise that litigants have fastened on the dictionary meaning of best—“surpassing all others”—so as to argue, regardless of idiomatic use of the phrase best efforts, that an obligation to use best efforts in fact requires that a party take extraordinary measures. However problematic that meaning, it has proved plausible enough to in effect render best efforts ambiguous.

One result is use in contracts of the phrase reasonable efforts. (Best efforts is used in colloquial English, but reasonable efforts is not—its use is essentially limited to contracts.) Reasonable efforts refers to the efforts that a reasonable person would expend in the circumstances. As a result, reasonable efforts isn’t subject to the additional meaning that has been grafted on to best efforts—one couldn’t reasonably suggest that a party under an obligation to use reasonable efforts must take extraordinary measures.

But whereas some lawyers regard reasonable efforts as a misinterpretation-proof replacement for best efforts, others regard both terms as two points on a spectrum of efforts that a party might be required to expend, ranging from the relatively modest to the extraordinary, the latter being represented by best efforts. This interpretation is facilitated by colloquial use of reasonable to mean “not extreme,” as in She got a reasonable grade on her French test.

But this ostensible contrast between best efforts and reasonable efforts demonstrates that the notion of best efforts as requiring extraordinary measures has shortcomings in addition its being inconsistent with the idiomatic meaning of best efforts. For one thing, if best efforts were to represent a more exacting standard than reasonable efforts, then anyone under an obligation to use best efforts would be at risk of having to act more than reasonably—in other words, unreasonably—in order to meet that obligation. That’s an inherently dubious proposition. Furthermore, one would have no basis for determining at what point a best efforts obligation had been met—how unreasonably would one have to act in order to meet an unreasonableness standard? So the “extraordinary measures” meaning of best efforts represents an unworkable standard.

Once reasonable efforts and best efforts were established in the minds of many drafters as representing points on a spectrum, drafters were at liberty to come up with variations on that theme. They’ve certainly taken advantage of that opportunity.

Of the other efforts standards, perhaps the most prevalent is commercially reasonable efforts. But the word commercially is redundant: determining whether a party’s efforts constituted reasonable efforts would, in the context of a business contract, necessarily take into account that context.

As for diligent efforts, it would seem to convey essentially the same meaning as reasonable efforts, only less clearly.

Good-faith efforts would seem redundant, given that an obligation to use good faith is in as a general matter read into contracts.

Other efforts standards—such as reasonable best efforts and commercially reasonable best efforts—represent concoctions that add nothing to reasonable efforts other than confusion.

[As you might have guessed, I expect that some version of this analysis will appear in MSCD2, along with an expanded discussion of the case law and, of course, drafting recommendations. Any comments?]

Posted in Uncategorized | 27 Comments

  • http://www.pactix.com D. C. Toedt

    Ken, you implicitly raise an interesting possibility, which is to define reasonable efforts by negation: “For the avoidance of doubt, ‘reasonable efforts’ does not mean extreme- or extraordinary efforts.”

  • http://www.pactix.com D. C. Toedt

    Let me add to the confusion: What about “responsible efforts”? Here’s a basic definition, which can be expanded:

    100. Responsible is used in respect of certain actions such as efforts, practices, precautions, etc. (for example, “responsible efforts” or “acting responsibly”). Responsible action is such action that, in the given circumstances, would be expected of (1) a reasonable business person (2) using good judgment (3) to achieve the stated objective, if any, and otherwise further the purposes of this Agreement (4) while appropriately taking into account (A) the parties’ respective other legitimate business interests and concerns, and, (B) where applicable, the public interest.

  • Ken Adams

    D.C.: Your first point could be addressed by means of a carve-out: “but does not include disregarding its own business interests.” Or something like that. I’ll ponder.

    Regarding your proposed language, one has to accept that reasonable efforts is always going to be vague and that piling on vague equivalents (particularly using novel concepts such as responsible) isn’t going to accomplish much. Although MSCD2 will contain revised language for a definition of reasonable efforts, the phrase by itself is clear enough for most contexts. The definition would perhaps mainly serve to help clients understand the concept.

    Ken

  • Michael Fleming

    Ignoring entirely Ken’s subject of this post and focusing on one line in one of his later comments…

    “The definition would perhaps mainly serve to help clients understand the concept.”

    But, should we use operative language in a contract solely for the purpose of educating the lay reader?

    An analogy (which I frequently resort to) — Computer programmers (at least those who do their jobs well) will sprinkle comments throughout their source code — Lines of text that are written to explain what the programmer’s intent was in the operative code that is near that comment. When the computer is running the code (or more often compiling the code into an object code version of the program, but I digress…), the comments are completely ignored by the computer, and only the ‘real’ computer code is acted upon by the machine. In the case of computers, we can trust that the comments have no operative effect.

    Sadly, we have no real equivalent to that in the ‘code’ we write in the form of contracts. I can’t slip an aside into the middle of the document, even if there for purely “let me explain what I meant by that” purposes, without that comment becoming part of the contract (and if the comment is baked into the document itself it won’t even be parole or some other thing that won’t come back to haunt me).

    So, I’m always strugging with whether or not to put something in that is logically unnecessary to achieve the legal goal, but tend not to want to do it. But then, I get flack from those who think that the document should nonetheless contain explanations or other educational features to make it more readable to the client. Suggestions to make a separate, non-operational document are usually rejected (either too much work, or don’t like having two things, or like putting it in the contract itself since then it’s ‘shared’ with the other party).

    Maybe we could write a process into the contract to suggest that there are certain things in the document that are ‘comments’ which the parties agree have absolutely no meaning for contract interpretation purposes, much like we do with ‘Headings’? We’d have to put the comments in some format that would clearly distinguish them from the ‘operational code’ of the contract. Seems a bit geeky to me (since it presumes a competence in using more than straight text in Times New Roman 12 in the word processor…), but maybe it’s a way to address this. (That said, I’m not sure a court would really respect the drafter’s stated intention that the ‘comments’ should be completely ignored, so it’s probably not a viable idea.)

  • http://www.pactix.com D. C. Toedt

    Michael Fleming – I’ve used footnotes for that purpose.

  • Ken Adams

    Michael: I could imagine some form of annotation in drafts, but not in the final version. I’ve occasionally discussed with clients the possibility of my not only redrafting one of their contracts but also annotating it, but I’ve yet to do that. Ken

  • Ricky

    The January 2008 issue of California Lawyer also has an interesting article on using the term “best efforts” in contracts (p. 39).

  • Ken Adams

    Ricky: Yes, it’s by IP lawyer Jonathan Pink, and I learned about it after I posted my item, but I don’t think it affects my analysis. Click here to go to the online version. And click here to go to a version posted on Jonathan’s brand-spanking-new blog. Check it out! Ken

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  • Steve

    All very interesting, but on a quick scan I don’t see that you’ve acknowledged the case law on this subject. There is quite a bit of it, at least in New York, and the notion of “best efforts” indicating a requirement to make efforts just short of going into bankruptcy comes from there.

  • Ken Adams

    Steve: MSCD2 will contain a section on the case law relating to best efforts. But the case law is really a sideshow, because I don’t need a court to tell me what best efforts means: as a native English speaker with a modest amount of semantic acuity, I can figure that out for myself. That’s the main reason why I didn’t mention the case law in my post.

    But regarding the case law, it doesn’t say what you think it says. The vast majority of U.S. cases on the subject of best efforts hold that in effect it means the same things as reasonable efforts. I’ve found only two that hold otherwise, and they offer no rationale. That’s just as well, because otherwise the courts and the English language would be at loggerheads. (Regarding the New York cases, have a look at this article.)

    Ken

  • http://davidscrimshaw.blogspot.com David Scrimshaw

    I’ve just skimmed through a bunch of Canadian caselaw to see if best efforts = reasonable efforts here also.

    The conclusion I have come to is that judges say that a “best efforts” standard goes beyond a “reasonable efforts” standard, but they will find the standard is not met if reasonable efforts are not made and if reasonable efforts are made, they will find either that the standard was met or that the thing to be accomplished was impossible in any case.

    The principles that seem to be followed in most provinces call for both “taking all reasonable steps” and “leaving no stone unturned”, while keeping in mind that the efforts are “not boundless” and “must be approached in the light of the particular contract”.

    The principles to be applied to analysis of best efforts were summarized by Madam Justice Dorgan in Atmospheric Diving Systems Inc. v. International Hard Suits Inc. , (1994), 89 B.C.L.R. (2d) 356 (S.C.) at paras. 71-72:

    1. “Best efforts” imposes a higher obligation than a “reasonable effort”.

    2. “Best efforts” means taking, in good faith, all reasonable steps to achieve the objective, carrying the process to its logical conclusion and leaving no stone unturned.

    3. “Best efforts” includes doing everything known to be usual, necessary and proper for ensuring the success of the endeavour.

    4. The meaning of “best efforts” is, however, not boundless. It must be approached in the light of the particular contract, the parties to it and the contract’s overall purpose as reflected in its language.

    5. While “best efforts” of the defendant must be subject to such overriding obligations as honesty and fair dealing, it is not necessary for the plaintiff to prove that the defendant acted in bad faith.

    6. Evidence of “inevitable failure” is relevant to the issue of causation of damage but not to the issue of liability. The onus to show that failure was inevitable regardless of whether the defendant made “best efforts” rests on the defendant.

    7. Evidence that the defendant, had it acted diligently, could have satisfied the “best efforts” test, is relevant evidence that the defendant did not use its best efforts.

    The “no stone unturned” test has been applied to contracts relating to a wide variety of subject matter. Further, courts routinely imply a term in contracts that the parties will make reasonable efforts to fulfil their respective contractual obligations. Where the parties include a “best efforts” clause in a contract, as they did in the case at bar, they must surely intend that something more than “reasonable efforts” be used.

  • Ken Adams

    David: Thank you for this information. It’s useful to know.

    But as soon as I hear a judge suggest that best efforts imposes a more demanding obligation than reasonable efforts, I switch off. As I noted in my post, that position is inconsistent with idiomatic use of those expressions. (Heaven help us if we look to judges for guidance on language.) And the bifurcated standard it proposes is essentially unworkable.

    Lawyers created the confusion over best efforts, and having judges buy into the notion that it means something other than reasonable efforts won’t resolve the problem. The only solution is to purge best efforts from your contracts.

    By the way, how does it come to be that U.S. courts have a more level-headed approach to this issue than courts in England and, it would seem, Canada? It can’t be a function of differences in idiom. I suggest that U.S. judges have simply been more disciplined in their thinking.

    Ken

  • JB Conner

    I find Ken’s posts on this subject to be very interesting and thought provoking. The entire issue is a muddle. But I do have a couple of points regarding Ken’s analysis that I have not been able to infer his take on yet:

    a. My reading of the case law and on most commentaries is that there is a difference in meaning of “reasonable efforts” and “best efforts” intended by contracting parties. It seems like Ken uses his semantics-based analysis to argue that, at the end of the day, there really may not be a difference in meaning after all. Is this understanding correct?

    b. If so, then in theory, I get it. However, in practicality, regardless of what the semantic analysis concludes, there IS an intended difference. So, the question becomes how to effectuate a difference in meaning between the two terms or how to come up with standard terms the DO convey a clear difference in meaning/obligation (of course, with the understanding that the ‘best’ solution would probably be to specify performance benchmarks in detail, rather than use proxy terms). I am looking forward to reading more from Ken on drafting suggestions and I hope he touches on this.

  • Ken Adams

    JB: The idiomatic meaning of best efforts is clear, and it’s effectively the same as the meaning conveyed by reasonable efforts.

    Sure, practitioners think there’s a difference, but that doesn’t mean that it actually exists. That’s because practitioners don’t realize that the notion of best efforts as meaning more than reasonable efforts is unworkable for reasons I mention in my post. Otherwise, any confusion on this subject would have disappeared long ago.

    So the confusion persists, due to tension between the idiomatic meaning and an unworkable legal construct.

    In terms of drafting recommendations, I’m afraid that that’s still a work in progress. You’ll have to wait until MSCD2 comes out this summer.

    Ken

  • RossK

    You don’t mention “do its utmost” which I have always thought was the highest level of obligation to attempt to do something. Am I mistaken about this?

  • Ken Adams

    RossK: The construction to do one’s utmost is rare in U.S. contract drafting. In the past year, only 265 contracts filed on the SEC’s EDGAR system as “material contracts” contained the word utmost, and most of those instances used the word as a simple adjective, as in utmost care. I suspect that it’s not too common in other countries either.

    To do one’s utmost exhibits the same shortcoming as best efforts: lawyers would be inclined to forget that it, too, is subject to a reasonableness standard.

    Ken

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  • Matt Aufman

    Doesn’t the phrase “all reasonable efforts” communicate the same thing most of us mean when we say “best efforts,” but without the ambiguity?

  • Ken Adams

    Matt: Yes, reasonable efforts is a better bet. You might want to see my other posts on the subject by using the search function to search for “efforts”. Ken

  • JPP

    “Of the other efforts standards, perhaps the most prevalent is commercially reasonable efforts. But the word commercially is redundant: determining whether a party’s efforts constituted reasonable efforts would, in the context of a business contract, necessarily take into account that context.”

    While I fully agree to with the above conclusion, I think that it ignores the fact that a party will often seek to spell things out, even though the contract is already drafted in a clear and unambiguous manner with respect to the issue at hand. To use the above example, if the other party draws comfort from the use of “commercially” on the sole basis that it gives some indication of the type of factor that will be taken into account in determining what is reasonable, I will be inclined to accept it (despite the fact that it is redundant) in the interest of getting the deal done.

    While I will personally always push for drafting clarity and clear logic, the practical realities of negotiation will sometimes force me to agree to phrases which are less than ideal from a purist’s point of view. I would imagine that many of the numerous forms of “efforts” standards that we see are born out of this reality.

  • Ken Adams

    JPP: Sometimes redundancy can be pernicious, but adding commercially to reasonable efforts wouldn’t create any problems, in that it couldn’t alter the meaning. I wouldn’t say the same for any other tinkering with efforts standards. Ken

  • Mike

    Thank you for posting this item. After reviewing it, I better understand the equivalency of best efforts and reasonable efforts, and agree that most practitioners wrongly think the former exacts a higher standard than the latter.

    But, following on those commenters who described an intent to impose a standard higher than reasonableness, do you claim it is simply unworkable to have such a higher standard, short of scheduling specific tasks that must be pursued? Isn’t a contract, at the end of the day, about allocation of risk? If all the parties are doing is requiring that each of them act in a reasonable manner, then the negotiation of risk seems rather limited.

    For instance, in a provision stating that a defaulting party will use some degree of effort to cure the default before an actual ‘event of default’ occurs (presumably giving rise to a termination right), could the non-defaulting party not expect the other to do something more than act in a reasonable manner? Sure, it should not expect them to go into bankruptcy, but it could – and should – expect them to incur additional costs – perhaps more than what is reasonable – in furtherance of their contractual obligation. That is, a reasonable approach of the defaulting party may well be not to incur such costs, with the alternative being to attempt an efficient breach, or to take a calculated risk that litigation will cost it less than cure.

    How would you suggest drafting this allocation of risk?

  • Ken Adams

    Mike: I do think that the best-means-more-than-reasonable standard is unworkable. Drafters should protect themselves by any other means at their disposal. As you suggest, one way would be to impose flat obligations. And regarding your scenario, perhaps the drafter should simply specify remedies that are sufficiently painful as to encourage the party in question to avoid breach. Ken

  • JoAnne

    I’m looking at a contract that calls for “best commercial efforts”. This is a first for me! Kind of like “best reasonable efforts”, perhaps? I assume the party is trying to somehow reduce the level of effort. Do you think he has succeeded?

  • Ken Adams

    JoAnne: This is one of several posts on the subject of efforts (or endeavours) provisions; the most up-to-date discussion is in MSCD. The gist is that all efforts provisions necessarily mean the same thing, namely “reasonable efforts.” And that goes for “best reasonable efforts.”

    Of course, that doesn’t preclude courts from dreaming up unworkable distinctions. For example, see this November 2008 blog post about the Canadian caselaw.

    Ken

    • Jim Tilden

      In my experience, "best efforts" is used to temper a party's otherwise absolute contractual obligation. If the contract reads that seller will deliver 100 widgets to buyer on January 1, seller has the obligation to do that. If it does not, it is in breach. That is the "come hell or high water" standard. When the obligation is to use "best efforts" or "reasonable efforts," in my experience, the parties intend that there is some justification for non-performance. I would agree with you that the "best" and "reasonable" efforts standard should be interpretted to mean the same, despite the grammatical interpretation that would require unreasonable efforts in order to satisfy the "best efforts" standard.