Be Careful About This When You Negotiate “Efforts” Provisions

A few months ago I noticed that the Georgetown Law Journal had published a student note entitled Is This Really The Best We Can Do? American Courts’ Irrational Efforts Clause Jurisprudence And How We Can Start To Fix It. It’s by Charles Thau, who has now graduated. Hi Charles, and congratulations on the note!

My only reason for mentioning this is that in his note, Charles helpfully suggests that I missed some U.S. caselaw endorsing the notion of a hierarchy of efforts provisions. I’m comfortable that most of the handful of cases he cites aren’t relevant for my purposes, but I was pleased to learn about one case, In re Hyman Companies, Inc., 440 B.R. 390, 409 (Bankr. E.D. Pa. 2010) (here). It does indeed endorse the notion that a best efforts obligation is more onerous than one that requires reasonable efforts, but what’s of greater interest is how it reaches that conclusion:

In this case, it is particularly important that the parties had amended the language of Section 11, changing the duty of Marriott Copley from using simply reasonable efforts to the higher standard of using best efforts. The parties expressly agreed to this significant change in the level of the efforts required of Marriott Copley. The higher level of Marriott Copley’s duty shows the parties’ clear intentions that merely reasonable efforts would not satisfy this duty.

This suggests that when it comes to efforts provisions, you shouldn’t tolerate anything in the contract or in the negotiation record that suggests that you accept the notion of a hierarchy of efforts provisions, as an unsophisticated court might decide that it’s meaningful.

In particular, you might agree to let the other side change reasonable efforts to best efforts, because you know that in the U.S., with only a handful of isolated exceptions (that’s the caselaw Charles alludes to in his note), courts have declined to endorse the notion of a hierarchy of efforts provisions. (That’s because it doesn’t make sense and is unworkable.) In effect, you’re appearing to concede without, in all likelihood, conceding anything. Generally, I wouldn’t suggest that approach—gamesmanship isn’t a great foundation for a business relationship. But now I’d add another argument against doing so: if you end up in a fight over efforts, an unsophisticated court might take your “concession” seriously.

And what if one of your older templates uses best efforts in expressing an obligation imposed on the other side and in negotiations you agree to change it to reasonable efforts—that’s the standard you’ve adopted in your other templates. Well, someone could argue that by doing so you had accepted a lesser level of performance.

So I recommend you never use anything other than reasonable efforts. If you find yourself agreeing to a best efforts standard to get the deal done, make sure it’s in the record that you don’t agree with the other side’s notion that it requires more-than-reasonable performance and that you’re prepared to fight about it if necessary. If you agree to change best efforts to reasonable efforts, make sure it’s in the record that you’re agreeing to that change as a matter of clear drafting and not because you think it changes the meaning.

And more generally, purge from any contract different efforts standards. I routinely find in a given template half a dozen ways of expressing efforts standards. That’s never intentional; it’s an artefact of the copy-and-paste machine.

For more about efforts, see my 2019 law review article.