From this blog post by Brian Rogers, aka The Contracts Guy, I learned of a recent Seventh Circuit case that considered the meaning of a contract provision that required the parties to use “best efforts” to reach agreement. Distinguishing this provision from other efforts provisions, the court concluded that all that this provision required was that the parties bargain in good faith.
Interestingly, some other courts have adopted a different approach, holding such provisions to be unenforceable. See, e.g., Pinnacle Books, Inc. v. Harlequin Enters., Ltd., 519 F. Supp. 118, 121–22 (S.D.N.Y. 1981). So if you want to make some aspect of a contract contingent on future agreement, your best bet would be to use a good-faith standard rather than an efforts standard, so as to avoid having it held unenforceable.
And of course, don’t say anything like the parties shall agree—you can count on a court’s holding that a flat obligation to agree is unenforceable.
Sometimes you can’t avoid the uncertainty that goes with making contract relations contingent on future agreement. But if you incorporate the notion of future agreement as a way of kicking the can down the road—as was the case in the dispute at issue in the Seventh Circuit’s opinion—you’re asking for trouble.
By the way, it’s been a long time since I’ve written about efforts provisions generally. That’s because barring new developments, I dun already said everything I have to say on the subject. The bottom line: Your best best is to use just reasonable efforts. As a matter of contract logic and how people actually speak and write, the notion of using best efforts to impose an obligation that’s more exacting than reasonable efforts is unworkable—case closed, game over.
U.S. courts have recognized that; courts in England, Canada, and Australia have exhibited varying degrees of confusion, which makes some of their court opinions on the subject a fruitful basis for mockery.
If you want to read more on this subject, you could browse an assortment of posts from the AdamsDrafting archives (go here), but a more efficient option would be to read chapter 7 of MSCD.
1 thought on “Imposing an “Efforts” Obligation to Negotiate?”
Ken, at the risk of provoking more of that mockery (on which point I reserve all my rights), I should say that if the agreement is made under English law, the courts are also unlikely to enforce an obligation to negotiate in good faith. To make these types of obligations enforceable, one should considering including obligations:
1. not to negotiate with anyone else
2. to go to arbitration or some other form of decision-making process if the parties cannot agree on terms