Not enough people write about contract usages, so I’m pleased when a new article arrives on the scene, particularly when it’s written by someone other than me. But one sign of a mature marketplace of ideas is when commentators build on the work of others, instead of treating a given topic as if they’re the first to examine it.
With that in mind, I permit myself to comment on a new article in the New York Law Journal, “Best Efforts”, “Commercially Reasonable” and Other Terms No One Understands (PDF here). It’s by Grant Esposito and Jessica Kaufman, litigators at Morrison Foerster.
Here’s what I like most about the article: It points out that using efforts provisions can be a matter of expediency, when the parties don’t want to spend time negotiating precise guidelines, or the parties decide that it would be too contentious to do so. And the article offers useful examples of how inconsistent the caselaw can be.
Here’s what I think was missing:
First, its description of the function of efforts provisions is incomplete. No matter how much time and goodwill the parties are willing to invest, there will always be a place for efforts provisions. When a party doesn’t have complete control over the outcome—as is the case when, for example, Acme is applying for government permits—it doesn’t make sense to apply a flat obligation (Acme shall obtain the Permits). Instead, it makes sense to use an efforts standard (Acme shall use reasonable efforts to obtain the Permits).
Second, the article offers no discussion of the broader semantics. For example, it suggests that commercially reasonable efforts and best efforts are inherently different standards. Instead, commercially reasonable efforts and best efforts are just two of a constellation of efforts standards. Besides the potential for dispute that’s inherent in vagueness, the core problem with efforts standards is that people are inclined to see a spectrum of onerousness. As a matter of semantics and contract law, that doesn’t work. (See for example my article discussing the English caselaw, here.) The crucial piece of advice when it comes to efforts—advice missing from the article—is that you should use only reasonable efforts.
And third, it would have been helpful to have drafting guidance that is more specific. Yes, you can eliminate efforts standards by using precise guidelines, but what if you elect to use reasonable efforts? That’s something I tackle in MSCD‘s discussion of how you define efforts, but I expect to get into more detail for the fourth edition. For example, it might be a good idea to make it clear that an efforts standard is to be gauged by measuring activities undertaken against, say, industry standards, as opposed to measuring how much of a burden those activities place on the party under the efforts obligation. More about that soon.
Bottom line: I learned something from Grant and Jessica’s article, and it reminded me that I have further work to do. So here’s to the marketplace of ideas!
7 thoughts on “Some Thoughts on a New “Efforts” Article”
An odd thought occurs to me: is it redundant to specify that efforts be reasonable?
In other words, if you yank the ‘reasonable’ from ‘Acme shall use reasonable efforts to obtain the Permits’, are the required efforts no longer required to be reasonable? Unreasonable feeble efforts will do?
“Acme shall use efforts”? I think what you mean to say is that “Acme shall seek to obtain the Permits,” which probably would be interpreted to require them to do so with reasonable diligence. I seem to remember, in the dim recesses of my law school past, that even a fixed obligation was never, in the absence of a defined consequence, interpreted (in the US) as requiring more than reasonable efforts to accomplish it; that’s why I was never impressed much by efforts standards. But maybe I misremember, or my profs were wrong.
This is worth a separate post.
While it is certainly useful to have reasonable “reasonable-efforts” language, for the reasons mentioned in the article and in Ken’s post, I would submit that the best solution, if a matter is important enough, is to bifurcate the issue into what will be done, and what happens if it isn’t successful. So, for example, you could say that Acme shall apply for permits (since that’s within its control), and then indicate what happens if the permits don’t issue by a stated time. That certainly avoids any vagueness surrounding the reasonableness standard.
Yes, with the caveat that sometimes (in particular, during the period between signing and closing) it’s helpful to be able to pull the plug because someone isn’t trying instead of just waiting until the drop-dead date for getting the permits.
Vance–I’m puzzled by the seeming contrast between (1) your earlier statement to the effect that ‘Acme shall seek to obtain the Permits’ probably requires Acme to do so with reasonable diligence [even in the absence of ‘reasonableness’ language] and (2) your statement here that ‘it is certainly useful to have reasonable “reasonable-efforts” language’.
If an explicit duty to attempt or seek a thing necessarily implies reasonable efforts, why add in ‘reasonable efforts’ language? Belt and suspenders? –Wright
Sort of, but I didn’t contemplate that you’d use both approaches in the same setting. And I take Ken’s point that in some contexts one works better than another, though most commercial contracts don’t have a waiting period between the contract signing and the official commencement of performance.