April 28, 2017

What Does a “Best Efforts” Covenant Mean?

“You keep using that word. I do not think it means what you think it means.” – Inigo Montoya, The Princess Bride

Very few deal lawyers have escaped extended battles over whether a client is obligated to use its “best efforts,” “commercially reasonable efforts,” “reasonable best efforts” or some other defined level of “efforts” in performing its contractual obligations. But according to this blog from UCLA’s Steve Bainbridge, Mandy Patinkin’s character in The Princess Bride is right – we have no idea what we’re talking about when we talk about “best efforts.”

So what do phrases like “best efforts,” “commercially reasonable efforts” & the like really mean to the courts interpreting them? By way of explanation, Steve offers up this quote from his upcoming casebook:

Although practitioners generally believe that efforts standards differ, there is no general agreement in case law as to whether the various clauses in fact reflect different standards. Courts often use the same analysis in determining whether an efforts clause has been breached, regardless of the specific level of effort prescribed in the agreement. Specifically, courts frequently consider the facts and circumstances of the case and require that the parties act diligently, reasonably, and in good faith in complying with an efforts clause.

Here’s a recent blog from Keith Bishop with a California perspective on the meaning of a “best efforts” clause.

John Jenkins