The Concept of "Best Efforts" in Business and Legal Contracts

Highlights

• "Best efforts" implies a commitment to high standards while allowing for certain exceptions.
• It is often used in contracts to define the level of effort required from a party.
• Force majeure clauses provide exceptions in case of unforeseen events beyond control.

In the world of business, legal agreements, and contracts, the term "best efforts" carries significant importance. It refers to the standard of conduct that a party in an agreement must adhere to in fulfilling their responsibilities. While this term conveys a high expectation for performance and diligence, it also recognizes that certain external circumstances can hinder a party’s ability to fully meet the terms of the agreement. As such, best efforts are understood to represent an honest, reasonable attempt to perform tasks or meet obligations, but without guaranteeing a specific outcome, especially when unforeseen events occur.

Defining Best Efforts

The phrase "best efforts" is often included in contracts to set an expectation for a party’s conduct. It is usually seen as a good faith obligation, requiring the party to exert the best possible level of effort to achieve the desired result or fulfill certain obligations. This term is not synonymous with an absolute guarantee of success, but rather implies that the party must do everything reasonably within their control to meet the terms of the agreement.

For example, a business might enter into a contract with a supplier to deliver products within a set timeframe. If the contract specifies that the supplier will use their best efforts to meet the deadline, the supplier is expected to take all reasonable steps—such as utilizing available resources and logistics options—to ensure the delivery happens on time. However, this does not mean the supplier will be held liable for factors outside their control, such as natural disasters, labor strikes, or other unforeseen events.

The Role of Force Majeure

In legal contracts, the concept of best efforts is often closely tied to the force majeure clause. A force majeure clause is a provision that excuses a party from performing its contractual obligations when certain unforeseen events or circumstances beyond its control occur. These events can include acts of God, war, natural disasters, pandemics, or any other extraordinary situation that makes performance impossible or impractical.

In cases where a contract includes both a best efforts clause and a force majeure clause, the party in question may still be required to exert their best efforts, but they are not held liable for failing to perform when a force majeure event occurs. For example, if a supplier’s ability to deliver products is hindered by a natural disaster that disrupts transportation networks, they may be excused from the obligation to meet the delivery deadline, as long as they can demonstrate that they made a genuine attempt to fulfill the contract under the circumstances.

The force majeure provision provides a level of protection for parties in contracts by acknowledging that certain events can make it impossible or unreasonable to perform certain obligations. In such cases, even the highest possible best efforts cannot be expected to overcome these barriers.

Best Efforts in Different Contexts

The concept of best efforts appears in various business contexts, from sales agreements to partnership contracts and even employment contracts. While the application of the term can vary based on the specifics of the agreement, the general principle remains the same: the party must act with diligence, responsibility, and reasonable perseverance.

1. Sales Agreements

In sales agreements, the buyer or seller might be required to use best efforts to obtain financing, secure the necessary permits, or meet certain delivery requirements. For example, a seller may commit to making their best efforts to deliver goods by a specified date, but if unexpected circumstances arise, such as supply chain disruptions or shipping delays, they would not be held liable as long as they can show that they made every reasonable attempt to meet the original terms.

2. Partnership Agreements

In partnerships, the phrase best efforts is used to ensure that each partner contributes as much as reasonably possible to the business's success. For instance, a partner in a joint venture might agree to provide best efforts in securing new customers or achieving specific financial targets. This clause ensures that all parties are held to a high standard but acknowledges that external factors—such as market conditions or changes in consumer behavior—can affect the outcomes.

3. Employment Contracts

In employment contracts, the best efforts clause may apply to the expectations placed on an employee. For example, an employee may be required to exert best efforts to complete projects, achieve sales quotas, or fulfill job responsibilities. However, this obligation is generally subject to limitations, such as the scope of resources or time available, and the employee is not expected to meet targets that are unreasonably demanding or outside of their control.

Best Efforts vs. Reasonable Efforts

It’s important to distinguish best efforts from reasonable efforts, a similar but less demanding standard. While best efforts imply the highest level of diligence, reasonable efforts generally mean a party must act in a way that is fair and reasonable, given the circumstances. Best efforts require a more thorough, exhaustive approach than reasonable efforts, which focus on doing what is sensible and practical in the situation.

The distinction between these two terms is significant in many contracts because it defines the degree of effort required from each party. For example, if a party is required to exert best efforts, they must go above and beyond ordinary measures to meet the contractual goals. In contrast, reasonable efforts might allow for more leniency, as it accounts for limitations like lack of resources or time constraints.

Challenges in Enforcing Best Efforts

One of the challenges with including a best efforts clause in a contract is the potential for subjectivity. What one party considers "best efforts" may differ significantly from another's interpretation. This can lead to disagreements about whether a party has met their obligations under the clause, especially when performance falls short of expectations.

To minimize confusion, many contracts that include best efforts clauses will also define what actions or outcomes are expected, making it clearer for all parties involved. For instance, a best efforts clause might specify that a supplier must make calls to 10 distributors every day or take other specific actions to fulfill a contract, thus providing a more concrete standard for performance.

Conclusion

The concept of best efforts serves as a middle ground between absolute performance and complete exemption from obligations. It demands high levels of commitment and diligence but provides allowances when uncontrollable circumstances—covered by force majeure—make performance impossible. By understanding the standard expected under a best efforts clause and how it relates to broader contractual obligations, parties can set realistic expectations and protect themselves in case unforeseen events arise that hinder performance.