Best Efforts, Diligent Efforts and Commercially Reasonable Efforts: What's the Difference?

You’re in the middle of a heated contract negotiation and the discussion turns to the level of effort – best effort, diligent effort and commercially reasonable effort – that you must expend in an obligation under the agreement. The question is how much time should you spend on this discussion – in other words, does it matter?

Attorneys frequently argue over the type of efforts language to use in business contracts. The issue often arises when a party to a transaction needs to accomplish a goal, but that goal is not entirely within its control. Rather than obligating itself to a goal that puts the party at great risk for liability, the party might instead agree to use its best efforts, diligent efforts, or commercially reasonable efforts in attempting to accomplish that goal. But what, if any, are the differences between these “effort” standards? Does best efforts require a higher standard of performance than diligent efforts or commercially reasonable efforts? This brief article will attempt to demystify the vagaries of these “effort” standards in hopes of helping businesses and their counsel decrease the debate over “effort” standards in negotiations.

Generally when the phrase best efforts is in contracts, the parties believe it to be the most onerous of “efforts” standards. They take it to mean that a party held to that standard should do any and everything it can to accomplish the ultimate goal. With that as a starting point, business people and attorneys alike believe that other “effort” standards such as, diligent efforts, or commercially reasonable efforts impose less onerous standards of conduct.1 However, analysis of court decisions dealing with the meaning of best efforts and its other variants show that the differences between them is just a matter of semantics.

First, with regard to the definition of best efforts, various courts across the country have taken the approach that it does not require a party to do any and everything in order to meet its obligation. One court in defining best efforts stated: “[b]est efforts is implicitly qualified by a reasonableness test—it cannot mean everything possible under the sun”2. Similarly, another court “found no cases, and none have been cited, holding that “best efforts” means every conceivable effort.”3

With the understanding that best efforts does not mean, everything under the sun, the next issue is whether or not there are differences between the various effort standards. Under Delaware law—where the vast majority of U.S. corporations are incorporated—reasonable best efforts4and commercially reasonable efforts are one and the same. The Supreme Court of Delaware stated “Hexion with which we agree, recognized that convents like the ones involved here [reasonable best efforts & commercially reasonable efforts] impose obligations to take all reasonable steps to solve problems and consummate the transaction”.5 The case involved a contract where both the best efforts and commercially reasonable efforts standards were used in the contract and one party claimed the other breached both provisions. However, the court treated the two clauses the same, by defining them together and analyzing them under that same definition. Other courts have also held that the phrase best efforts imposes a standard of diligence, which leads to a rational conclusion that best efforts and diligent efforts are also one and the same. One court stated that “[t]he duty of best efforts has diligence as its essence and is more exacting that the usual contractual duty of good faith.”6 Another court, speaking on the requirements of a best efforts obligation, explained that “[g]enerally, it requires a party to make a reasonable effort and exercise reasonable diligence.”7

What these short excerpts from cases across the country illustrate is that the variances on the “efforts” standards used in contracts are purely semantic and they all seem to require the same level of conduct.

Based on the discussion above, the key take away is that it would be prudent for parties to limit the amount of time and resources spent debating over which effort standard used in their contracts because in reality they all require the same level of conduct, with reasonableness being the key consideration.

1A Manual of Style for Contract Drafting, Kenneth A. Adams at 8.7

2Coady Corp. v. Toyota Motor Distributors, Inc., 361 F.3d 50, 59 (1st Cir. 2004)

3Triple-A Baseball Club Assocs. v. Ne. Baseball, Inc., 832 F.2d 214, 228 (1st Cir. 1987)

4 Under Delaware law best efforts and reasonable best efforts are treated one and the same. See All. Data Sys. Corp. v. Blackstone Capital Partners V L.P., 963 A.2d 746, 763 (Del. Ch.), aff'd, 976 A.2d 170 (Del. 2009) fn 60.

5Williams Companies, Inc. v. Energy Transfer Equity, L.P., 159 A.3d 264 (2017)

6Nat'l Data Payment Sys., Inc. v. Meridian Bank, 212 F.3d 849, 854 (3d Cir. 2000)

7NBC Capital Markets Grp., Inc. v. First Bank, 25 F. App'x 363, 366 (6th Cir. 2002)