The Best Efforts clause requires parties to exercise their "best efforts" to perform their contractual obligations. The provision is a more specific definition of the implied covenant to act in good faith.
The clause may be applied to a wide range of different agreements and many different types of obligations, such as performance required to consummate a transaction, obtain regulatory approval, secure financing, sell property, or develop software.v
The clause may appear in the covenants section or in the miscellaneous provisions. It is closely related to further assurances and sometimes is combined. The obligation can also be incorporated as a performance standard in a wide range of terms, such a duty of performance in an employment agreement or a covenant to obtain consents.
Best Efforts. The parties shall use its reasonable best efforts to take all actions to make effective the Merger and the other transactions contemplated by this Agreement as promptly as practicable, including
obtaining all necessary consents, approvals or waivers from any Governmental Entity,
obtaining all necessary consents, approvals or waivers from third parties,
defending any lawsuits or other legal proceedings challenging this Agreement or the consummation of the transactions contemplated by this Agreement, and
executing and delivering any additional instruments necessary to consummate the transactions contemplated by this Agreement.
Jonathan Pink asserts that the clause should be clearly drafted and detailed in its obligations. "When it comes to contractual provisions, no one benefits by being left to guess at what was meant by the words on the page. A best efforts clause must expressly state what is meant by this term-and most important, how to measure compliance." Making the Best of a Best Efforts Clause, Oct 23rd, 2008.
Daniel A. Batterman also makes a case for specificity stating that it may make sense to put a monetary or time value on efforts. In reviewing a case containing a vague best efforts provision, he observes "[h]ad the parties agreed to specific actions that were to be taken rather than leaving it open-ended, litigation might have been avoided."┬á "But I'll Try Really, Really Hard!": Using "Best Efforts" Clauses.
Parties who use "best efforts" clauses run the risk of injecting a significant amount of uncertainty into their contracts. Counsel should carefully scrutinize all contracts using "best efforts" language to determine whether more precise language can be used." Proceed with Caution When Using 'Best Efforts' Clauses, Susan C. Levy, Clay Stiffler & Rayna Matczak,┬áJanuary, 2008 Lawyers Weekly Inc.
Best Efforts and Endeavours-Case Analysis and Practical Guidance Under U.S. and U.K. Law, JonesDay, July 2007.
Understanding Your Distribution Contract: The "Best Efforts" Clause,Robert Procter, Axley Brynelson, February 1, 2011.
Best Efforts - Friend or Foe?, Tammi Franke, Technology and Digital Media Law, August 5, 2009.
Level of Effort
Ken Adams of Koncision reviewed a large number of agreements filed with the SEC in January 2004. He captured and tabulated the range of effort standards finding "that best efforts was the phrase used most often, but commercially reasonable efforts, reasonable best efforts, and reasonable efforts were each used often, in the aggregate more so than best efforts. Good-faith efforts, commercially reasonable best efforts, and diligent efforts were used significantly less often, while good-faith best efforts, every effort, and an oddity, commercially reasonable and diligent efforts, bring up the rear." Understanding "Best Efforts" And Its Variants (Including Drafting Recommendations), Kenneth A. Adams, 2004. Ken observes that lawyers generally perceive "best effort" to be the strictest standard of performance and may require parties to undertake performance even at the risk of bankrupting a business. Courts, on the other hand, may not impose such strict obligations. Ken concludes his examination of efforts clauses stating: "[a]lthough the term best efforts and its variants are a standard feature of contracts, there is much confusion surrounding what those terms mean. Furthermore, a court could hold that a party subject to an efforts provision was obligated to make efforts out of proportion to the benefits to it under the contract in question." Id.
(a) Actions: take, or cause to be taken, all action and to do, or cause to be done, all things reasonably necessary, proper or advisable under any Applicable Law to consummate the transactions contemplated by this Agreement and any document to be executed in connection with this Agreement;
(b) Consents and Approvals: obtain all approvals, consents, registrations, permits, authorizations and other confirmations required to be obtained from any third party or Governmental Authority necessary, proper or advisable to consummate the transactions contemplated by this Agreement;
(c) Execute Documents: execute and deliver such documents, certificates and other papers as a Party may reasonably request to evidence the other Party's satisfaction of its obligations under this Agreement.
The clause may specify the performance obligation in great detail. For example, the law firm of Cravath, Swaine & Moore LLP typically drafts very detailed requirements. See, for example, Section 5.03 of Agreement and Plan of Merger, dated as of January 28, 2011. The purpose of such detailed statements of expected performance is to add greater certainty to the provision. The basic clause does not provide much detail regarding what action are expected and how much effort is required.