Volume 109
Issue 3
February '21

Is This Really the Best We Can Do? American Courts’ Irrational Efforts Clause Jurisprudence and How We Can Start to Fix It

Written By: Charles Thau

Abstract

This Note presents an original argument regarding a significant and recurring issue within commercial contract law: efforts clauses.  Many practitioners perceive efforts clauses as operating on a sliding scale, with “best efforts” imposing more burdensome obligations than “reasonable efforts,” for example.  The majority of American courts, however, reject this hierarchical notion.  Reasoning on both a linguistic and prudential basis, this Note argues that efforts clauses should be interpreted hierarchically.  

This seemingly mundane linguistic decision is significant because efforts clauses permeate contracts throughout commercial industries: licensing, real estate, M&A, advertising, and goods and services, among many others.  And contentious negotiations over variations in these clauses are not just theoretical; lawyers really do spend meaningful billable hours haggling over whether to insert “best” or “reasonable” despite the current judicial consensus, including recent, significant decisions in New York and Delaware.  A disconnect between practitioners and the courts is therefore consequential, as is a judicial interpretation that makes little sense.

All of the current literature regarding efforts clauses either describes the disconnect between practitioners and the courts or defends it.  No scholarly work has argued for a contrary approach: namely, that the current judicial schema should be fundamentally reworked. 

This Note takes the novel approach of illustrating the disconnect between practitioners and the courts and arguing in favor of a hierarchical schema.  First, this Note reasons on pure linguistic grounds.  Then, it offers prudential reasons why a hierarchical approach would be preferable to the current system.

This Note also rebuts the most prominent counterarguments against the workability of a hierarchical schema, looking to British and Canadian courts for guidance.  In addition, this Note offers recommendations for contract drafters navigating the current system, including model contract language for lawyers who—despite the prevailing judicial approach—nonetheless want to differentiate between the three most common efforts standards: “best efforts,” “commercially reasonable efforts,” and “reasonable efforts.

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