Most transactional documents include effort clauses as covenants to require a party to perform a certain act or acts to achieve a stated goal. These terms generally include the following:
- Best efforts
- Reasonable efforts
- Commercially reasonable efforts
There are no universally accepted definitions or standards for interpreting these terms. As a result, their use can create ambiguity and uncertainty when a dispute arises, making it difficult to predict an outcome.
When a court evaluates whether a party has exerted the necessary effort standard, the court generally first examines the business contract for a definition of the efforts term. If the business contract contains such a definition, the court will apply that standard. If the business contract is silent, the court has discretion to interpret an efforts clause or term by considering the business contract’s facts and circumstances.
In the absence of a definition, a court will impose standards of:
- Good faith, which requires honesty and fairness from the acting party
- Reasonableness, which requires diligence from the acting party and is often a more demanding standard than good faith