"Best Efforts" Clauses In Contracts. What the Hell Do They Mean?

I have been negotiating contracts for a living for over 38 years.  During all of that time, when my client was asked to use "best efforts", I used my best effort to get that changed to some other standard.  I had always assumed, either because of urban legal legend or stupidity, that "best efforts" was a very high standards, even requiring in some states (New York was featured prominently) that you spend yourself into bankruptcy to achieve the result.

It is amazing what you can find when you actually look something up yourself.  I feel a little like Vizzini in "The Princess Bride" when Inigo tells him, "You keep using that word.  I do not think it means what you think it means."

A recent California case,  California Pines Property Owners Ass’n v. Pedotti, Cal. Ct. Appeal Case No. C066315 (May 24, 2012), found that a rancher's obligation to use "best efforts" to keep a reservoir full did not create a fiduciary duty but only required that the rancher “must use the diligence of a reasonable person under comparable circumstances”.

The court went on to say that (i) best efforts are viewed in the context of the particular case; (ii) the best efforts clause must be reconciled with other clauses to the extent possible; (iii) best efforts do not require every conceivable effort, nor does it require the promisor to ignore his own interests, spend himself into bankruptcy or incur substantial losses to perform; and (iv) best efforts does require diligence but within the bounds of reasonableness.  The court noted that these were the standards in California only if the term "best efforts" was not defined.

So, why have I been so pedantic on this subject all my life?  It seems that it only means to use reasonable efforts with some more diligence.  And I say, not so fast, my friend.  A review of several states reveals some disparity in the interpretation.  What amounts to best efforts generally is very subjective and can vary from court to court.  Therefore, to merely rely on the general term "best efforts" (or "reasonable efforts", "practicable efforts", "industry standard efforts" or the like) is to invite the court to rewrite your standards for you and probably not to your liking.  The answer is, when possible, put objective standards in place for the the efforts.  The rancher in the California Pines case above could have been required to keep the reservoir above a certain level or in line with some other standard other than best efforts.

Technology contracts often incorporate the "best efforts" standard, as in, installing the latest version of software, providing bug fixes for severe problems,etc.  In all of these, if you are the one being asked for best efforts, you would be advised to include objective standards that you can meet, rather than risk being held to some other standard.