Business Litigation Blog

Commercially Reasonable and Best Efforts

The terms “commercially reasonable efforts” and “best efforts” are frequently used in contracts. Attorneys will often argue strenuously for their inclusion in a contract, as if they carry great weight. However, a recent article in the New York Law Journal by Grant Esposito and Jessica Kaufman (, suggests that the use of these terms can actually lead to costly disputes. The terms are used to address aspects of a transaction that will require future performance by one or more of the parties. These terms, on their own, have no exact universal definition. They rely on either parameters agreed upon by the parties in the contract or well-known industry standards to give them context on a case by case basis.

Defining “Commercially Reasonable Efforts”

Because there is no universally accepted legal definition for what “commercially reasonable efforts” are, courts are left to interpret the term based on the specific facts of the case. It has been held that a contractual requirement to act in a commercially reasonable manner does not require a party to act against its own business interests, which it has a legal privilege to protect. MBIA Ins. V. Patriarch Partners VIII, 950 F.Supp.2d 568, 618(S.D.N.Y. 2013). In MBIA Ins. the court noted that any rational characterization of the term “commercially reasonable” must exclude actions that hurt the party financially. However, the law is hardly settled on that standard. In Rex Med. L.P. v. Angiotech Pharm. (U.S.), 754 F.Supp.2d 616 (S.D.N.Y. 2010), the court found that Angiotech was obligated to continue to use commercially reasonable efforts to market and commercialize a medical device in the territory even though Angiotech was losing money marketing that device.

Defining “Best Efforts”

Cases determining whether a party used its “best efforts” will seek to gauge a party’s performance against a clear set of contractual guidelines (See TPTCC NY v. Radiation Therapy Servs., 784 F.Supp.2d 485, 506-07 (S.D.N.Y.)) or external standards that impart a reasonable degree of certainty to the meaning of the phrase (See Maestro W. Chelsea SPE v. Pradera Realty, 954 N.Y.S.2d 819, 825 (Sup. Ct. 2012)). However, without these guidelines or standards, “best efforts” will “impose an obligation to act in good faith in light of one’s own capabilities.” See Maestro W., 954 N.Y.S.2d 825. In TPTCC, the parties agreed that a consultant would use best efforts to obtain funding for a project but that consummation of the funding would be subject to market conditions. The consultant only produced a lending agreement from an objectively unqualified lender. The court found that the consultant did not breach the best efforts clause because the clause did not create an obligation to secure funding and adding the phrase “market conditions” was intended to shield the consultant from liability in case funding was not obtained. The definition of best efforts in that contract was accordingly extremely diluted.

Inserting the concept of “commercially reasonable” or “best efforts” alone in a contract accomplishes little. The article and the law recommend to the careful draftsperson that use of these terms requires contractual guidelines or reference to specific external standards. If not, a dispute as to the meaning of their use can only be resolved by dispute resolution, which is invariably costly.

With over 20 years of experience practicing law in the areas of franchising, litigation, real estate, business, fashion, and trusts and estates, the partners of Einbinder Dunn & Goniea are expertly versed in contract writing and negotiating, and are committed to preventing disputes of these sorts. Contact us to discuss your concerns today.

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