Contracts of all varieties place an obligation on one or both parties to use their “best effort” or “commercially reasonable efforts” or some variation on the efforts theme to accomplish the goals of the contract. Such provisions are found in purchase agreements, service contracts and merger and acquisition contracts.
However, contracting parties often do not give significant thought about the duty they are undertaking when agreeing to use a prescribed level of effort to effectuate the goals of the contract. A party undertaking such an obligation should hope that their attorney does give some consideration to the language used in the contract concerning the degree of effort they will undertake.
The Delaware Supreme Court looked at the efforts provision in a merger contract in Williams Cos. v. Energy Transfer Equity, L.P., 159 A.3d 264 (Del. 2017). The suit arose from a failed merger of two pipeline companies. The acquisition went south when oil and gas prices collapsed before the merger was consummated. The company being acquired sued the acquiring company for failing to use its “reasonable best efforts” to consummate the merger.
The court concluded that the parties were required “to take all reasonable steps to solve problems and consummate the transaction.” The court held that the acquiring company breached its duty under the contract by not meeting the standard of effort it imposed. Unfortunately, the lawsuit by the jilted company failed for other reasons.
The moral of this tale is that contract provision that imposes a duty on a party to use their “best efforts” or “commercially reasonable efforts” is not merely boilerplate. It has real meaning and can have real consequences when things go wrong. When businesses are negotiating contracts, it is often wise to listen to the deal-killing lawyer who may question the use of language that reflects the optimism of the moment but ignores potential future pitfalls.