Best Efforts Clause: Meaning, Cases, and Drafting Tips
What does a best efforts clause require? See how courts assess the promise, where state law differs, and a worked example with clearer actions and limits.
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What Is a Best Efforts Clause?
A best efforts clause requires a party to work actively toward a stated contractual goal without guaranteeing the result. What counts as enough depends on the agreement, the circumstances, and governing law. Defining the required actions and measurable goal makes the promise clearer for both sides.
Key takeaways
- "Best efforts" does not mean every conceivable effort — courts hold that a party need not spend itself into bankruptcy to comply.
- A stated goal or guideline helps courts assess performance; whether a vague clause is enforceable depends on the jurisdiction and context.
- UCC Section 2-306(2) supplies a best efforts default for lawful exclusive dealing agreements for goods, unless the parties agree otherwise.
- In Bloor v. Falstaff Brewing Corp., 601 F.2d 609 (2d Cir. 1979), the court found a breach when the distributor prioritized its own profit without fair consideration of the promised sales volume.
- Specifying actions, a benchmark, and any agreed spending limit makes the obligation easier to evaluate.
What Does "Best Efforts" Actually Obligate You to Do?
"Best efforts" is one of several effort standards used in commercial contracts. In Wood v. Lucy, Lady Duff-Gordon, 222 N.Y. 88, 118 N.E. 214 (N.Y. 1917), the New York Court of Appeals found an implied obligation to make reasonable efforts under an exclusive agency agreement. The case illustrates why an exclusive promise can require real action even when the contract does not spell out every step.
The phrase generally calls for action, but its exact meaning varies. Courts examine what the party did, the objective it promised to pursue, and the circumstances it faced. Acting honestly while doing little or nothing may not satisfy an efforts obligation.
What "best efforts" does NOT require:
- Taking every conceivable action regardless of cost or practicality.
- Actions that would force the obligated party into bankruptcy or substantial loss.
- Illegal acts or actions that breach another contract.
- A guarantee that the goal will be achieved.
In Bloor, the court said the obligation did not require the distributor to spend itself into bankruptcy. That finding arose from a particular contract and set of facts; it is not a universal spending cap.
Best Efforts vs. Reasonable Efforts vs. Commercially Reasonable Efforts
Contracts use several effort labels. They signal intent, but the words alone do not determine what a court will require.
| Standard | What to clarify in the contract | Example use |
|---|---|---|
| Best efforts | Required actions, target, and any spending limit | Exclusive distribution |
| Reasonable best efforts | What makes a step reasonable in this deal | Regulatory approval |
| Reasonable efforts | Minimum steps and timing | General performance obligations |
| Commercially reasonable efforts | Relevant costs and commercial constraints | Supply or licensing agreements |
| Good faith efforts | What active conduct is expected | Exploratory cooperation |
Do not assume a fixed ranking across jurisdictions. In Williams Companies v. Energy Transfer Equity, the Delaware Supreme Court considered both "reasonable best efforts" and "commercially reasonable efforts" clauses and held that they imposed affirmative obligations under that merger agreement. It did not establish the universal ranking sometimes shown in drafting guides.
For contracts governed by New York law or California law, anchoring your chosen standard with explicit definitions matters more than which label you pick.
Three Questions That Make an Efforts Clause Clearer
There is no single three-part legal test for every best efforts clause. These questions are a drafting checklist based on the issues courts examine in actual disputes.
1. What specific actions did the party take? Courts compare what was done against what a reasonable party in the same position would have done. In Bloor v. Falstaff Brewing Corp., the Second Circuit found Falstaff in breach because it slashed the advertising budget for Ballantine beer and closed distribution centers while its own financial position improved — putting its own profitability ahead of the sales volume the contract required it to promote.
2. How do those actions compare to an objective benchmark? Courts may look to the contract's goal, industry practice, comparable performance, and the circumstances. In Spain v. Phoenix Electric, Inc., a Texas appellate court discussed the need for a goal or guideline, while explaining that a fixed quantity or date is not always necessary. The lesson is to make the objective identifiable, not to assume every clause needs the same numeric target.
3. Have the parties agreed on cost or time limits? The parties can decide whether to state a spending limit. Bloor did not require the distributor to spend itself into bankruptcy, but it also rejected putting profit ahead of the promised sales goal without fair consideration. A negotiated limit makes that tradeoff clearer.
Clear actions, benchmarks, and limits can reduce disagreement about performance. They do not guarantee that a court will enforce or interpret the clause in a particular way.
Worked Example: Before and After
This is the problem most distribution agreements, licensing deals, and exclusive dealing arrangements share: the clause sounds committed but provides nothing to measure.
Before (open to interpretation)
"Distributor shall use its best efforts to promote and sell the Products in the Territory."
A court reading this clause faces questions the parties could have answered in advance. What actions must the distributor take? How will progress be measured? What spending is expected? The governing law and the rest of the contract would influence the answer.
After (more measurable; illustrative wording)
"Distributor shall use its best efforts to promote and sell the Products in the Territory. For purposes of this Agreement, 'best efforts' means, at minimum, that Distributor will:
(a) Assign at least one dedicated full-time sales representative to the Products throughout the Term;
(b) Meet the quarterly sales targets set forth in Exhibit A, or, if a target is missed, provide Supplier with a written corrective-action plan within 15 days of quarter-end;
(c) Submit written quarterly sales reports to Supplier by the 15th day following each calendar quarter, including sales volume, active accounts, and planned initiatives;
(d) Participate in at least two industry trade shows per calendar year at which the Products are prominently displayed.
In no event shall Distributor be required under this clause to expend more than 8% of its gross revenue attributable to the Products in any calendar year in pursuit of these obligations."
What changed:
- Specific actions (a)–(d) give the court a checklist. Did Distributor assign a rep? Did it attend shows? These are yes/no facts.
- Exhibit A targets + corrective-action plan supply an objective benchmark and a defined response mechanism for shortfalls — the court no longer has to decide what "enough" selling looks like.
- The illustrative 8% cost ceiling states one negotiated limit. The right figure depends on the deal and should not be copied without review.
You can build a services agreement or a master services agreement with the same structure — actions, benchmark, ceiling — for any obligation that can't be guaranteed.
How Courts in Your Jurisdiction Treat Best Efforts
The governing law, the entire contract, and the facts all affect how an efforts clause is applied. These cases show different questions courts have addressed; they do not create a nationwide ranking.
| Jurisdiction | Point illustrated by a case | Key authority |
|---|---|---|
| New York | The promised sales volume and distributor's actual conduct mattered. | Bloor v. Falstaff, 601 F.2d 609 (2d Cir. 1979) |
| Delaware | Two different efforts clauses in a merger agreement required affirmative steps. | Williams Cos. v. Energy Transfer Equity, 159 A.3d 264 (Del. 2017) |
| Texas | A goal or guideline can make performance measurable without a fixed quantity or date. | Spain v. Phoenix Electric, No. 01-22-00656-CV (Tex. App. 2024) |
| Illinois | Vague encouragement alone may not create an enforceable promise. | Beraha v. Baxter Health Care, 956 F.2d 1436 (7th Cir. 1992) |
For goods, UCC Section 2-306(2) provides a specific default: a lawful exclusive dealing agreement imposes best efforts on the seller to supply the goods and the buyer to promote their sale, unless the parties agree otherwise. Check the governing state's version of the UCC and the agreement's terms.
For international contracts, define the conduct expected and select governing law rather than assuming an effort label has the same meaning everywhere.
Common Mistakes to Avoid
- Treating the clause as boilerplate. "Distributor shall use its best efforts" without any further definition is the clause equivalent of "trust me." Courts will fill the gap — rarely in the way you intended.
- Mixing effort standards across the same contract. Using "best efforts" in one section and "commercially reasonable efforts" in another without explanation signals to a court that the difference is meaningful, even when you didn't mean it that way.
- Forgetting the UCC default. In a lawful exclusive dealing agreement for goods, UCC Section 2-306(2) supplies a best efforts obligation unless the parties agree otherwise.
- Leaving costs unresolved. Decide whether a spending or time limit belongs in the deal. If it does, state it clearly so both sides understand the commitment.
- Assuming the label determines the outcome. Courts examine the agreement and the circumstances. Define the obligation instead of relying on a supposed universal hierarchy.
- Drafting a broad, vague promise. "Party A shall use best efforts to make the business successful" gives little guidance about the task or how to assess it. Pair the standard with a defined goal.
How to Draft a Best Efforts Clause Step by Step
-
Choose a standard for the deal. Use the table above to identify the questions each label leaves open, then agree on the conduct expected.
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Define the standard in the contract. Don't leave "best efforts" undefined. Add a definitional sentence: "For purposes of this Agreement, 'best efforts' means [X, Y, Z actions], measured against [objective benchmark]."
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List specific required actions. A numbered or lettered list of concrete tasks — dedicate a rep, file quarterly reports, attend two trade shows — transforms the clause from a vague promise into a compliance checklist.
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Set an objective benchmark. A sales target, a regulatory filing deadline, a market-share threshold, or a response-time standard all work. The benchmark need not be a guarantee; it just needs to give a court something to measure.
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Consider a cost ceiling. If both sides agree on a limit, state it as a dollar amount, a percentage of relevant revenue, or another measurable cap. The example above uses 8% solely to show the structure.
-
Carve out what you're NOT required to do. Specify exclusions: illegal actions, breach of other agreements, actions requiring regulatory approval the party cannot control. This prevents a court from reading the obligation expansively.
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Use the standard consistently throughout the document. If you use "best efforts" in Article 3 and "commercially reasonable efforts" in Article 7 without explanation, you invite the argument that one is more demanding than the other — and that Article 7's flexibility should be read into Article 3.
You can start with a professionally drafted baseline using Pactlio's services agreement template or contractor agreement, then layer in the specific effort definition, benchmark, and ceiling for your deal. For advice on how to review an existing contract that already contains effort language, see how to review a contract before signing.
Sources
- UCC Section 2-306 — Output, Requirements and Exclusive Dealings: https://www.law.cornell.edu/ucc/2/2-306
- Bloor v. Falstaff Brewing Corp., 601 F.2d 609 (2d Cir. 1979): https://law.justia.com/cases/federal/appellate-courts/F2/601/609/377432/
- Wood v. Lucy, Lady Duff-Gordon, 222 N.Y. 88, 118 N.E. 214 (1917) — official text: https://www.nycourts.gov/reporter/archives/wood_lucy.htm
- Williams Companies, Inc. v. Energy Transfer Equity, L.P., 159 A.3d 264 (Del. 2017) — Justia: https://law.justia.com/cases/delaware/supreme-court/2017/330-2016.html
- Spain v. Phoenix Electric, Inc., No. 01-22-00656-CV (Tex. App. 2024): https://law.justia.com/cases/texas/first-court-of-appeals/2024/01-22-00656-cv.html
- Beraha v. Baxter Health Care Corp., 956 F.2d 1436 (7th Cir. 1992): https://law.justia.com/cases/federal/appellate-courts/F2/956/1436/326061/
This article is general information, not legal advice. Laws vary by jurisdiction. Pactlio generates professional drafts for review — have a licensed attorney review anything important.
Frequently Asked Questions
What does 'best efforts' mean in a contract?▾
A best efforts clause requires active, good-faith work toward a stated contractual goal. What counts as enough depends on the contract, the surrounding facts, and the governing law. Courts may compare the party's actions with available alternatives and its own capabilities; the wording alone does not set a universal level of effort.
Is a best efforts clause legally enforceable?▾
A best efforts clause can be enforceable, but vague wording creates disputes about what performance was required. Texas decisions look for a goal or guideline, which can come from the contract's context rather than a fixed number or deadline. Specific actions and benchmarks make the promise easier to measure.
What is the difference between best efforts and commercially reasonable efforts?▾
The labels suggest different levels of effort, but courts do not apply one universal ranking. The contract's wording, commercial setting, and governing law matter. In a Delaware merger case, the court treated both 'reasonable best efforts' and 'commercially reasonable efforts' as requiring affirmative action; it did not establish a general hierarchy between the phrases.
Does UCC Section 2-306 impose a best efforts obligation automatically?▾
UCC Section 2-306(2) says a lawful exclusive dealing agreement for goods imposes, unless otherwise agreed, best efforts by the seller to supply the goods and by the buyer to promote their sale. The rule applies to the kind of goods covered by the agreement; parties should check the governing state's adopted UCC text and their own contract.
What factors do courts look at when deciding if a party met its best efforts?▾
Courts examine what specific actions were taken, how those actions compare to industry benchmarks or the party's conduct in similar contracts, whether the party documented its efforts contemporaneously, whether it responded proactively to obstacles, and whether any shortfall resulted from factors genuinely outside its control rather than deliberate cost-cutting.
Can best efforts require a party to sacrifice its own profits?▾
Partly. In Bloor v. Falstaff Brewing Corp., 601 F.2d 609 (2d Cir. 1979), the Second Circuit held that a party must pursue the promisee's interests even at some financial cost but is not required to spend itself into bankruptcy. The clause requires prioritizing contractual goals over convenience—but not over financial survival.
How do I draft a best efforts clause that courts will enforce?▾
Identify the goal, the actions the party must take, how progress will be measured, and any agreed spending or time limits. A cost ceiling is a negotiation choice, not a legal requirement. Clear terms help both sides assess performance and reduce uncertainty, though enforceability still depends on governing law and the full agreement.
Does 'best efforts' mean the same thing in English law and U.S. law?▾
The phrases come from different legal systems and should not be assumed to mean the same thing. Their effect depends on the governing law and the contract's context. In a cross-border agreement, state the governing law and describe the actual actions and limits expected, instead of relying on an effort label alone.