A such uncertainty when an open stances. The most common situation - PDF document

Reprinted with permission of The Marvland Bar Journal, published by the Maryland Bar Association Do Your Best with "Best Efforts:" Using Open Contract Terms A such uncertainty when an open stances. The most common situation s the Court of Special contract term is necessary or useful. Appeals recently noted in is where performance of a contract is Giving Content To "Best" or 8621 Limited Partnership v. preconditioned upon one party's "Reasonable" Efforts. Maryland LDG, Inc., 169 Md. App. 214, 228 efforts to seek a government (20061, there is a class of "open" con- courts have encountered express approval or obtain appropriate tract terms that leave much in the contractual terms such as "best financing. See, e.g., Informed efforts" or "reasonable efforts" in a Physician Servs. v. Blue Cross & Blue way of interpretation before those number of contexts. In the earliest, Shield of Maryland, Inc., 350 Md. 308, terms can be applied. Such terms are Ralph Cover v. Iohn C. Taliaferro, 142 332-33 (1998). A homeowner, for used or implied where one party Md. 586 (1923), a business promoter promises to try to achieve a certain example, may be required to use promised to use "reasonable efforts" result but will not or cannot guaran- "reasonable efforts" to obtain a loan, to obtain investors in a new compa- tee success, or where the steps need- if the contract is conditioned upon ny to sell improved canning machin- ed to obtain the result cannot be obtaining financing, or a seller may be required to use reasonable efforts . ery. More recently, Schackow v. detailed precisely in advance. Medical-Legal Consulting Serv., Inc., 46 Promises to use "best efforts" or to to seek a zoning change if that is Md. App. 179 (1980), considered required before a sale may close. make "reasonable efforts" to accom- plish a stated gda~ are common whether a consulting service had In terms of content, the Maryland used "best efforts" in assisting an courts have found that a promise to examples of such an open contract attorney to prepare a medical mal- term. Because these terms have no exercise best or reasonable efforts, practice case. In G. Heileman Brewing precise definition, however, an whether express or implied, contains Co. v. Stroh Brewery Co., 308 Md. 746 unwitting party may bind itself to two separate requirements of "good (1987), a distributor promised to use more work than it planned, or could faith" and "reasonable diligence" in its best efforts to comply with mar- pursuing the stated goal. These two pay for less "effort" from the other keting plans to distribute beer. Most aspects were developed by drawing party than it expected. The result, recently, the Court of Special for the unwary, may be a trial before analogies to the law of negligence. Appeals applied a "best efforts" See 8621 Limited Partnership v. LDG, a judge or jury over the meaning of clause in First Union Nat'l Bank v. Inc., supra. This formulation, howev- an amorphous contract provision, Steele Software Sys., Inc., 154 Md. with any ambiguities only com- er, may not get one very far. A lack App. 97,175 (2003), in which a bank pounded where the contract's sub- of good faith is a subjective issue that promised to use its "best efforts" in ject matter is particularly specialized can be very difficult to prove, and or technical. This article briefly referring business to a company pro- substituting "reasonable diligence" discusses the Maryland courts' viding loan settlement services. for "reasonable effort" does not efforts to apply such contract The Maryland courts have also bring one any closer to determining provisions, and sets out some found implied duties to use "reason- either the quality or quantity of able efforts" in several circum- effort necessary to be "reasonable." considerations that might reduce March 2007 MARYLAND BAR JOURNAL 49

the courts have found it party to "do their best to accomplish This leaves the factual problem of unreasonable to require such the conditions necessary to complete determining what level of effort is parties to pursue appellate litigation. the contract." Conley v. Dan- "reasonable" in a given context. One Maryland case went so far as Webforming I~zt'l AIS, Ltd., 1992 W.L. "What will constitute reasonable to find that no action was required to 401628 (D. Del. 1992). In Bloor v. efforts under a contract expressly or constitute reasonable efforts. In Falstaff Brewing Coup., 454 F. Supp. impliedly calling for them is Cover v. Talinferro, supra, a business 258 (S.D.N.Y. 1978)) aff'd, 601 F.2d largely a question of fact in each 609 (2d. Cir. 1979), which may be the particular case and entails a showing promoter promised to use "reason- most frequently cited single case on by the party required to make them able efforts" to secure investments in "best efforts,'' the New York federal improved machinery for manufac- of activity reasonably calculated turing canned goods. When patents court found that a "best efforts" pro- to obtain the approval by action were not obtained on the equipment, vision required a party not only to or expenditure not disproportionate however, the Court of Appeals found act in good faith but also to attempt in the circumstances." Allview that the promoter could properly to achieve the desired result "to the Acres, Inc. v Howard Investment Corp., extent of its own total capabilities." 229 Md. 238,244 (1961). Where a dis- conclude that no efforts would be Parallels have also been drawn reasonable, based on a good-faith pute arises, and barring settlement, it between "best efforts" provisions judgment that the promoter should will likely be resolved only after and the duties of fiduciaries. See not be required to impair his reputa- a trial, with the determination as tion in selling stock in a company Daniel J. Coplan, When is "Best to the meaning of "best" or Efforts" Really " ~ e s t Efforts," 31 Sw. based upon equipment that was, "reasonable" efforts within the essentially, valueless. Id. While this U. L. Rev. 725, 730-31, 734 (2002) factfinder's discretion. was certainly a unique circumstance, (stating that a "best efforts" clause The Maryland cases do give some "gives rise to a near fiduciary level of guidelines with respect to the outer the decision in Cover might be more obligation"). One argument could be boundaries of such disputes. For generally applied as a rule that one that "reasonable efforts" requires the example, at the lower boundary, a need not harm one's own business use of some reasonable approach, complete failure to file an applica- interests or reputation in order to while "best efforts" requires one to tion for a needed government exercise reasonable diligence. do everything reasonable. See Kroboth The Maryland courts have not approval, a failure to follow up by v. Brent, 625 N.Y.S.2d 748, 749 (N.Y. drawn a distinction between "best providing needed documentation, or efforts," "reasonable efforts" and App. Div. 1995) (finding that best a failure to engage in other reason- any other variant of the term, such as efforts requires pursuit of "all rea- able follow-up activities may show a "commercially reasonable efforts." sonable methods"). The merits of lack of reasonable diligence. See such arguments, however, will nec- Informed Physician Servs., supra. As a matter of logic, such a distinc- essarily be bound up with the specif- Where there is evidence thaka party tion could be possible. One common definition of "best," from the ic contractual term, and the courts' desires to get out of a contract, such American Heritage Dictionary, is evaluation of the expectations of the evidence has been used to find either "[s]urpassing all others in excellence, parties with respect to that contract. a lack of diligence or a lack of good achievement, or quality." The same Minimizing Uncertainty. Given faith by that party in exercising best that a contractual promise to use or reasonable efforts. See Bushmiller dictionary defines "reasonable" in v. Schiller, 35 Md. App. 1,9 (1977). less exemplary and more pedestrian "best" or /'reasonableN efforts is not At the upper boundary, the terms as "[nlot excessive or extreme, amenable to precise definition, it fair." Thus, certainly one could would make sense for the parties Maryland courts have held that a argue that "best efforts" requires drafting a contract to take some steps party need not "incur extraordinary to ensure that their expectations for expense simply to establish reason- one to do one's best, not simply to ableness or good faith." Informed do something reasonable. contractual performance will be met. ~ h ~ s i c i a i Servs., supra. For example, Some non-Maryland decisions There are several strategies that may may support drawing such a distinc- assist in reducing the uncertainty where a party is required to seek associated with an open contract a government approval, and tion in an appropriate case. As vigorously does so at the defined in one Delaware federal term such as "best efforts." decision, "best efforts" requires a 1. Limit The . Scope With administrative or trial court level, SO MARYLAND BAR JOURNAL March 2007