Ryan Aaron Salem
ABSTRACT
In today’s business world, where contracts between corporations are heavily negotiated and contracting parties are, generally, strictly bound by the terms agreed to in those contracts, most contracting parties feel that including standards to delineate the effort each party must put into upholding the terms of the contract is absolutely critical. These standards, known as “efforts standards,” vary and include “good faith efforts,” “reasonable efforts,” “diligent efforts,” “commercially reasonable efforts” and “best efforts.” The gradation between these different efforts standards is often a source of confusion among practitioners. The main source of that confusion stems from inconsistencies in the way that (1) uniform laws, such as the Uniform Commercial Code, and (2) the Delaware Court of Chancery, the court in the United States with arguably the most power to shape the future of corporate law, have attempted to clarify the ambiguity surrounding the gradation of efforts standards.
To show how unclear the gradation is between efforts standards, this Comment will begin by describing how various courts and scholars have defined efforts standards. Further, this Comment will demonstrate how those courts and scholars have frequently conflated the efforts standards with one another and with the implied covenant of good faith inherent in every contract. This Comment will then analyze prior cases from the Delaware Court of Chancery to explain that court’s previous attempts to clarify the law surrounding efforts standards. Next, this Comment will address potential tactics that Delaware and drafters of uniform laws could use to provide more beneficial guidance on how efforts standards are to be interpreted in the future. Finally, this Comment will recommend that the Delaware Court of Chancery and uniform laws equate all efforts standards under a more stringent “reasonable efforts” standard by applying one test to a contract containing an efforts standard and a different test when a contract fails to include an efforts standard.