An Effort To Untangle Efforts Standards Under Delaware Law
2018
Publication
In today’s business world, where contracts between corporations areheavily negotiated and contracting parties are, generally, strictly boundby the terms agreed to in those contracts, most contracting parties feelthat including standards to delineate the effort each party must put intoupholding the terms of the contract is absolutely critical. Thesestandards, known as “efforts standards,” vary and include “good faithefforts,” “reasonable efforts,” “diligent efforts,” “commerciallyreasonable efforts” and “best efforts.” The gradation between thesedifferent efforts standards is often a source of confusion amongpractitioners. The main source of that confusion stems frominconsistencies in the way that (1) uniform laws, such as the UniformCommercial Code, and (2) the Delaware Court of Chancery, the court inthe United States with arguably the most power to shape the future ofcorporate law, have attempted to clarify the ambiguity surrounding thegradation of efforts standards.
To show how unclear the gradation is between efforts standards,this Comment will begin by describing how various courts and scholarshave defined efforts standards. Further, this Comment will demonstratehow those courts and scholars have frequently conflated the effortsstandards with one another and with the implied covenant of good faithinherent in every contract. This Comment will then analyze prior casesfrom the Delaware Court of Chancery to explain that court’s previousattempts to clarify the law surrounding efforts standards. Next, thisComment will address potential tactics that Delaware and drafters ofuniform laws could use to provide more beneficial guidance on how efforts standards are to be interpreted in the future. Finally, thisComment will recommend that the Delaware Court of Chancery anduniform laws equate all efforts standards under a more stringent“reasonable efforts” standard by applying one test to a contractcontaining an efforts standard and a different test when a contract fails toinclude an efforts standard.