Q&A WITH CHRIS GRISWOLD
Legal terms matter in contracts
Q: What does “good faith efforts” mean?
A: It means the subject party must employ some sort of effort. For example, if a purchase-sale contract reads “... the Buyer must employ “good faith efforts” to ensure that no confidential information obtained from Seller or Seller’s agents, contractors, employees or representatives during the Due Diligence Period is disclosed to any third party(ies) without the written consent of Seller…,” it means that the buyer must somehow prove it actually attempted to keep certain information (which later leaked out to a third party) from leaking out to such third party — through the actual use of some sort of effort. For instance, the buyer, in advance of such leak, sent out emails or texts to its own agents, contractors, representatives and employees to keep such information secret from (and undisclosed to) third parties. That way, later on, when the leak occurs, the buyer can point toward the emails or texts it previously sent out as proof that it actually, in good faith, made some sort of effort to prevent the leak that later occurred.
Q: What does “reasonable efforts” mean?
A: It means that the buyer does something more lofty to prevent the leak. For example, buyer sent out certified letters to its own agents, contractors, employees and representatives, and, in addition to that, buyer held a one-day required orientation at its headquarters whereby all of buyer’s agents, contractors, employees and representatives attended a nondisclosure orientation/seminar to receive instruction on how to best prevent leaks of such confidential information during the then, forthcoming due diligence period.
Q: What does “best efforts” mean?
A: This highest standard basically means that, unless it somehow becomes impossible to prevent the leak, then any leak that later occurs is the fault of buyer. The only way to prove the “impossibility of preventing the leak” is to show that someone died behind the wheel of a car before they had a chance to communicate well, or, a flood or natural disaster occurred that prevented buyer from preventing the disclosure which happened after the office floated away and the sensitive papers later were found upon the banks of a river by the children of the seller’s competitor. So, be careful of someone putting a “best efforts” obligation upon you.
Q: What do you need to remember about using these various terms?
A: You need to remember which party you are, what the obligation is at hand, and how much control you actually have in getting something done or preventing something from happening. Don’t bite off — or accept the obligation to bite off — more than you can chew.