Contract Performance
Commercially Reasonable Efforts
Also: CRE, Commercially Reasonable, Reasonable Commercial Efforts, Commercially Reasonable Standard · CRE, Commercially Reasonable, Reasonable Commercial Efforts, Commercially Reasonable Standard, Reasonable Efforts
"Commercially reasonable efforts" is a performance standard requiring a party to take the steps that a reasonable business person would take in similar circumstances — considering the costs, benefits, and risks involved.
It is one of the most commonly used performance standards in commercial agreements and is generally considered more predictable than "best efforts."
Lawyer Explanation
"Commercially reasonable efforts" is a contractual performance standard that requires the obligated party to take the steps that a reasonable business person in similar circumstances would take, taking into account the party's own commercial interests.
Unlike "best efforts," which some courts interpret as requiring a party to do everything possible, "commercially reasonable efforts" explicitly incorporates a commercial reasonableness standard. The party is not required to take actions that would be commercially unreasonable, financially ruinous, or contrary to its own business interests.
The standard is widely used in commercial agreements because it provides a more predictable and balanced obligation than "best efforts."
What It Actually Does
A commercially reasonable efforts obligation answers: "What steps is this party required to take, and how do we measure whether they've done enough?" For example, a distribution agreement may require the distributor to use commercially reasonable efforts to market and sell the product. This means the distributor must take the steps that a reasonable distributor in similar circumstances would take — not merely make a token effort, but also not be required to spend unlimited resources.
Why It Matters
The choice of performance standard — commercially reasonable efforts, best efforts, or reasonable efforts — can significantly affect a party's obligations and exposure.
Commercially reasonable efforts is often the preferred standard in commercial agreements because it provides a balanced obligation that takes into account the party's own business interests. It is less likely to be interpreted as requiring commercially unreasonable actions.
The standard should be defined clearly in the contract, and ideally supplemented with specific benchmarks or reporting requirements.
Example
A technology company licenses its platform to a reseller under an agreement requiring the reseller to use commercially reasonable efforts to promote and sell the platform.
The reseller invests in marketing, trains its sales team, and generates a reasonable level of sales activity. Even if sales are lower than the licensor hoped, the reseller may be able to demonstrate that it used commercially reasonable efforts.
Common Language You May See
"Each party shall use commercially reasonable efforts to perform its obligations under this Agreement in a timely and professional manner."
"Distributor shall use commercially reasonable efforts to market, promote, and sell the Products in the Territory."
What Stewart Law Looks For
- Does the contract use "commercially reasonable efforts," "best efforts," or another standard?
- Is the standard defined in the contract?
- What specific obligation is subject to the efforts standard?
- Are there any benchmarks or metrics that define what satisfies the standard?
- Is the standard mutual or does it apply to only one party?
- How does the efforts standard interact with other performance obligations?
- What remedies are available if the standard is not met?
- Are there reporting requirements that allow the other party to assess compliance?
Common Red Flags
A commercially reasonable efforts provision deserves closer attention when it:
- is used without defining what the standard requires in the specific context
- applies to a broad range of obligations without specifying what actions are expected
- fails to include any benchmarks or reporting requirements
- is combined with a limitation-of-liability clause that may limit remedies for failure to meet the standard
- is used interchangeably with "best efforts" without clarifying the intended standard
Perspectives
Customer / Buyer
The party relying on the other party's efforts will generally want a clearly defined standard with specific benchmarks, reporting requirements, and meaningful remedies if the standard is not met.
Vendor / Seller
The party subject to the efforts obligation will generally want a clearly defined and reasonable standard, specific benchmarks that define compliance, and the ability to take into account its own commercial interests in determining what steps to take.
Florida & Federal Considerations
Florida
Florida courts have addressed "commercially reasonable efforts" obligations in various commercial contexts. The specific meaning of the standard depends on the contract language, the nature of the obligation, and the facts. Florida courts generally require the obligated party to take the steps that a reasonable business person in similar circumstances would take.
Related Terms
Contracts Where You'll Commonly See It
Frequently Asked Questions
Is "commercially reasonable efforts" the same as "best efforts"?
Not necessarily. "Commercially reasonable efforts" is generally understood to require steps that a reasonable business person would take in similar circumstances, taking into account the party's own business interests. "Best efforts" may impose a higher standard in some jurisdictions.
What does a party have to do to satisfy a "commercially reasonable efforts" obligation?
The party must take the steps that a reasonable business person in similar circumstances would take, considering the costs, benefits, and risks involved. It does not require the party to take actions that would be commercially unreasonable or financially ruinous.
Is "commercially reasonable efforts" the same as "reasonable efforts"?
The terms are similar but may be interpreted differently. "Commercially reasonable efforts" explicitly incorporates a commercial reasonableness standard, while "reasonable efforts" may be interpreted more broadly. The specific meaning depends on the jurisdiction and context.
Why do parties prefer "commercially reasonable efforts" over "best efforts"?
"Commercially reasonable efforts" is often preferred because it provides a more predictable standard that takes into account the party's own business interests. It is less likely to be interpreted as requiring a party to take actions that are commercially unreasonable.
Can a party be held liable for failing to use commercially reasonable efforts?
Yes. A failure to use commercially reasonable efforts when contractually required may constitute a breach of contract. The non-breaching party may seek damages or other remedies depending on the contract and applicable law.
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