What standard applies to best efforts clauses in Utah contracts? Mark Technologies v. URI, Inc. Explained

The Utah Court of Appeals in Mark Technologies Corp. v. Utah Resources International, Inc. provided important guidance on interpreting and enforcing best efforts clauses in commercial contracts, distinguishing them from the implied covenant of good faith and fair dealing.

Background and Facts

The parties entered a settlement agreement requiring them to “exercise their best efforts to account for, pay, compromise, unwind, and/or terminate all existing contractual relationships between URI and Morgan Gas & Oil Co.” Mark Technologies later sued, claiming the Fife Parties failed to use best efforts during the year and seven months following the settlement. The defendants disputed this, asserting they were gathering corporate records, resolving environmental issues, and partitioning property to unwind the business relationships.

Key Legal Issues

The court addressed two critical questions: (1) what standard applies to determine breach of a best efforts clause, and (2) how that standard differs from the covenant of good faith and fair dealing. The court also considered whether the evidence supported the trial court’s finding of no breach.

Court’s Analysis and Holding

The court held that best efforts clauses create independent contractual obligations that are “more onerous” than good faith duties. While good faith focuses on honesty and fairness, best efforts “has diligence as its essence.” The court established that best efforts requires “diligent, reasonable[,] and good faith effort to accomplish that objective” but does not require success or single-minded pursuit. Compliance must be measured subjectively considering the particular facts and circumstances, including any hurdles that must be overcome.

Practice Implications

This decision provides crucial guidance for drafting and litigating best efforts provisions. Courts will examine the actual efforts made, their timing, and the circumstances affecting those efforts rather than simply whether the objective was achieved. The subjective standard means parties must demonstrate diligence and reasonableness within their particular business context and capabilities.