Citation. 601 F.2d 609, 1979 U.S. App.
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Plaintiff James Bloor is the Reorganization Trustee of Balco Properties Corporation, and Defendant Falstaff Brewing Corp., is a company that purchased the Ballantine brand of beer from Plaintiff. According to the agreement, Defendant was to use its best efforts to maintain a high volume of sales of Ballantine Beer. Plaintiff initiated this action, averring that this clause of the contract was violated.
Synopsis of Rule of Law.
A “best efforts” clause imposes an obligation to act with good faith in light of one’s own capabilities.
Facts.
Plaintiff contracted with Defendant to sell the Ballantine Beer label for $4,000,000. Among other things, the contract required Defendant to use its best efforts to promote and maintain a high volume of sales. A violation of this clause would trigger a liquidated damages provision. After Defendant’s acquisition of Ballantine, it continued to spend $1 million a year on advertising. Sales declined, however, leading Defendant to claim it lost $22 million in approximately three years. Plaintiff eventually initiated this action, stating that the best efforts clause had been breached by Defendant’s mismanagement of the Ballantine brand.
Issue.
Did Defendant breach the best efforts clause of the contract?
Held.
Yes. A “best efforts” clause imposes an obligation to act with good faith in light of one’s own capabilities. The trial judge explained the substantial ways in which Defendant breached this clause including engaging in a number of misfeasances and nonfeasances such as closing a depot that serviced “Mom and Pop” stores and bars in the New York metro area; its choice of distributors for Ballantine products; a failure to take advantage of an offer from Guinness-Harp Corporation to distribute Ballantine products in New York City; and a failure to treat Ballantine products evenhandedly with its own products, just to name a few. Hence, Defendant breached the contract, but Plaintiff was not entitled to the liquidated damages.
Discussion.
“Best efforts” clauses require a contracting party to act in good faith within its own capabilities.
