Recent NY cases demonstrate issues vague contract terms may create

New York courts have recently issued two opinions clarifying state law regarding breach of contract claims that involved vague terminology. One case dealt with a “best efforts” clause. The other involved a breach of the implied covenant of good faith and fair dealing, which is an implied term in all contracts. While ideally a well-written contract will not contain vague terms in order to avoid litigation, occasionally disputes do arise even for well-drafted contracts. Whether or not a party can recover on a contested contract term can depend on the contextual and circumstantial evidence surrounding the disputed term.

“Best efforts” clause often misinterpreted

A best efforts clause can be one of the most misunderstood provisions in any contract, as what constitutes “best efforts” can be nebulous. If included in a contract, it helps to include objective criteria regarding what constitutes “best efforts” as much as possible.

In Strauss Paper Co. v RSA Exec. Search, the parties had an agreement that expressly held that one party must use its best efforts to secure tax benefits. However, the defendants in the case argued that the clause was too vague to be enforceable, as there were no clear guidelines by which the defendant could be judged.

On May 13, 2014, the Kings County Commercial Division refused to dismiss the case. It held that a best efforts clause is enforceable if “external standards or circumstances impart a reasonable degree of certainty to the meaning of the phrase best efforts.” Under New York law, a “best efforts” clause gives an obligation to act with good faith and reasonable efforts to comply with the other party’s “justifiable expectations.”

Good faith and fair dealing

May 29, 2014, the New York Appellate Division issued a decision in Pleiades Publishing, Inc. v. Springer Science + Business Media LLC, regarding good faith in performing a contract.

Here, the plaintiff claimed the defendant failed to market and promote its online database per the agreement. The Appellate Division, First Department, held that the plaintiff did have a claim of a breach of good faith. The court found that “while the agreement granted defendant the discretion to decide how to market and promote the [database], defendant did not have the right . . . to frustrate plaintiff’s rights under the agreement, deprive plaintiff of the value of its journals, or benefit itself at plaintiff’s expense.” As such there was a potential that the defendant did not act in good faith when performing the contract.

An experienced attorney can help

In both cases, the plaintiff won the right to continue with its case. Businesses in New York considering legal action for a breach of contract or with a lawsuit against them should contact a skilled business and contract legal firm to discuss legal options.