Supply Chain Frustration: Litigating "Best Efforts" Clauses During Global Logistics Crises
A global logistics crisis does not automatically excuse a company from a “best efforts” obligation—or establish that the company breached it. In California litigation, whether the required effort was made generally depends on the contract, the commercial circumstances, the steps taken to overcome the disruption, and the availability of reasonable alternatives.
A business may be making difficult decisions about suppliers, inventory, customers, and rising costs while also facing accusations that it did too little to perform. William B. Hanley, Attorney at Law, represents California businesses in contract disputes involving contested performance, disrupted commercial relationships, and claimed financial losses. Contact the firm today.
What Does “Best Efforts” Require in California?
California law does not provide one universal checklist for every best-efforts clause. Whether a party complied is generally a factual question evaluated according to the contract agreement and the surrounding circumstances.
The business contract may define the obligation through measurable requirements, such as contacting alternative suppliers, maintaining minimum inventory, using substitute materials, paying expedited transportation costs, or providing regular status reports. When the parties include these standards, they provide the clearest basis for evaluating performance.
If the agreement uses “best efforts” without defining it, the parties may dispute how much diligence, expense, or operational change the clause required. Negotiations, industry practices, prior performance, and the parties’ conduct before the dispute may help clarify their expectations.
Contracts for the sale of goods are also subject to the California Commercial Code. In a lawful exclusive-dealing arrangement, the seller generally must use best efforts to supply the goods, and the buyer must use best efforts to promote their sale, unless the parties agreed otherwise. Commercial Code duties must also be performed and enforced in good faith.
Courts Examine the Response to the Disruption
The central issue is usually what the obligated party actually did when performance became difficult. A general claim that shipping conditions or materials shortages prevented delivery may be less persuasive than records showing a timely, organized response.
Relevant evidence may include:
The contract, amendments, and purchase orders
Communications with suppliers, carriers, and customers
Requests for quotes from substitute vendors
Attempts to use different transportation routes
Inventory and supply forecasts
Cost comparisons for proposed alternatives
Internal risk assessments and meeting records
Partial-performance or substitute-performance proposals
Notices explaining expected delays or shortages
Records supporting allocation decisions
A court may consider whether the company acted promptly, investigated realistic alternatives, kept the other party informed, and treated comparable customers consistently. Evidence that it favored more profitable transactions, rejected workable alternatives without investigation, or contributed to the shortage may support a breach of contract.
Reconstructing these decisions after a dispute begins can be difficult, particularly when information is spread among vendors, employees, and different systems. Contemporaneous documents can show what options were genuinely available at the time rather than what may appear possible in hindsight.
Does a Logistics Crisis Excuse Nonperformance?
A supply chain disruption may excuse or delay performance in some circumstances, but commercial difficulty alone is not necessarily sufficient. The answer may depend on the contract’s force majeure language and any applicable statutory defense.
A force majeure clause allocates the risk of specified disruptive events. Whether it applies depends on its wording, including the events covered and any notice, mitigation, or documentation requirements. A clause addressing government restrictions or port closures may operate differently from one limited to natural disasters.
California law may excuse performance when it is prevented or delayed by operation of law or an irresistible cause, subject to the parties’ agreement. In a qualifying sale-of-goods contract, a seller may also rely on commercial impracticability when an unforeseen contingency—whose nonoccurrence was a basic assumption of the agreement—renders promised performance impracticable.
Higher prices, reduced profits, or ordinary market difficulty may not establish an excuse. The agreement can assign the risk of supply shortages, transportation delays, or increased costs.
In California breach-of-contract litigation, Attorney Hanley can evaluate whether the evidence supports compliance with a best-efforts clause, a defense of excused performance, or a claim that the opposing party failed to meet its contractual duties.
Notice and Allocation Can Affect the Outcome
Even when a disruption is genuine, the manner in which a company communicates and distributes limited supplies may affect the dispute. The contract may require written notice within a stated period, identification of affected obligations, and continuing updates.
For qualifying sales-of-goods contracts, a seller relying on commercial impracticability must seasonably notify the buyer of delay or non-delivery. If the seller can make only partial delivery, it may need to allocate available goods among customers in a fair and reasonable manner and notify the buyer of its estimated share.
A buyer may challenge whether the seller allocated inventory consistently or redirected goods toward more profitable customers. The seller may respond with records showing that it applied an established allocation method across its customer base.
Operational teams may understandably focus first on keeping products moving rather than on contractual notice language. Nevertheless, informal calls or routine emails may not satisfy a specific notice provision. Reviewing the agreement as soon as disruption occurs can help avoid a separate dispute over notice.
What Remedies May Be Available?
The available remedies depend on the contract, the type of transaction, and the losses caused by the alleged breach. A claimant generally must establish an enforceable agreement, its own performance or excuse, the other party’s breach, and resulting damages.
Depending on the circumstances, the dispute may involve costs of replacement goods, additional transportation expenses, lost sales, or other claimed losses. The opposing party may challenge whether those losses were caused by the alleged failure, could have been avoided, or are recoverable under the agreement and California law.
Contract provisions may limit certain damages, cap liability, permit termination, or require mediation or arbitration. A prevailing-party attorney-fee clause may also affect the financial risk of litigation. These terms should be evaluated before either side assumes that the value of the dispute equals the price of the delayed or undelivered goods.
Commercial Litigation Attorney Serving California
A supply-chain dispute can threaten an important commercial relationship while creating pressure from customers, vendors, and internal decision-makers. Attorney William B. Hanley reviews the contractual language, operational response, communications, and claimed losses to identify the issues most likely to determine the outcome of the case.
He has more than 40 years of litigation experience and takes a direct, detail-focused approach to client communication. His record includes a $50 million verdict, and he has received the peer-selected Business Litigation Trial Lawyer of the Year Award. He prepares cases for trial while keeping clients informed about significant decisions.
As a California commercial litigation attorney, William B. Hanley, Attorney at Law, serves clients in Irvine, Orange County, Los Angeles County, and San Diego County. Contact the firm to discuss a disputed best-efforts obligation or another supply-chain contract claim.