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BUSINESS LAW 9: The open term “best efforts” did not prevent an agreement from being formed due to a lack of a meeting of the minds.

Plaintiff and defendant were joint owners of Company Inc. Plaintiff brought this action challenging the management of the business.  Plaintiff and defendant reached a settlement agreement, which they placed on the record. The agreement required defendant to purchase plaintiff’s interest in Company Inc. for $760,000 and required defendant to use his best efforts to obtain financing to purchase plaintiff’s interest.

When defendant withdrew his application for financing, plaintiff moved to enforce the settlement agreement.

The evidence clearly establishes that the parties agreed to settle their pending lawsuit.  An agreement to settle a pending lawsuit is a contract and is to be governed by the legal principles applicable to the construction and interpretation of contracts.

Defendant claims that he withdrew his application for financing because he became aware that, for financing, he would have been required to pledge his personal assets as collateral for any business loan.

Use of the open term best efforts in the parties’ agreement in this case did not prevent an agreement from being formed due to a lack of a meeting of the minds. Rather, the open term obligated defendant to do what was reasonable to obtain the contemplated financing. If defendant was concerned about placing any limitations on the performance necessary to satisfy this obligation, such as a limitation specifically recognizing that he would not be required to pledge personal assets to obtain financing, he should have included that limitation in the agreement.

The trial court found that defendant did not use his best efforts to obtain financing because the evidence showed that defendant applied for a business loan to finance the contemplated transaction, but then contacted the financial institution and withdrew his request for financing before the bank decided whether to approve or deny the loan. Accordingly, the court found that defendant abandoned any good-faith effort to obtain financing, thereby breaching the parties’ agreement.

Following the hearing, the trial court found that defendant breached the best efforts requirement, it granted plaintiff’s motion to enforce the settlement agreement, and it entered a judgment awarding plaintiff $760,000.

Many business litigation matters center on complex agreements. Our founder, Brad Aldrich, has litigated thousands of cases throughout his more than 20 years of practicing law. If litigation is necessary, he can put his trial experience to work for you. He also has the knowledge you need to resolve disputes without litigation. This is just one of the many ways that Aldrich Legal Services builds relationships with clients for life.

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