## Facts

- Balco Properties Corp. (successor to P. Ballantine & Sons) sold Falstaff Brewing Corp. Ballantine labels, trademarks, receivables, and a distribution system for $4 million plus royalties of $0.50 per barrel of Ballantine brands sold from April 1, 1972 to March 31, 1978.
- The agreement required Falstaff to “use its best efforts to promote and maintain a high volume of sales” of Ballantine products.
- The agreement also provided for $1.1 million per year in liquidated damages if Falstaff “substantially discontinue[d] the distribution of beer” under the Ballantine name during the royalty period.
- After acquisition, Falstaff later cut Ballantine advertising and promotional spending sharply, while continuing to support other brands.
- Falstaff closed the North Bergen, New Jersey depot serving many small retailers and bars in the New York metropolitan area, reducing Ballantine’s market presence.
- Falstaff’s distributor selection and oversight were found deficient, and it declined an offer from Guinness-Harp Corporation to distribute Ballantine in New York City.
- Ballantine sales fell steeply; Falstaff attributed the decline to broader market trends and the end of certain questionable practices, while Balco’s trustee attributed it to Falstaff’s inadequate efforts.

## Issues

1. Whether Falstaff breached its contractual duty to use “best efforts” to promote and maintain high Ballantine sales volume.
2. Whether Falstaff’s conduct amounted to a “substantial discontinuance” of Ballantine distribution, triggering liquidated damages.
3. Whether damages for breach of the best-efforts clause could be calculated using estimated lost sales and resulting lost royalties.

## Decision

- The Second Circuit affirmed the finding that Falstaff breached the best-efforts clause.
- The court held that “best efforts” required good-faith, reasonable diligence measured against Falstaff’s capabilities, while allowing consideration of legitimate business interests and financial condition.
- The court agreed that Falstaff’s disproportionate cutbacks, distribution choices (including closing the North Bergen depot), and missed distribution opportunities supported a finding of breach.
- The court affirmed denial of liquidated damages, holding that Falstaff had not “substantially discontinued” distribution because Ballantine beer continued to be produced and sold in non-token amounts.
- The court largely upheld damages based on the royalty difference between actual sales and an estimated sales level under best efforts, with limited modifications to the district court’s computation.

## Legal Principles

- Under New York law, a “best efforts” clause is enforceable and obligates a party to act in good faith and to make reasonable efforts commensurate with its capabilities.
- A promisor may weigh its own legitimate business interests and financial condition, but best efforts does not permit treating the counterparty’s brand as expendable when reasonable measures are available.
- A liquidated-damages clause triggered by “substantial discontinuance” requires a near-withdrawal or effective termination of distribution, not merely a significant decline attributable to weak performance.
- Once breach is shown, lost-profit or lost-royalty damages may be awarded based on reasonable approximations using comparative market evidence; uncertainty in amount does not bar recovery and is generally borne by the breaching party.

## Conclusion

The court held Falstaff liable for failing to use good-faith, reasonable best efforts to sustain Ballantine sales and upheld an award of lost royalties based on estimated sales, while refusing liquidated damages because distribution, though diminished, was not substantially discontinued.


Bloor v. Falstaff Brewing Corp., 601 F.2d 609 (2d Cir. 1979)