What Does “Commercially Reasonable” Mean in a Contract?
A standard based on what a reasonable business would do under similar circumstances, considering commercial realities.
Detailed Explanation
"Commercially reasonable" judges conduct against what a typical business would do, weighing costs, benefits, and business practices. It acknowledges that businesses must balance multiple priorities and can't ignore commercial realities.
This standard is common in business contracts because it's practical - it doesn't require heroic efforts or ignoring financial considerations. It's often used for pricing, efforts, and decision-making standards.
Example in a Contract
“Supplier shall maintain commercially reasonable inventory levels sufficient to meet Customer's anticipated orders. Commercially reasonable shall mean inventory practices consistent with industry standards for similar suppliers.”
Why It Matters
"Commercially reasonable" lets you act like a sensible business. You don't have to lose money or ignore practical constraints. But you do have to meet the standard a reasonable business would - not cut corners excessively.
Related Terms
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