Texaco, Inc. v. Pennzoil Co., 729 S.W.2d 768 (Tex. App. 1987).
Facts: Pennzoil (P) and Getty Oil entered into a merger agreement whereby Pennzoil would acquire Getty. Pennzoil and Getty signed a Memorandum of Agreement subject to the approval of each board and issued a press release.
Texaco (D) made an alternative offer to Getty’s board. Getty repudiated its agreement with Pennzoil and accepted Texaco’s offer.
P sued D for tortious interference with contract. D asserted that the Memorandum of Agreement was not a binding contract because it was subject to the approval of Getty’s board of directors and would expire by its own terms if not approved. P asserted that the contract was binding because the Memorandum had been executed by a group of parties that controlled the majority of outstanding shares in Getty. The jury returned a verdict for P and D appealed.
Issues: 1) Is a party’s intent to be bound by an unexecuted contract a question of fact for the fact finder, or a question of law for the judge? 2) To what extent must the terms of a contract be ascertainable in order for a contract to be enforceable?
Holding and Rule: 1) The determination of whether a party intended to be bound by an unexecuted contract is a question of fact for the fact finder. 2) The terms of a contract must be ascertainable to a reasonable degree of certainty in order for a contract to be enforceable.
There was substantial evidence of P’s and Getty’s intention to be bound subject to approval by their boards of directors. This intent was shown by the Memorandum of Agreement and the press release. There is an arguable difference between a transaction being subject to various requirements, and the formation of an agreement being conditioned upon completion of such requirements. However, despite the clear language of reservation, the parties’ intent to be bound is still to be evaluated as a question of fact to be determined from all the circumstances of the case. There was substantial evidence to support the jury’s finding.
Pennzoil Co., headquartered in Houston, Texas is a large oil producing, refining, and marketing company. Pennzoil traces its origins back to two companies, Zapata Petroleum and South Penn Oil Company. In 1983 Pennzoil signed an agreement with Getty Oil for the purchase of Getty. Several days after public announcement of the agreement, Texaco purchased all of Getty Oil. Pennzoil reacted by bringing a suit against Texaco for interfering with its agreement with Getty Oil. After four years of trial,
Pennzoil was awarded a $10.3 billion settlement
in 1988. At the time the settlement was the largest in history. A major part of the Texaco settlement was used by Pennzoil to purchase shares of the Chevron Corporation
in subsequent years. Unable to post a bond required for the appeal, Texaco entered bankruptcy
. Texaco and Pennzoil later agreed to a $3 billion settlement.