Texaco, Inc. v. Pennzoil, Co.
729 S.W. 2d 768 · 1987
Facts
Pennzoil sought to acquire Getty Oil, engaging in negotiations with Gordon Getty (a major shareholder) and the J. Paul Getty Museum. A "Memorandum of Agreement" outlining the acquisition terms was drafted and signed by Pennzoil, Gordon Getty, and the Museum, subject to Getty Oil board approval. On January 3, 1984, the Getty Oil board approved a revised Pennzoil proposal for $110 per share plus a $5 stub, which Pennzoil accepted. A press release announcing this "agreement in principle" was issued the next day. Texaco, aware of these developments, then pursued its own acquisition of Getty Oil, contacting the Museum and Gordon Getty with a higher offer. The Getty Oil board subsequently withdrew its Pennzoil counter-proposal and accepted Texaco's offer, leading to a merger agreement between Texaco and Getty.
Procedural history
The case originated in a trial court where a jury found that Texaco tortiously interfered with a contract between Pennzoil and the Getty entities, awarding Pennzoil damages. Texaco appealed this judgment, challenging the sufficiency of the evidence for the jury's findings. This court is reviewing that appeal.
Issue
Whether the evidence supports the jury's finding that there was a binding contract between the Getty entities and Pennzoil, and that Texaco knowingly induced a breach of such contract.
Holding
The court found that there was legally and factually sufficient evidence to support the jury's finding that the Getty entities intended to be bound to an agreement with Pennzoil and that Texaco knowingly induced the breach of that agreement. Texaco's points of error regarding the insufficiency of evidence for these findings were overruled.
Rule
Under New York law, parties can be bound by an informal agreement if they intend to be bound and agree on all substantial terms, even if they contemplate a later formal document. If a party communicates intent not to be bound before a formal document is executed, no oral agreement is binding. Intent is determined by the parties' words and deeds, not secret subjective intent. Factors to determine intent include: (1) express reservation of right to be bound only by signed writing; (2) partial performance; (3) agreement on all essential terms; and (4) complexity/magnitude of transaction. For tortious interference, the defendant must have knowledge of the contract and actively induce its breach, for example, by offering better terms.
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