Texaco Inc. v. Pennzoil Co.

729 S.W.2d 768 (1987)

Quick Summary

Pennzoil (D) made a public offer to purchase 16 million Getty Oil Company shares at $100 per share. The Getty board signed the Memorandum of Agreement (MOA), but at an increased share price of $110 per share. Even after the (MOA) the Getty Oil Company pursued other offers and found Texaco (plaintiff) who agreed to buy at higher price.

The Getty board withdrew its offer with Pennzoil (D) and accepted Texaco’s (P) offer. Pennzoil sued Texaco for tortious contract interference. The trial court awarded Pennzoil $3 billion dollars in punitive damages. Texaco filed an appeal.

The court concluded that signing an (MOA) constitutes entering into a legally enforceable contract that can be enforced in court. The imposition of $3 billion in exemplary penalties amounts to a confiscation of riches rather than a sanction for past conduct. A contract is enforceable if its terms are “determinable with reasonable assurance.”

Rule of Law

To determine whether parties intended to be bound by a formal, signed letter, the parties should agree upon all essential terms of the alleged contract and consider the complexity or magnitude of the transaction.

Facts of the Case

The (defendant) Pennzoil made a public offer to buy 16 million shares of Getty Oil Company for $100 per share. On January 15th, Pennzoil entered into a Memorandum of Agreement (MOA) with Getty’s two largest shareholders to purchase their shares. The Getty board approved the Memorandum of Agreement but at a higher share price of $110 per share plus a $10 debenture. Pennzoil accepted the counteroffer and reached an agreement with Getty.

Despite Pennzoil’s acceptance, Getty continued to seek buyers ready to pay more than Pennzoil. And they found a company named Texaco (plaintiff) which agreed to pay them a higher price than Pennzoil. So the Getty board withdrew its last counteroffer to Pennzoil and accepted Texaco’s offer.

Texaco released an instant press statement announcing the agreement—but only after they contacted 50 reporters from major media agencies to beat Pennzoil to the punch.

Pennzoil sued Texaco for tortious interference with the contract. The trial court awarded Pennzoil $3 billion dollars in punitive damages. Texaco filed an appeal.


Was the Memorandum of Agreement (MOA) specific enough to bind the parties?

Holding and Conclusion


When you sign an MOA, you are entering into a legally binding contract that is enforceable in court. The MOA defines the expectations of all parties involved and assigns responsibility for risk.

Reasoning and Analysis

The court ruled that a case-by-case evaluation is the only method to determine whether there is an agreement because arrangements may be completed in several ways orally, in writing, or a combination of these. The imposition of $3 billion dollars in exemplary penalties amounted to wealth seizure rather than punishment for the previous behavior.

The court notes that a contract can be enforced if its terms are “ascertainable to a reasonable degree of confidence .” A contract must be thorough enough so that parties in good faith can find words that will reasonably define their respective duties and liabilities. It must not be so definite that all the possibilities for what might happen to a party in bad faith are explicitly provided; still, it must be fair and enforceable.

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