## Facts

- Pennzoil and the Getty entities negotiated a transaction for Pennzoil to acquire a significant interest in Getty Oil and for Getty Oil to be restructured with ownership divided between Pennzoil and the Sarah C. Getty Trust.
- On January 1–3, 1984, the parties executed a Memorandum of Agreement and, according to the jury findings, intended by the end of a January 3 board meeting to be bound to a deal allocating stock 3/7 to Pennzoil and 4/7 to the Trust, with a mechanism for dividing assets if later restructuring terms could not be agreed.
- Public statements and market behavior treated the Getty–Pennzoil arrangement as a completed deal; Pennzoil began drafting definitive agreements.
- Getty’s advisers sought higher bids; Texaco offered superior economic terms.
- Getty’s board withdrew from the Pennzoil arrangement and accepted Texaco’s offer; Texaco announced an agreement with Getty.
- Pennzoil sued Texaco in Texas state court for tortious interference with contract, alleging Texaco knowingly induced breach of a binding agreement.
- A jury awarded Pennzoil $7.53 billion in actual damages and $3 billion in punitive damages; judgment was entered with interest.

## Issues

1. Whether legally sufficient evidence supported the jury’s finding that a binding contract existed between Pennzoil and the Getty entities as of January 3, 1984, notwithstanding contemplation of later “definitive” documentation.
2. Whether legally sufficient evidence supported findings that Texaco knowingly and intentionally interfered with the Pennzoil–Getty contract.
3. Whether the evidence supported the amount of actual damages and the submission and amount of punitive damages.
4. Whether alleged instructional error, evidentiary rulings, or trial-court conduct required reversal or a new trial.
5. Whether the judgment, including punitive damages, violated federal constitutional limits (including due process and excessiveness challenges).

## Decision

- The Texas Court of Appeals affirmed the judgment for Pennzoil, with limited modifications.
- The court held there was sufficient evidence that Pennzoil and the Getty entities intended to be bound by an agreement by the end of the January 3, 1984 board meeting.
- The court upheld the findings that Texaco had knowledge of the Pennzoil–Getty agreement and intentionally induced the Getty entities to abandon it.
- The court sustained the actual-damages award as supported by evidence of Pennzoil’s lost contractual benefits.
- The court upheld the punitive-damages award on the record and under then-governing standards, while noting concerns about its magnitude.
- The court rejected claimed trial errors (jury instructions, evidentiary issues, and alleged unfairness) as insufficient to justify reversal.

## Legal Principles

- Whether parties formed an enforceable contract despite anticipating later documentation depends on intent shown by the circumstances, not solely on references to a future “definitive agreement.”
- Intent to be bound may be evaluated by factors including: (1) any express reservation that no party is bound until a signed writing, (2) partial performance accepted by the other party, (3) agreement on essential terms, and (4) whether the transaction’s complexity normally requires a formal executed writing.
- Tortious interference with contract requires proof of an existing contract, the defendant’s knowledge of the contract, intentional interference causing breach, and resulting damages; willful or wanton conduct may support exemplary damages.
- Appellate review of verdicts in complex commercial cases focuses on legal sufficiency and prejudicial error; asserted evidentiary and procedural errors do not warrant reversal absent a showing of harmful impact on the outcome.
- Exemplary damages may be upheld where the factfinder determines intentional, willful interference and the award is permissible under applicable state standards and then-existing constitutional doctrine.

## Conclusion

The court affirmed a verdict holding Texaco liable for tortious interference after concluding that evidence supported a binding Pennzoil–Getty agreement, Texaco’s knowing inducement of breach, and the resulting multibillion-dollar actual and punitive damages, while rejecting claims of reversible trial error and constitutional invalidity on the record presented.


Texaco, Inc. v. Pennzoil Co., 729 S.W.2d 768 (Tex. App.—Houston [1st Dist.] 1987)