Prince’s Briefcase: Texaco, Inc. v. Pennzoil Co. (Trujillo Contracts)

Prof. Elizabeth Trujillo Contracts: Agreements to Agree

Here is a case from my Contracts class which explains the concept of Agreements to Agree. In this case an agreement between two parties is enforceable if there is extrinsic evidence (press release) which supports the parties’ intent to contract.

Case Name, Citation Number, Author
Texaco, Inc. v. Pennzoil Co. 729 S.W.2d 768 (Tex. App. 1987)

prince's briefcase (princesdailyjournal)Procedural History
Pennzoil (Plaintiff) sued Texaco (Defendant) for tortious interference with the contract. Texaco asserted that the Memorandum of Agreement was not a binding contract because it was subject to the approval of Getty’s boar of directors and would expire by its own terms if not approved. Pennzoil 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 Pennzoil and Texaco appealed.

–Pennzoil 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 went behind Pennzoil’s back and made an alternative offer to Getty’s board.
–Getty then repudiated its agreement with Pennzoil and accepted Texaco’s offer
–Pennzoil then sued Texaco for tortious interference.

–Was the Memorandum of Agreement enforceable even though it was not an executed contract?

Yes because the Memorandum of Agreement and the press release showed substantial evidence that Pennzoil and Getty were bound to the approval of their board of directors.

Parties must have reasonably negotiated ascertainable terms so that each party knows what it is supposed to do. The contract must be reasonably definite so a court can recognize breach. The terms of the agreement found by the jury are supported by the evidence.

There was substantial evidence (the Press Release and Memorandum of Agreement) that would help a reasonable jury find for the plaintiff (Pennzoil)

Restatements §204. Supplying An Omitted Essential Term (Using evidence to interpret the terms of contract): When the parties to a bargain sufficiently defined to be a contract have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court.

Prince’s Takeaway
Extrinsic evidence such as a press release and memorandum of agreement can make agreement between two parties enforceable–even if the memorandum is not an unexecuted contract.

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