Texaco's $10.5B verdict forced the biggest bankruptcy — over a handshake deal

In January 1984, Pennzoil reached what it believed was a binding agreement to acquire a large portion of Getty Oil. The deal had been negotiated with Gordon Getty, the company's largest shareholder, and was documented in a signed memorandum. Pennzoil thought the purchase was done. Then Texaco stepped in with a higher bid and Getty's board accepted it, effectively pushing Pennzoil aside.

Pennzoil sued Texaco in Texas state court for tortious interference with contract — arguing that Texaco knew about the existing deal and deliberately induced Getty to breach it. The case went to trial in 1985. A Houston jury returned a verdict of $7.53 billion in compensatory damages plus $3 billion in punitive damages: $10.53 billion total, then the largest civil verdict in U.S. history. Texas law required Texaco to post a bond equal to the judgment to appeal, which it could not afford.

Texaco responded by filing for Chapter 11 bankruptcy protection in April 1987 — at the time the largest bankruptcy filing in American history. The bankruptcy gave Texaco protection from the bond requirement and allowed it to negotiate a settlement. After over a year in bankruptcy, Texaco agreed to pay Pennzoil $3 billion to settle the case. The company emerged from bankruptcy in 1988, but it was permanently weakened.

The Texaco-Pennzoil case became a landmark in contract law and bankruptcy strategy. It demonstrated that interference with a preliminary agreement — even an unsigned one — could carry catastrophic financial consequences. Texaco survived as a company but was forced to sell its most valuable assets to pay the settlement, and it never regained its pre-1984 position. Chevron acquired Texaco in 2001 for $36 billion, ending its existence as an independent oil major.