1. MASTER AND SERVANT — CONTRACT OF HIRING — EVIDENCE — INSTRUCTIONS.

Where, in an action on a parol contract of hiring alleged to have been entered into after the termination of a written contract of employment, the witnesses coincided as to the terms of the re-employment proposed in a conversation between the parties and defendant only proved that he refused to enter into a contract with the employé regarding another year's employment, a charge that, in order to find for plaintiff, the jury must find not only that the conversation occurred, but that by such conversation both parties intended to contract with each other, was erroneous.

2. CONTRACTS — INTENTION OF PARTIES.

To constitute a contract there must, in general, be a meeting of the minds of the parties, and both must agree to the same thing, in the same sense; but, in so far as their intention is an element, it is only such intention as the words or the acts of the parties predicate, and not one secretly cherished, which is inconsistent therewith.

3. SAME — QUESTION FOR COURT.

The general rule is that it is for the court to construe the effect of writings relied on to make a contract, and the effect of unambiguous oral words, but, where the words are in dispute, the question whether they were used or not is for the jury.

4. MASTER AND SERVANT — CONTRACT OF EMPLOYMENT — QUESTION FOR COURT.

A contract of employment terminated December 15th. Eight days thereafter the employé demanded a contract for another year, and stated that unless he obtained one he would cease work at once. The employer responded: "Go ahead, you are all right." Held, that the conversation, as a matter of law, created a contract for a year, and the court erred in making the formation of the contract depend on a finding that both parties intended to make one.

Appeal from St. Louis Circuit Court; O'Neill Ryan, Judge.

Action by Charles R. Embry against the Hargadine, McKittrick Dry Goods Company. From a judgment for defendant, plaintiff appeals. Reversed and remanded.

Sloan Pitzer, for appellant. Johnson, Allen & Richards, for respondent.

GOODE, J.

We dealt with this case on a former appeal (115 Mo. App. 130, 91 S. W. 170). It has been retried, and is again before us for the determination of questions not then reviewed. The appellant was an employé of the respondent company under a written contract to expire December 15, 1903, at a salary of $2,000 per annum. His duties were to attend to the sample department of respondent, of which he was given complete charge. It was his business to select samples for the traveling salesmen of the company, which is a wholesale dry goods concern, to use in selling goods to retail merchants. Appellant contends that on December 23, 1903, he was re-engaged by respondent, through its president, Thos. H. McKittrick, for another year at the same compensation and for the same duties stipulated in his previous written contract. On March 1, 1904, he was discharged, having been notified in February that, on account of the necessity of retrenching expenses, his services and that of some other employés would no longer be required. The respondent company contends that its president never re-employed appellant after the termination of his written contract, and hence that it had a right to discharge him when it chose. The point with which we are concerned requires an epitome of the testimony of appellant and the counter testimony of McKittrick, the president of the company, in reference to the alleged re-employment. Appellant testified: That several times prior to the termination of his written contract on December 15, 1903, he had endeavored to get an understanding with McKittrick for another year, but had been put off from time to time. That on December 23d, eight days after the expiration of said contract, he called on McKittrick, in the latter's office, and said to him that as appellant's written employment had lapsed eight days before, and as there were only a few days between then and the 1st of January in which to seek employment with other firms, if respondent wished to retain his services longer he must have a contract for another year, or he would quit respondent's service then and there. That he had been put off twice before and wanted an understanding or contract at once so that he could go ahead without worry. That McKittrick asked him how he was getting along in his department, and appellant said he was very busy, as they were in the height of the season getting men out — had about 110 salesmen on the line and others in preparation. That McKittrick then said: "Go ahead, you're all right. Get your men out, and don't let that worry you." That appellant took McKittrick at his word and worked until February 15th without any question in his mind. It was on February 15th that he was notified his services would be discontinued on March 1st. McKittrick denied this conversation as related by appellant, and said that, when accosted by the latter on December 23d, he (McKittrick) was working on his books in order to get out a report for a stockholders' meeting, and, when appellant said if he did not get a contract he would leave, that he (McKittrick) said: "Mr. Embry, I am just getting ready for the stockholders' meeting to-morrow. I have no time to take it up now. I have told you before I would not take it up until I had [778] these matters out of the way. You will have to see me at a later time. I said: `Go back upstairs and get your men out on the road.' I may have asked him one or two other questions relative to the department, I don't remember. The whole conversation did not take more than a minute."

Embry also swore that, when he was notified he would be discharged, he complained to McKittrick about it, as being a violation of their contract, and McKittrick said it was due to the action of the board of directors, and not to any personal action of his, and that others would suffer by what the board had done as well as Embry. Appellant requested an instruction to the jury setting out, in substance, the conversation between him and McKittrick according to his version, and declaring that those facts, if found to be true, constituted a contract between the parties that defendant would pay plaintiff the sum of $2,000 for another year, provided the jury believed from the evidence that plaintiff commenced said work believing he was to have $2,000 for the year's work. This instruction was refused, but the court gave another embodying in substance appellant's version of the conversation, and declaring it made a contract "if you (the jury) find both parties thereby intended and did contract with each other for plaintiff's employment for one year from and including December 23, 1903, at a salary of $2,000 per annum." Embry swore that, on several occasions when he spoke to McKittrick about employment for the ensuing year, he asked for a renewal of his former contract, and that on December 23d, the date of the alleged renewal, he went into Mr. McKittrick's office and told him his contract had expired, and he wanted to renew it for a year, having always worked under year contracts. Neither the refused instruction nor the one given by the court embodied facts quite as strong as appellant's testimony, because neither referred to appellant's alleged statement to McKittrick that unless he was re-employed he would stop work for respondent then and there.

It is assigned for error that the court required the jury, in order to return a verdict for appellant, not only to find the conversation occurred as appellant swore, but that both parties intended by such conversation to contract with each other for plaintiff's employment for the year from December, 1903, at a salary of $2,000. If it appeared from the record that there was a dispute between the parties as to the terms on which appellant wanted re-employment, there might have been sound reason for inserting this clause in the instruction; but no issue was made that they split on terms; the testimony of McKittrick tending to prove only that he refused to enter into a contract with appellant regarding another year's employment until the annual meeting of stockholders was out of the way. Indeed, as to the proposed terms McKittrick agrees with Embry, for the former swore as follows: "Mr. Embry said he wanted to know about the renewal of his contract. Said if he did not have the contract made he would leave." As the two witnesses coincided as to the terms of the proposed re-employment, there was no reason for inserting the above-mentioned clause in the instruction in order that it might be settled by the jury whether or not plaintiff, if employed for one year from December 23, 1903, was to be paid $2,000 a year. Therefore it remains to determine whether or not this part of the instruction was a correct statement of the law in regard to what was necessary to constitute a contract between the parties; that is to say, whether the formation of a contract by what, according to Embry, was said, depended on the intention of both Embry and McKittrick. Or, to put the question more precisely: Did what was said constitute a contract of re-employment on the previous terms irrespective of the intention or purpose of McKittrick?

Judicial opinion and elementary treatises abound in statements of the rule that to constitute a contract there must be a meeting of the minds of the parties, and both must agree to the same thing in the same sense. Generally speaking, this may be true; but it is not literally or universally true. That is to say, the inner intention of parties to a conversation subsequently alleged to create a contract cannot either make a contract of what transpired, or prevent one from arising, if the words used were sufficient to constitute a contract. In so far as their intention is an influential element, it is only such intention as the words or acts of the parties indicate; not one secretly cherished which is inconsistent with those words or acts. The rule is thus stated by a text-writer, and many decisions are cited in support of his text: "The primary object of construction in contract law is to discover the intention of the parties. This intention in express contracts is, in the first instance, embodied in the words which the parties have used and is to be deduced therefrom. This rule applies to oral contracts, as well as to contracts in writing, and is the rule recognized by courts of equity." 2 Paige, Contracts, § 1104. So it is said in another work: "Now this measure of the contents of the promise will be found to coincide in the usual dealings of men of good faith and ordinary competence, both with the actual intention of the promisor and with the actual expectation of the promisee. But this is not a constant or a necessary coincidence. In exceptional cases a promisor may be bound to perform something which he did not intend to promise, or a promisee may not be entitled to require that performance which he understood to be promised to him." Walds-Pollock, Contracts (3d Ed.) 309. In Brewington v. Mesker, 51 Mo. App. 348, 356, it is said that the meeting of minds, which is essential to the formation of a contract, is not determined [779] by the secret intention of the parties, but by their expressed intention, which may be wholly at variance with the former. In Machine Co. v. Criswell, 58 Mo. App. 471, an instruction was given on the issue of whether the sale of a machine occurred, which told the jury that an intention on the part of the seller to pass the title, and of the purchaser to receive and accept the machine for the purpose of making it his own, was essential to a sale, and if the jury believed such intention did not exist in the minds of both parties at the time, and was not made known to each other, then there was no sale, notwithstanding the delivery. In commenting on this instruction, the court said: "The latter clause of the instruction is erroneous and misleading. It is true that in every case of purchase the question of sale or no sale is a matter of intention; but such intention must always be determined by the conduct, acts, and express declarations of the parties, and not by the secret intention existing in the mind or minds of the contracting parties. If the validity of such a contract depended upon secret intentions of the parties, then no oral contract of sale could be relied on with safety." Machine Co. v. Criswell, 58 Mo., loc. cit. 473. In Smith v. Hughes, L. R. 6 Q. B. 597, 607, it was said: "If, whatever a man's real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party's terms." And that doctrine was adopted in Phillip v. Gallant, 62 N. Y. 256. In 9 Cyc. 245, we find the following text: "The law imputes to a person an intention corresponding to the reasonable meaning of his words and acts. It judges his intention by his outward expressions and excludes all questions in regard to his unexpressed intention. If his words or acts, judged by a reasonable standard, manifest an intention to agree in regard to the matter in question, that agreement is established, and it is immaterial what may be the real, but unexpressed, state of his mind on the subject." Even more pointed was the language of Baron Bramwell in Brown v. Hare, 3 Hurlst. & N. *484, *495: "Intention is immaterial till it manifests itself in an act. If a man intends to buy, and says so to the intended seller, and he intends to sell, and says so to the intended buyer, there is a contract of sale; and so there would be if neither had the intention." In view of those authorities, we hold that, though McKittrick may not have intended to employ Embry by what transpired between them according to the latter's testimony, yet if what McKittrick said would have been taken by a reasonable man to be an employment, and Embry so understood it, it constituted a valid contract of employment for the ensuing year.

The next question is whether or not the language used was of that character, namely, was such that Embry, as a reasonable man, might consider he was re-employed for the ensuing year on the previous terms, and act accordingly. We do not say that in every instance it would be for the court to pronounce on this question, because, peradventure, instances might arise in which there would be such an ambiguity in the language relied on to show an assent by the obligor to the proposal of the obligee that it would be for the jury to say whether a reasonable mind would take it to signify acceptance of the proposal. Belt v. Goode, 31 Mo. 128; Davies v. Baldwin, 66 Mo. App. 577. In Lancaster v. Elliott, 28 Mo. App. 86, 92, the opinion, as to the immediate point, reads: "The interpretation of a contract in writing is always a matter of law for determination by the court, and equally so, upon like principles, is the question what acts and words, in nearly every case, will suffice to constitute an acceptance by one party, of a proposal submitted by the other, so that a contract or agreement thereby becomes matured." The general rule is that it is for the court to construe the effect of writings relied on to make a contract, and also the effect of unambiguous oral words. Belt v. Goode, supra; Brannock v. Elmore, 114 Mo. 55, 21 S. W. 451; Norton v. Higbee, 38 Mo. App. 467, 471. However, if the words are in dispute, the question of whether they were used or not is for the jury. Belt v. Goode, supra. With these rules of law in mind, let us recur to the conversation of December 23d between Embry and McKittrick as related by the former. Embry was demanding a renewal of his contract, saying he had been put off from time to time, and that he had only a few days before the end of the year in which to seek employment from other houses, and that he would quit then and there unless he was reemployed. McKittrick inquired how he was getting along with the department, and Embry said they, i. e., the employés of the department, were very busy getting out salesmen. Whereupon McKittrick said: "Go ahead, you are all right. Get your men out, and do not let that worry you." We think no reasonable man would construe that answer to Embry's demand that he be employed for another year, otherwise than as an assent to the demand, and that Embry had the right to rely on it as an assent. The natural inference is, though we do not find it testified to, that Embry was at work getting samples ready for the salesmen to use during the ensuing season. Now, when he was complaining of the worry and mental distress he was under because of his uncertainty about the future, and his urgent need, either of an immediate contract with respondent, or a refusal by it to make one, leaving him free to seek employment elsewhere, McKittrick must have answered as he did for the purpose of assuring appellant that any apprehension was [780] needless, as appellant's services would be retained by the respondent. The answer was unambiguous, and we rule that if the conversation was according to appellant's version, and he understood he was employed, it constituted in law a valid contract of re-employment, and the court erred in making the formation of a contract depend on a finding that both parties intended to make one. It was only necessary that Embry, as a reasonable man, had a right to and did so understand.

Some other rulings are assigned for error by the appellant, but we will not discuss them because we think they are devoid of merit.

The judgment is reversed, and the cause remanded. All concur.

196 Va. 493 (1954)

W. O. LUCY AND J. C. LUCY v. A. H. ZEHMER AND IDA S. ZEHMER.

Record No. 4272.

Supreme Court of Virginia.

November 22, 1954.

A. S. Harrison, Jr. and Emerson D. Baugh, for the appellants.

Morton G. Goode and William Earle White, for the appellees.

Present, Eggleston, Buchanan, Miller, Smith and Whittle, JJ.

1. In suit by Lucy against Zehmer and his wife for specific performance of a contract requiring the latter to convey a farm to Lucy for a stated price, the evidence contradicted Zehmer's contention that he was too drunk to make a valid contract, since he clearly was able to comprehend the nature and consequence of the instrument he executed.

2. There was no merit to defendants' position that the instrument sought to be enforced was signed in jest and was not intended by either party to be a binding contract. The appearance and terms of the contract and the circumstances of its execution indicated clearly that the transaction was one of serious business.

3. Even if defendants entered into the contract in jest, they were bound by it since Lucy believed, and from the acts and statements of the Zehmers was warranted in believing, that the contract represented a serious and good faith sale and purchase. Mental assent is not essential for the formation of a contract; if the words and acts of a party, reasonably interpreted, manifest an intention to agree, his contrary but unexpressed state of mind is immaterial.

4. Specific performance is not a matter of absolute right, but rests in sound judicial discretion. Yet where, as in the instant case, there is no circumstance of fraud, misrepresentation, sharp dealing or other inequity, specific performance should be ordered.

Appeal from a decree of the Circuit Court of Dinwiddie county. Hon J. G. Jefferson, Jr., judge presiding. The opinion states the case.

BUCHANAN, J., delivered the opinion of the court.

This suit was instituted by W. O. Lucy and J. C. Lucy, complainants, against A. H. Zehmer and Ida S. Zehmer, his wife, defendants, to have specific performance of a contract by which it was alleged the Zehmers had sold to W. O. Lucy a tract of land owned by A. H. Zehmer in Dinwiddie county containing 471.6 acres, more or less, known as the Ferguson farm, for $50,000. J. C. Lucy, the other complainant, is a brother of W. O. Lucy, to whom W. O. Lucy transferred a half interest in his alleged purchase.

The instrument sought to be enforced was written by A. H. Zehmer on December 20, 1952, in these words: "We hereby agree to sell to W. O. Lucy the Ferguson Farm complete for $50,000.00, title satisfactory to buyer," and signed by the defendants, A. H. Zehmer and Ida S. Zehmer.

The answer of A. H. Zehmer admitted that at the time mentioned W. O. Lucy offered him $50,000 cash for the farm, but that he, Zehmer, considered that the offer was made in jest; that so thinking, and both he and Lucy having had several drinks, he wrote out "the memorandum" quoted above and induced his wife to sign it; that he did not deliver the memorandum to Lucy, but that Lucy picked it up, read it, put it in his pocket, attempted to offer Zehmer $5 to bind the bargain, which Zehmer refused to accept, and realizing for the first time that Lucy was serious, Zehmer assured him that he had no intention of selling the farm and that the whole matter was a joke. Lucy left the premises insisting that he had purchased the farm.

Depositions were taken and the decree appealed from was entered holding that the complainants had failed to establish their right to specific performance, and dismissing their bill. The assignment of error is to this action of the court.

W. O. Lucy, a lumberman and farmer, thus testified in substance: He had known Zehmer for fifteen or twenty years and had been familiar with the Ferguson farm for ten years. Seven or eight years ago he had offered Zehmer $20,000 for the farm which Zehmer had accepted, but the agreement was verbal and Zehmer backed out. On the night of December 20, 1952, around eight o'clock, he took an employee to McKenney, where Zehmer lived and operated a restaurant, filling station and motor court. While there he decided to see Zehmer and again try to buy the Ferguson farm. He entered the restaurant and talked to Mrs. Zehmer until Zehmer came in. He asked Zehmer if he had sold the Ferguson farm. Zehmer replied that he had not. Lucy said, "I bet you wouldn't take $50,000.00 for that place." Zehmer replied, "Yes, I would too; you wouldn't give fifty." Lucy said he would and told Zehmer to write up an agreement to that effect. Zehmer took a restaurant check and wrote on the back of it, "I do hereby agree to sell to W. O. Lucy the Ferguson Farm for $50,000 complete." Lucy told him he had better change it to "We" because Mrs. Zehmer would have to sign it too. Zehmer then tore up what he had written, wrote the agreement quoted above and asked Mrs. Zehmer, who was at the other end of the counter ten or twelve feet away, to sign it. Mrs. Zehmer said she would for $50,000 and signed it. Zehmer brought it back and gave it to Lucy, who offered him $5 which Zehmer refused, saying, "You don't need to give me any money, you got the agreement there signed by both of us."

The discussion leading to the signing of the agreement, said Lucy, lasted thirty or forty minutes, during which Zehmer seemed to doubt that Lucy could raise $50,000. Lucy suggested the provision for having the title examined and Zehmer made the suggestion that he would sell it "complete, everything there," and stated that all he had on the farm was three heifers.

Lucy took a partly filled bottle of whiskey into the restaurant with him for the purpose of giving Zehmer a drink if he wanted it. Zehmer did, and he and Lucy had one or two drinks together. Lucy said that while he felt the drinks he took he was not intoxicated, and from the way Zehmer handled the transaction he did not think he was either.

December 20 was on Saturday. Next day Lucy telephoned to J. C. Lucy and arranged with the latter to take a half interest in the purchase and pay half of the consideration. On Monday he engaged an attorney to examine the title. The attorney reported favorably on December 31 and on January 2 Lucy wrote Zehmer stating that the title was satisfactory, that he was ready to pay the purchase price in cash and asking when Zehmer would be ready to close the deal. Zehmer replied by letter, mailed on January 13, asserting that he had never agreed or intended to sell.

Mr. and Mrs. Zehmer were called by the complainants as adverse witnesses. Zehmer testified in substance as follows:

He bought this farm more than ten years ago for $11,000. He had had twenty-five offers, more or less, to buy it, including several from Lucy, who had never offered any specific sum of money. He had given them all the same answer, that he was not interested in selling it. On this Saturday night before Christmas it looked like everybody and his brother came by there to have a drink. He took a good many drinks during the afternoon and had a pint of his own. When he entered the restaurant around eight-thirty Lucy was there and he could see that he was "pretty high." He said to Lucy, "Boy, you got some good liquor, drinking, ain't you?" Lucy then offered him a drink. "I was already high as a Georgia pine, and didn't have any more better sense than to pour another great big slug out and gulp it down, and he took one too."

After they had talked a while Lucy asked whether he still had the Ferguson farm. He replied that he had not sold it and Lucy said, "I bet you wouldn't take $50,000.00 for it." Zehmer asked him if he would give $50,000 and Lucy said yes. Zehmer replied, "You haven't got $50,000 in cash." Lucy said he did and Zehmer replied that he did not believe it. They argued "pro and con for a long time," mainly about "whether he had $50,000 in cash that he could put up right then and buy that farm."

Finally, said Zehmer, Lucy told him if he didn't believe he had $50,000, "you sign that piece of paper here and say you will take $50,000.00 for the farm." He, Zehmer, "just grabbed the back off of a guest check there" and wrote on the back of it. At that point in his testimony Zehmer asked to see what he had written to "see if I recognize my own handwriting." He examined the paper and exclaimed, "Great balls of fire, I got 'Firgerson' for Ferguson. I have got satisfactory spelled wrong. I don't recognize that writing if I would see it, wouldn't know it was mine."

After Zehmer had, as he described it, "scribbled this thing off," Lucy said, "Get your wife to sign it." Zehmer walked over to where she was and she at first refused to sign but did so after he told her that he "was just needling him [Lucy], and didn't mean a thing in the world, that I was not selling the farm." Zehmer then "took it back over there * * * and I was still looking at the dern thing. I had the drink right there by my hand, and I reached over to get a drink, and he said, 'Let me see it.' He reached and picked it up, and when I looked back again he had it in his pocket and he dropped a five dollar bill over there, and he said, 'Here is five dollars payment on it.' * * * I said, 'Hell no, that is beer and liquor talking. I am not going to sell you the farm. I have told you that too many times before.'"

Mrs. Zehmer testified that when Lucy came into the restaurant he looked as if he had had a drink. When Zehmer came in he took a drink out of a bottle that Lucy handed him. She went back to help the waitress who was getting things ready for next day. Lucy and Zehmer were talking but she did not pay too much attention to what they were saying. She heard Lucy ask Zehmer if he had sold the Ferguson farm, and Zehmer replied that he had not and did not want to sell it. Lucy said, "I bet you wouldn't take $50,000 cash for that farm," and Zehmer replied, "You haven't got $50,000 cash." Lucy said, "I can get it." Zehmer said he might form a company and get it, "but you haven't got $50,000.00 cash to pay me tonight." Lucy asked him if he would put it in writing that he would sell him this farm. Zehmer then wrote on the back of a pad, "I agree to sell the Ferguson Place to W. O. Lucy for $50,000.00 cash." Lucy said, "All right, get your wife to sign it." Zehmer came back to where she was standing and said, "You want to put your name to this?" She said "No," but he said in an undertone, "It is nothing but a joke," and she signed it.

She said that only one paper was written and it said: "I hereby agree to sell," but the "I" had been changed to "We". However, she said she read what she signed and was then asked, "When you read 'We hereby agree to sell to W. O. Lucy,' what did you interpret that to mean, that particular phrase?" She said she thought that was a cash sale that night; but she also said that when she read that part about "title satisfactory to buyer" she understood that if the title was good Lucy would pay $50,000 but if the title was bad he would have a right to reject it, and that that was her understanding at the time she signed her name.

On examination by her own counsel she said that her husband laid this piece of paper down after it was signed; that Lucy said to let him see it, took it, folded it and put it in his wallet, then said to Zehmer, "Let me give you $5.00," but Zehmer said, "No, this is liquor talking. I don't want to sell the farm, I have told you that I want my son to have it. This is all a joke." Lucy then said at least twice, "Zehmer, you have sold your farm," wheeled around and started for the door. He paused at the door and said, "I will bring you $50,000.00 tomorrow. * * * No, tomorrow is Sunday. I will bring it to you Monday." She said you could tell definitely that he was drinking and she said to her husband, "You should have taken him home," but he said, "Well, I am just about as bad off as he is."

The waitress referred to by Mrs. Zehmer testified that when Lucy first came in "he was mouthy." When Zehmer came in they were laughing and joking and she thought they took a drink or two. She was sweeping and cleaning up for next day. She said she heard Lucy tell Zehmer, "I will give you so much for the farm," and Zehmer said, "You haven't got that much." Lucy answered, "Oh, yes, I will give you that much." Then "they jotted down something on paper * * * and Mr. Lucy reached over and took it, said let me see it." He looked at it, put it in his pocket and in about a minute he left. She was asked whether she saw Lucy offer Zehmer any money and replied, "He had five dollars laying up there, they didn't take it." She said Zehmer told Lucy he didn't want his money "because he didn't have enough money to pay for his property, and wasn't going to sell his farm." Both of them appeared to be drinking right much, she said.

She repeated on cross-examination that she was busy and paying no attention to what was going on. She was some distance away and did not see either of them sign the paper. She was asked whether she saw Zehmer put the agreement down on the table in front of Lucy, and her answer was this: "Time he got through writing whatever it was on the paper, Mr. Lucy reached over and said, 'Let's see it.' He took it and put it in his pocket," before showing it to Mrs. Zehmer. Her version was that Lucy kept raising his offer until it got to $50,000.

The defendants insist that the evidence was ample to support their contention that the writing sought to be enforced was prepared as a bluff or dare to force Lucy to admit that he did not have $50,000; that the whole matter was a joke; that the writing was not delivered to Lucy and no binding contract was ever made between the parties.

It is an unusual, if not bizarre, defense. When made to the writing admittedly prepared by one of the defendants and signed by both, clear evidence is required to sustain it.

In his testimony Zehmer claimed that he "was high as a Georgia pine," and that the transaction "was just a bunch of two doggoned drunks bluffing to see who could talk the biggest and say the most." That claim is inconsistent with his attempt to testify in great detail as to what was said and what was done. It is contradicted by other evidence as to the condition of both parties, and rendered of no weight by the testimony of his wife that when Lucy left the restaurant she suggested that Zehmer drive him home. The record is convincing that Zehmer was not intoxicated to the extent of being unable to comprehend the nature and consequences of the instrument he executed, and hence that instrument is not to be invalidated on that ground. 17 C.J.S., Contracts, | 133 b., p. 483; Taliaferro Emery, 124 Va. 674, 98 S.E. 627. It was in fact conceded by defendants' counsel in oral argument that under the evidence Zehmer was not too drunk to make a valid contract.

The evidence is convincing also that Zehmer wrote two agreements, the first one beginning "I hereby agree to sell." Zehmer first said he could not remember about that, then that "I don't think I wrote but one out." Mrs. Zehmer said that what he wrote was "I hereby agree," but that the "I" was changed to "We" after that night. The agreement that was written and signed is in the record and indicates no such change. Neither are the mistakes in spelling that Zehmer sought to point out readily apparent. 

The appearance of the contract, the fact that it was under discussion for forty minutes or more before it was signed; Lucy's objection to the first draft because it was written in the singular, and he wanted Mrs. Zehmer to sign it also; the rewriting to meet that objection and the signing by Mrs. Zehmer; the discussion of what was to be included in the sale, the provision for the examination of the title, the completeness of the instrument that was executed, the taking possession of it by Lucy with no request or suggestion by either of the defendants that he give it back, are facts which furnish persuasive evidence that the execution of the contract was a serious business transaction rather than a casual, jesting matter as defendants now contend.

On Sunday, the day after the instrument was signed on Saturday night, there was a social gathering in a home in the town of McKenney at which there were general comments that the sale had been made. Mrs. Zehmer testified that on that occasion as she passed by a group of people, including Lucy, who were talking about the transaction, $50,000 was mentioned, whereupon she stepped up and said, "Well, with the high-price whiskey you were drinking last night you should have paid more. That was cheap." Lucy testified that at that time Zehmer told him that he did not want to "stick" him or hold him to the agreement because he, Lucy, was too tight and didn't know what he was doing, to which Lucy replied that he was not too tight; that he had been stuck before and was going through with it. Zehmer's version was that he said to Lucy: "I am not trying to claim it wasn't a deal on account of the fact the price was too low. If I had wanted to sell $50,000.00 would be a good price, in fact I think you would get stuck at $50,000.00." A disinterested witness testified that what Zehmer said to Lucy was that "he was going to let him up off the deal, because he thought he was too tight, didn't know what he was doing. Lucy said something to the effect that 'I have been stuck before and I will go through with it.'"

If it be assumed, contrary to what we think the evidence shows, that Zehmer was jesting about selling his farm to Lucy and that the transaction was intended by him to be a joke, nevertheless the evidence shows that Lucy did not so understand it but considered it to be a serious business transaction and the contract to be binding on the Zehmers as well as on himself. The very next day he arranged with his brother to put up half the money and take a half interest in the land. The day after that he employed an attorney to examine the title. The next night, Tuesday, he was back at Zehmer's place and there Zehmer told him for the first time, Lucy said, that he wasn't going to sell and he told Zehmer, "You know you sold that place fair and square." After receiving the report from his attorney that the title was good he wrote to Zehmer that he was ready to close the deal.

Not only did Lucy actually believe, but the evidence shows he was warranted in believing, that the contract represented a serious business transaction and a good faith sale and purchase of the farm.

In the field of contracts, as generally elsewhere, "We must look to the outward expression of a person as manifesting his intention rather than to his secret and unexpressed intention. 'The law imputes to a person an intention corresponding to the reasonable meaning of his words and acts.'" First Nat. Bank Roanoke Oil Co., 169 Va. 99, 114, 192 S.E. 764, 770.

At no time prior to the execution of the contract had Zehmer indicated to Lucy by word or act that he was not in earnest about selling the farm. They had argued about it and discussed its terms, as Zehmer admitted, for a long time. Lucy testified that if there was any jesting it was about paying $50,000 that night. The contract and the evidence show that he was not expected to pay the money that night. Zehmer said that after the writing was signed he laid it down on the counter in front of Lucy. Lucy said Zehmer handed it to him. In any event there had been what appeared to be a good faith offer and a good faith acceptance, followed by the execution and apparent delivery of a written contract. Both said that Lucy put the writing in his pocket and then offered Zehmer $5 to seal the bargain. Not until then, even under the defendants' evidence, was anything said or done to indicate that the matter was a joke. Both of the Zehmers testified that when Zehmer asked his wife to sign he whispered that it was a joke so Lucy wouldn't hear and that it was not intended that he should hear.

The mental assent of the parties is not requisite for the formation of a contract. If the words or other acts of one of the parties have but one reasonable meaning, his undisclosed intention is immaterial except when an unreasonable meaning which he attaches to his manifestations is known to the other party. Restatement of the Law of Contracts, Vol. I, | 71, p. 74.

"* * * The law, therefore, judges of an agreement between two persons exclusively from those expressions of their intentions which are communicated between them. * * *." Clark on Contracts, 4 ed., | 3, p. 4.

An agreement or mutual assent is of course essential to a valid contract but the law imputes to a person an intention corresponding to the reasonable meaning of his words and acts. If his words and acts, judged by a reasonable standard, manifest an intention to agree, it is immaterial what may be the real but unexpressed state of his mind. 17 C.J.S., Contracts, | 32, p. 361; 12 Am. Jur., Contracts, | 19, p. 515.

So a person cannot set up that he was merely jesting when his conduct and words would warrant a reasonable person in believing that he intended a real agreement, 17 C.J.S., Contracts, | 47, p. 390; Clark on Contracts, 4 ed., | 27, at p. 54.

Whether the writing signed by the defendants and now sought to be enforced by the complainants was the result of a serious offer by Lucy and a serious acceptance by the defendants, or was a serious offer by Lucy and an acceptance in secret jest by the defendants, in either event it constituted a binding contract of sale between the parties. 

Defendants contend further, however, that even though a contract was made, equity should decline to enforce it under the circumstances. These circumstances have been set forth in detail above. They disclose some drinking by the two parties but not to an extent that they were unable to understand fully what they were doing. There was no fraud, no misrepresentation, no sharp practice and no dealing between unequal parties. The farm had been bought for $11,000 and was assessed for taxation at $6,300. The purchase price was $50,000. Zehmer admitted that it was a good price. There is in fact present in this case none of the grounds usually urged against specific performance.

Specific performance, it is true, is not a matter of absolute or arbitrary right, but is addressed to the reasonable and sound discretion of the court. First Nat. Bank Roanoke Oil Co., supra, 169 Va. at p. 116, 192 S.E. at p. 771. But it is likewise true that the discretion which may be exercised is not an arbitrary or capricious one, but one which is controlled by the established doctrines and settled principles of equity; and, generally, where a contract is in its nature and circumstances unobjectionable, it is as much a matter of course for courts of equity to decree a specific performance of it as it is for a court of law to give damages for a breach of it. Bond Crawford, 193 Va. 437, 444, 69 S.E.(2d) 470, 475.

The complainants are entitled to have specific performance of the contracts sued on. The decree appealed from is therefore reversed and the cause is remanded for the entry of a proper decree requiring the defendants to perform the contract in accordance with the prayer of the bill.

Reversed and remanded.

OPINION & ORDER

KIMBA M. WOOD, District Judge.

Plaintiff brought this action seeking, among other things, specific performance of an alleged offer of a Harrier Jet, featured in a television advertisement for defendant's "Pepsi Stuff" promotion. Defendant has moved for summary judgment pursuant to Federal Rule of Civil Procedure 56. For the reasons stated below, defendant's motion is granted.

I. Background

This case arises out of a promotional campaign conducted by defendant, the producer and distributor of the soft drinks Pepsi and Diet Pepsi. (See PepsiCo Inc.'s Rule 56.1 Statement ("Def. Stat.") ¶ 2.)^[1] The promotion, entitled "Pepsi Stuff," encouraged consumers to collect "Pepsi Points" from specially marked packages of Pepsi or Diet Pepsi and redeem these points for merchandise featuring the Pepsi logo. (See id. ¶¶ 4, 8.) Before introducing the promotion nationally, defendant conducted a test of the promotion in the Pacific Northwest from October 1995 to March 1996. (See id. ¶¶ 5-6.) A Pepsi Stuff catalog was distributed to consumers in the test market, including Washington State. (See id. ¶ 7.) Plaintiff is a resident of Seattle, Washington. (See id. ¶ 3.) While living in Seattle, plaintiff saw the Pepsi Stuff commercial (see id. ¶ 22) that he contends constituted an offer of a Harrier Jet.

A. The Alleged Offer

Because whether the television commercial constituted an offer is the central question in this case, the Court will describe the commercial in detail. The commercial opens upon an idyllic, suburban morning, where the chirping of birds in sun-dappled trees welcomes a paperboy on his morning route. As the newspaper hits the stoop of a conventional two-story house, the tattoo of a military drum introduces the subtitle, "MONDAY 7:58 AM." The stirring strains of a martial air mark the appearance of a well-coiffed teenager preparing to leave for school, dressed in a shirt emblazoned with the Pepsi logo, a red-white-and-blue ball. While the teenager confidently preens, the military drumroll again sounds as the subtitle "T-SHIRT 75 PEPSI POINTS" scrolls across the screen. Bursting from his room, the teenager strides down the hallway wearing a leather jacket. The drumroll sounds again, as the subtitle "LEATHER JACKET 1450 PEPSI POINTS" appears. The teenager opens the door of his house and, unfazed by the glare of the early morning sunshine, puts on a pair of sunglasses. The drumroll then accompanies the subtitle "SHADES 175 PEPSI POINTS." A voiceover then intones, "Introducing the new Pepsi Stuff catalog," as the camera focuses on the cover of the catalog. (See Defendant's Local Rule 56.1 Stat., Exh. A (the "Catalog").)^[2]

The scene then shifts to three young boys sitting in front of a high school building. The boy in the middle is intent on his Pepsi Stuff Catalog, while the boys on either side are each drinking Pepsi. The three boys gaze in awe at an object rushing overhead, as the military march builds to a crescendo. The Harrier Jet is not yet visible, but the observer senses the presence of a mighty plane as the extreme winds generated by its flight create a paper maelstrom in a classroom devoted to an otherwise dull physics lesson. Finally, the Harrier Jet swings into view and lands by the side of the school building, next to a bicycle rack. Several students run for cover, and the velocity of the wind strips one hapless faculty member down to his underwear. While the faculty member is being deprived of his dignity, the voiceover announces: "Now the more Pepsi you drink, the more great stuff you're gonna get."

The teenager opens the cockpit of the fighter and can be seen, helmetless, holding a Pepsi. "[L]ooking very pleased with himself," (Pl. Mem. at 3,) the teenager exclaims, "Sure beats the bus," and chortles. The military drumroll sounds a final time, as the following words appear: "HARRIER FIGHTER 7,000,000 PEPSI POINTS." A few seconds later, the following appears in more stylized script: "Drink Pepsi — Get Stuff." With that message, the music and the commercial end with a triumphant flourish.

Inspired by this commercial, plaintiff set out to obtain a Harrier Jet. Plaintiff explains that he is "typical of the `Pepsi Generation' ... he is young, has an adventurous spirit, and the notion of obtaining a Harrier Jet appealed to him enormously." (Pl. Mem. at 3.) Plaintiff consulted the Pepsi Stuff Catalog. The Catalog features youths dressed in Pepsi Stuff regalia or enjoying Pepsi Stuff accessories, such as "Blue Shades" ("As if you need another reason to look forward to sunny days."), "Pepsi Tees" ("Live in `em. Laugh in `em. Get in `em."), "Bag of Balls" ("Three balls. One bag. No rules."), and "Pepsi Phone Card" ("Call your mom!"). The Catalog specifies the number of Pepsi Points required to obtain promotional merchandise. (See Catalog, at rear foldout pages.) The Catalog includes an Order Form which lists, on one side, fifty-three items of Pepsi Stuff merchandise redeemable for Pepsi Points (see id. (the "Order Form")). Conspicuously absent from the Order Form is any entry or description of a Harrier Jet. (See id.) The amount of Pepsi Points required to obtain the listed merchandise ranges from 15 (for a "Jacket Tattoo" ("Sew `em on your jacket, not your arm.")) to 3300 (for a "Fila Mountain Bike" ("Rugged. All-terrain. Exclusively for Pepsi.")). It should be noted that plaintiff objects to the implication that because an item was not shown in the Catalog, it was unavailable. (See Pl. Stat. ¶¶ 23-26, 29.)

The rear foldout pages of the Catalog contain directions for redeeming Pepsi Points for merchandise. (See Catalog, at rear foldout pages.) These directions note that merchandise may be ordered "only" with the original Order Form. (See id.) The Catalog notes that in the event that a consumer lacks enough Pepsi Points to obtain a desired item, additional Pepsi Points may be purchased for ten cents each; however, at least fifteen original Pepsi Points must accompany each order. (See id.)

Although plaintiff initially set out to collect 7,000,000 Pepsi Points by consuming Pepsi products, it soon became clear to him that he "would not be able to buy (let alone drink) enough Pepsi to collect the necessary Pepsi Points fast enough." (Affidavit of John D.R. Leonard, Mar. 30, 1999 ("Leonard Aff."), ¶ 5.) Reevaluating his strategy, plaintiff "focused for the first time on the packaging materials in the Pepsi Stuff promotion," (id.,) and realized that buying Pepsi Points would be a more promising option. (See id.) Through acquaintances, plaintiff ultimately raised about $700,000. (See id. ¶ 6.)

B. Plaintiff's Efforts to Redeem the Alleged Offer

On or about March 27, 1996, plaintiff submitted an Order Form, fifteen original Pepsi Points, and a check for $700,008.50. (See Def. Stat. ¶ 36.) Plaintiff appears to have been represented by counsel at the time he mailed his check; the check is drawn on an account of plaintiff's first set of attorneys. (See Defendant's Notice of Motion, Exh. B (first).) At the bottom of the Order Form, plaintiff wrote in "1 Harrier Jet" in the "Item" column and "7,000,000" in the "Total Points" column. (See id.) In a letter accompanying his submission, plaintiff stated that the check was to purchase additional Pepsi Points "expressly for obtaining a new Harrier jet as advertised in your Pepsi Stuff commercial." (See Declaration of David Wynn, Mar. 18, 1999 ("Wynn Dec."), Exh. A.)

On or about May 7, 1996, defendant's fulfillment house rejected plaintiff's submission and returned the check, explaining that:

The item that you have requested is not part of the Pepsi Stuff collection. It is not included in the catalogue or on the order form, and only catalogue merchandise can be redeemed under this program.

The Harrier jet in the Pepsi commercial is fanciful and is simply included to create a humorous and entertaining ad. We apologize for any misunderstanding or confusion that you may have experienced and are enclosing some free product coupons for your use.

(Wynn Aff. Exh. B (second).) Plaintiff's previous counsel responded on or about May 14, 1996, as follows:

Your letter of May 7, 1996 is totally unacceptable. We have reviewed the video tape of the Pepsi Stuff commercial ... and it clearly offers the new Harrier jet for 7,000,000 Pepsi Points. Our client followed your rules explicitly....

This is a formal demand that you honor your commitment and make immediate arrangements to transfer the new Harrier jet to our client. If we do not receive transfer instructions within ten (10) business days of the date of this letter you will leave us no choice but to file an appropriate action against Pepsi....

(Wynn Aff., Exh. C.) This letter was apparently sent onward to the advertising company responsible for the actual commercial, BBDO New York ("BBDO"). In a letter dated May 30, 1996, BBDO Vice President Raymond E. McGovern, Jr., explained to plaintiff that:

I find it hard to believe that you are of the opinion that the Pepsi Stuff commercial ("Commercial") really offers a new Harrier Jet. The use of the Jet was clearly a joke that was meant to make the Commercial more humorous and entertaining. In my opinion, no reasonable person would agree with your analysis of the Commercial.

(Wynn Aff. Exh. A.) On or about June 17, 1996, plaintiff mailed a similar demand letter to defendant. (See Wynn Aff., Exh. D.)

Litigation of this case initially involved two lawsuits, the first a declaratory judgment action brought by PepsiCo in this district (the "declaratory judgment action"), and the second an action brought by Leonard in Florida state court (the "Florida action").^[3] PepsiCo brought suit in this Court on July 18, 1996, seeking a declaratory judgment stating that it had no obligation to furnish plaintiff with a Harrier Jet. That case was filed under docket number 96 Civ. 5320. In response to PepsiCo's suit in New York, Leonard brought suit in Florida state court on August 6, 1996, although this case had nothing to do with Florida.^[4] That suit was removed to the Southern District of Florida in September 1996. In an Order dated November 6, 1996, United States District Judge James Lawrence King found that, "Obviously this case has been filed in a form that has no meaningful relationship to the controversy and warrants a transfer pursuant to 28 U.S.C. § 1404(a)." Leonard v. PepsiCo, [121] 96-2555 Civ.-King, at 1 (S.D.Fla. Nov. 6, 1996). The Florida suit was transferred to this Court on December 2, 1996, and assigned the docket number 96 Civ. 9069.

Once the Florida action had been transferred, Leonard moved to dismiss the declaratory judgment action for lack of personal jurisdiction. In an Order dated November 24, 1997, the Court granted the motion to dismiss for lack of personal jurisdiction in case 96 Civ. 5320, from which PepsiCo appealed. Leonard also moved to voluntarily dismiss the Florida action. While the Court indicated that the motion was proper, it noted that PepsiCo was entitled to some compensation for the costs of litigating this case in Florida, a forum that had no meaningful relationship to the case. (See Transcript of Proceedings Before Hon. Kimba M. Wood, Dec. 9, 1997, at 3.) In an Order dated December 15, 1997, the Court granted Leonard's motion to voluntarily dismiss this case without prejudice, but did so on condition that Leonard pay certain attorneys' fees.

In an Order dated October 1, 1998, the Court ordered Leonard to pay $88,162 in attorneys' fees within thirty days. Leonard failed to do so, yet sought nonetheless to appeal from his voluntary dismissal and the imposition of fees. In an Order dated January 5, 1999, the Court noted that Leonard's strategy was "`clearly an end-run around the final judgment rule.'" (Order at 2 (quoting Palmieri v. Defaria, 88 F.3d 136 (2d Cir.1996)).) Accordingly, the Court ordered Leonard either to pay the amount due or withdraw his voluntary dismissal, as well as his appeals therefrom, and continue litigation before this Court. (See Order at 3.) Rather than pay the attorneys' fees, Leonard elected to proceed with litigation, and shortly thereafter retained present counsel.

On February 22, 1999, the Second Circuit endorsed the parties' stipulations to the dismissal of any appeals taken thus far in this case. Those stipulations noted that Leonard had consented to the jurisdiction of this Court and that PepsiCo agreed not to seek enforcement of the attorneys' fees award. With these issues having been waived, PepsiCo moved for summary judgment pursuant to Federal Rule of Civil Procedure 56. The present motion thus follows three years of jurisdictional and procedural wrangling.

II. Discussion

A. The Legal Framework

1. Standard for Summary Judgment

On a motion for summary judgment, a court "cannot try issues of fact; it can only determine whether there are issues to be tried." Donahue v. Windsor Locks Bd. of Fire Comm'rs, 834 F.2d 54, 58 (2d Cir. 1987) (citations and internal quotation marks omitted). To prevail on a motion for summary judgment, the moving party therefore must show that there are no such genuine issues of material fact to be tried, and that he or she is entitled to judgment as a matter of law. See Fed. R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Citizens Bank v. Hunt, 927 F.2d 707, 710 (2d Cir.1991). The party seeking summary judgment "bears the initial responsibility of informing the district court of the basis for its motion," which includes identifying the materials in the record that "it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp., 477 U.S. at 323, 106 S.Ct. 2548.

Once a motion for summary judgment is made and supported, the non-moving party must set forth specific facts that show that there is a genuine issue to be tried. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Although a court considering a motion for summary judgment must view all evidence in the light most favorable to the non-moving party, and must draw all reasonable inferences in that party's favor, see Consarc Corp. v. Marine Midland Bank, N.A., 996 F.2d 568, 572 (2d Cir. 1993), the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). If, based on the submissions to the court, no rational fact-finder could find in the non-movant's favor, there is no genuine issue of material fact, and summary judgment is appropriate. See Anderson, 477 U.S. at 250, 106 S.Ct. 2505.

The question of whether or not a contract was formed is appropriate for resolution on summary judgment. As the Second Circuit has recently noted, "Summary judgment is proper when the `words and actions that allegedly formed a contract [are] so clear themselves that reasonable people could not differ over their meaning.'" Krumme v. Westpoint Stevens, Inc., 143 F.3d 71, 83 (2d Cir.1998) (quoting Bourque v. FDIC, 42 F.3d 704, 708 (1st Cir.1994)) (further citations omitted); see also Wards Co. v. Stamford Ridgeway Assocs., 761 F.2d 117, 120 (2d Cir.1985) (summary judgment is appropriate in contract case where interpretation urged by non-moving party is not "fairly reasonable"). Summary judgment is appropriate in such cases because there is "sometimes no genuine issue as to whether the parties' conduct implied a `contractual understanding.'.... In such cases, `the judge must decide the issue himself, just as he decides any factual issue in respect to which reasonable people cannot differ.'" Bourque, 42 F.3d at 708 (quoting Boston Five Cents Sav. Bank v. Secretary of Dep't of Housing & Urban Dev., 768 F.2d 5, 8 (1st Cir.1985)).

2. Choice of Law

The parties disagree concerning whether the Court should apply the law of the state of New York or of some other state in evaluating whether defendant's promotional campaign constituted an offer. Because this action was transferred from Florida, the choice of law rules of Florida, the transferor state, apply. See Ferens v. John Deere Co., 494 U.S. 516, 523-33, 110 S.Ct. 1274, 108 L.Ed.2d 443 (1990). Under Florida law, the choice of law in a contract case is determined by the place "where the last act necessary to complete the contract is done." Jemco, Inc. v. United Parcel Serv., Inc., 400 So.2d 499, 500-01 (Fla.Dist. Ct.App.1981); see also Shapiro v. Associated Int'l Ins. Co., 899 F.2d 1116, 1119 (11th Cir.1990).

The parties disagree as to whether the contract could have been completed by plaintiff's filling out the Order Form to request a Harrier Jet, or by defendant's acceptance of the Order Form. If the commercial constituted an offer, then the last act necessary to complete the contract would be plaintiff's acceptance, in the state of Washington. If the commercial constituted a solicitation to receive offers, then the last act necessary to complete the contract would be defendant's acceptance of plaintiff's Order Form, in the state of New York. The choice of law question cannot, therefore, be resolved until after the Court determines whether the commercial was an offer or not. The Court agrees with both parties that resolution of this issue requires consideration of principles of contract law that are not limited to the law of any one state. Most of the cases cited by the parties are not from New York courts. As plaintiff suggests, the questions presented by this case implicate questions of contract law "deeply ingrained in the common law of England and the States of the Union." (Pl. Mem. at 8.)

B. Defendant's Advertisement Was Not An Offer

1. Advertisements as Offers

The general rule is that an advertisement does not constitute an offer. The Restatement (Second) of Contracts explains that:

Advertisements of goods by display, sign, handbill, newspaper, radio or television are not ordinarily intended or understood as offers to sell. The same is true of catalogues, price lists and circulars, even though the terms of suggested bargains may be stated in some detail. It is of course possible to make an offer by an advertisement directed to the general public (see § 29), but there must ordinarily be some language of commitment or some invitation to take action without further communication.

Restatement (Second) of Contracts § 26 cmt. b (1979). Similarly, a leading treatise notes that:

It is quite possible to make a definite and operative offer to buy or sell goods by advertisement, in a newspaper, by a handbill, a catalog or circular or on a placard in a store window. It is not customary to do this, however; and the presumption is the other way. ... Such advertisements are understood to be mere requests to consider and examine and negotiate; and no one can reasonably regard them as otherwise unless the circumstances are exceptional and the words used are very plain and clear.

1 Arthur Linton Corbin & Joseph M. Perillo, Corbin on Contracts § 2.4, at 116-17 (rev. ed.1993) (emphasis added); see also 1 E. Allan Farnsworth, Farnsworth on Contracts § 3.10, at 239 (2d ed.1998); 1 Samuel Williston & Richard A. Lord, A Treatise on the Law of Contracts § 4:7, at 286-87 (4th ed.1990). New York courts adhere to this general principle. See Lovett v. Frederick Loeser & Co., 124 Misc. 81, 207 N.Y.S. 753, 755 (N.Y.Mun.Ct.1924) (noting that an "advertisement is nothing but an invitation to enter into negotiations, and is not an offer which may be turned into a contract by a person who signifies his intention to purchase some of the articles mentioned in the advertisement"); see also Geismar v. Abraham & Strauss, 109 Misc.2d 495, 439 N.Y.S.2d 1005, 1006 (N.Y.Dist.Ct.1981) (reiterating Lovett rule); People v. Gimbel Bros., 202 Misc. 229, 115 N.Y.S.2d 857, 858 (N.Y.Sp.Sess. 1952) (because an "[a]dvertisement does not constitute an offer of sale but is solely an invitation to customers to make an offer to purchase," defendant not guilty of selling property on Sunday).

An advertisement is not transformed into an enforceable offer merely by a potential offeree's expression of willingness to accept the offer through, among other means, completion of an order form. In Mesaros v. United States, 845 F.2d 1576 (Fed.Cir.1988), for example, the plaintiffs sued the United States Mint for failure to deliver a number of Statue of Liberty commemorative coins that they had ordered. When demand for the coins proved unexpectedly robust, a number of individuals who had sent in their orders in a timely fashion were left empty-handed. See id. at 1578-80. The court began by noting the "well-established" rule that advertisements and order forms are "mere notices and solicitations for offers which create no power of acceptance in the recipient." Id. at 1580; see also Foremost Pro Color, Inc. v. Eastman Kodak Co., 703 F.2d 534, 538-39 (9th Cir.1983) ("The weight of authority is that purchase orders such as those at issue here are not enforceable contracts until they are accepted by the seller.");^[5]Restatement (Second) of Contracts § 26 ("A manifestation of willingness to enter a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent."). The spurned coin collectors could not maintain a breach of contract action because no contract would be formed until the advertiser accepted the order form and processed payment. See id. at 1581; see also Alligood v. Procter & Gamble, 72 Ohio App.3d 309, 594 N.E.2d 668 (1991) (finding that no offer was made in promotional campaign for baby diapers, in which consumers were to redeem teddy bear proof-of-purchase symbols for catalog merchandise); Chang v. First Colonial Savings Bank, 242 Va. 388, 410 S.E.2d 928 (1991) (newspaper advertisement for bank settled the terms of the offer once bank accepted plaintiffs' deposit, notwithstanding bank's subsequent effort to amend the terms of the offer). Under these principles, plaintiff's letter of March 27, 1996, with the Order Form and the appropriate number of Pepsi Points, constituted the offer. There would be no enforceable contract until defendant accepted the Order Form and cashed the check.

The exception to the rule that advertisements do not create any power of acceptance in potential offerees is where the advertisement is "clear, definite, and explicit, and leaves nothing open for negotiation," in that circumstance, "it constitutes an offer, acceptance of which will complete the contract." Lefkowitz v. Great Minneapolis Surplus Store, 251 Minn. 188, 86 N.W.2d 689, 691 (1957). In Lefkowitz, defendant had published a newspaper announcement stating: "Saturday 9 AM Sharp, 3 Brand New Fur Coats, Worth to $100.00, First Come First Served $1 Each." Id. at 690. Mr. Morris Lefkowitz arrived at the store, dollar in hand, but was informed that under defendant's "house rules," the offer was open to ladies, but not gentlemen. See id. The court ruled that because plaintiff had fulfilled all of the terms of the advertisement and the advertisement was specific and left nothing open for negotiation, a contract had been formed. See id.; see also Johnson v. Capital City Ford Co., 85 So.2d 75, 79 (La.Ct. App.1955) (finding that newspaper advertisement was sufficiently certain and definite to constitute an offer).

The present case is distinguishable from Lefkowitz. First, the commercial cannot be regarded in itself as sufficiently definite, because it specifically reserved the details of the offer to a separate writing, the Catalog.^[6] The commercial itself made no mention of the steps a potential offeree would be required to take to accept the alleged offer of a Harrier Jet. The advertisement in Lefkowitz, in contrast, "identified the person who could accept." Corbin, supra, § 2.4, at 119. See generally United States v. Braunstein, 75 F.Supp. 137, 139 (S.D.N.Y.1947) ("Greater precision of expression may be required, and less help from the court given, when the parties are merely at the threshold of a contract."); Farnsworth, supra, at 239 ("The fact that a proposal is very detailed suggests that it is an offer, while omission of many terms suggests that it is not.").^[7] Second, even if the Catalog had included a Harrier Jet among the items that could be obtained by redemption of Pepsi Points, the advertisement of a Harrier Jet by both television commercial and catalog would still not constitute an offer. As the Mesaros court explained, the absence of any words of limitation such as "first come, first served," renders the alleged offer sufficiently indefinite that no contract could be formed. See Mesaros, 845 F.2d at 1581. "A customer would not usually have reason to believe that the shopkeeper intended exposure to the risk of a multitude of acceptances resulting in a number of contracts exceeding the shopkeeper's inventory." Farnsworth, supra, at 242. There was no such danger in Lefkowitz, owing to the limitation "first come, first served."

The Court finds, in sum, that the Harrier Jet commercial was merely an advertisement. The Court now turns to the line of cases upon which plaintiff rests much of his argument.

2. Rewards as Offers

In opposing the present motion, plaintiff largely relies on a different species of unilateral offer, involving public offers of a reward for performance of a specified act. Because these cases generally involve public declarations regarding the efficacy or trustworthiness of specific products, one court has aptly characterized these authorities as "prove me wrong" cases. See Rosenthal v. Al Packer Ford, 36 Md.App. 349, 374 A.2d 377, 380 (1977). The most venerable of these precedents is the case of Carlill v. Carbolic Smoke Ball Co., 1 Q.B. 256 (Court of Appeal, 1892), a quote from which heads plaintiff's memorandum of law: "[I]f a person chooses to make extravagant promises ... he probably does so because it pays him to make them, and, if he has made them, the extravagance of the promises is no reason in law why he should not be bound by them." Carbolic Smoke Ball, 1 Q.B. at 268 (Bowen, L.J.).

Long a staple of law school curricula, Carbolic Smoke Ball owes its fame not merely to "the comic and slightly mysterious object involved," A.W. Brian Simpson. Quackery and Contract Law: Carlill v. Carbolic Smoke Ball Company (1893), in Leading Cases in the Common Law 259, 281 (1995), but also to its role in developing the law of unilateral offers. The case arose during the London influenza epidemic of the 1890s. Among other advertisements of the time, for Clarke's World Famous Blood Mixture, Towle's Pennyroyal and Steel Pills for Females, Sequah's Prairie Flower, and Epp's Glycerine Jube-Jubes, see Simpson, supra, at 267, appeared solicitations for the Carbolic Smoke Ball. The specific advertisement that Mrs. Carlill saw, and relied upon, read as follows:

100 £ reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic influenza, colds, or any diseases caused by taking cold, after having used the ball three times daily for two weeks according to the printed directions supplied with each ball. 1000 £ is deposited with the Alliance Bank, Regent Street, shewing our sincerity in the matter.

During the last epidemic of influenza many thousand carbolic smoke balls were sold as preventives against this disease, and in no ascertained case was the disease contracted by those using the carbolic smoke ball.

Carbolic Smoke Ball, 1 Q.B. at 256-57. "On the faith of this advertisement," id. at 257, Mrs. Carlill purchased the smoke ball and used it as directed, but contracted influenza nevertheless.^[8] The lower court held that she was entitled to recover the promised reward.

Affirming the lower court's decision, Lord Justice Lindley began by noting that the advertisement was an express promise to pay £ 100 in the event that a consumer of the Carbolic Smoke Ball was stricken with influenza. See id. at 261. The advertisement was construed as offering a reward because it sought to induce performance, unlike an invitation to negotiate, which seeks a reciprocal promise. As Lord Justice Lindley explained, "advertisements offering rewards ... are offers to anybody who performs the conditions named in the advertisement, and anybody who does perform the condition accepts the offer." Id. at 262; see also id. at 268 (Bowen, L.J.).^[9] Because Mrs. Carlill had complied with the terms of the offer, yet contracted influenza, she was entitled to £ 100.

Like Carbolic Smoke Ball, the decisions relied upon by plaintiff involve offers of reward. In Barnes v. Treece, 15 Wash. App. 437, 549 P.2d 1152 (1976), for example, the vice-president of a punchboard distributor, in the course of hearings before the Washington State Gambling Commission, asserted that, "`I'll put a hundred thousand dollars to anyone to find a crooked board. If they find it, I'll pay it.'" Id. at 1154. Plaintiff, a former bartender, heard of the offer and located two crooked punchboards. Defendant, after reiterating that the offer was serious, providing plaintiff with a receipt for the punchboard on company stationery, and assuring plaintiff that the reward was being held in escrow, nevertheless repudiated the offer. See id. at 1154. The court ruled that the offer was valid and that plaintiff was entitled to his reward. See id. at 1155. The plaintiff in this case also cites cases involving prizes for skill (or luck) in the game of golf. See Las Vegas Hacienda v. Gibson, 77 Nev. 25, 359 P.2d 85 (1961) (awarding $5,000 to plaintiff, who successfully shot a hole-in-one); see also Grove v. Charbonneau Buick-Pontiac, Inc., 240 N.W.2d 853 (N.D. 1976) (awarding automobile to plaintiff, who successfully shot a hole-in-one).

Other "reward" cases underscore the distinction between typical advertisements, in which the alleged offer is merely an invitation to negotiate for purchase of commercial goods, and promises of reward, in which the alleged offer is intended to induce a potential offeree to perform a specific action, often for noncommercial reasons. In Newman v. Schiff, 778 F.2d 460 (8th Cir.1985), for example, the Fifth Circuit held that a tax protestor's assertion that, "If anybody calls this show ... and cites any section of the code that says an individual is required to file a tax return, I'll pay them $100,000," would have been an enforceable offer had the plaintiff called the television show to claim the reward while the tax protestor was appearing. See id. at 466-67. The court noted that, like Carbolic Smoke Ball, the case "concerns a special type of offer: an offer for a reward." Id. at 465. James v. Turilli, 473 S.W.2d 757 (Mo.Ct.App.1971), arose from a boast by defendant that the "notorious Missouri desperado" Jesse James had not been killed in 1882, as portrayed in song and legend, but had lived under the alias "J. Frank Dalton" at the "Jesse James Museum" operated by none other than defendant. Defendant offered $10,000 "to anyone who could prove me wrong." See id. at 758-59. The widow of the outlaw's son demonstrated, at trial, that the outlaw had in fact been killed in 1882. On appeal, the court held that defendant should be liable to pay the amount offered. See id. at 762; see also Mears v. Nationwide Mutual Ins. Co., 91 F.3d 1118, 1122-23 (8th Cir.1996) (plaintiff entitled to cost of two Mercedes as reward for coining slogan for insurance company).

In the present case, the Harrier Jet commercial did not direct that anyone who appeared at Pepsi headquarters with 7,000,000 Pepsi Points on the Fourth of July would receive a Harrier Jet. Instead, the commercial urged consumers to accumulate Pepsi Points and to refer to the Catalog to determine how they could redeem their Pepsi Points. The commercial sought a reciprocal promise, expressed through acceptance of, and compliance with, the terms of the Order Form. As noted previously, the Catalog contains no mention of the Harrier Jet. Plaintiff states that he "noted that the Harrier Jet was not among the items described in the catalog, but this did not affect [his] understanding of the offer." (Pl. Mem. at 4.) It should have.^[10]

Carbolic Smoke Ball itself draws a distinction between the offer of reward in that case, and typical advertisements, which are merely offers to negotiate. As Lord Justice Bowen explains:

It is an offer to become liable to any one who, before it is retracted, performs the condition.... It is not like cases in which you offer to negotiate, or you issue advertisements that you have got a stock of books to sell, or houses to let, in which case there is no offer to be bound by any contract. Such advertisements are offers to negotiate — offers to receive offers — offers to chaffer, as, I think, some learned judge in one of the cases has said.

Carbolic Smoke Ball, 1 Q.B. at 268; see also Lovett, 207 N.Y.S. at 756 (distinguishing advertisements, as invitation to offer, from offers of reward made in advertisements, such as Carbolic Smoke Ball). Because the alleged offer in this case was, at most, an advertisement to receive offers rather than an offer of reward, plaintiff cannot show that there was an offer made in the circumstances of this case.

C. An Objective, Reasonable Person Would Not Have Considered the Commercial an Offer

Plaintiff's understanding of the commercial as an offer must also be rejected because the Court finds that no objective person could reasonably have concluded that the commercial actually offered consumers a Harrier Jet.

1. Objective Reasonable Person Standard

In evaluating the commercial, the Court must not consider defendant's subjective intent in making the commercial, or plaintiff's subjective view of what the commercial offered, but what an objective, reasonable person would have understood the commercial to convey. See Kay-R Elec. Corp. v. Stone & Webster Constr. Co., 23 F.3d 55, 57 (2d Cir.1994) ("[W]e are not concerned with what was going through the heads of the parties at the time [of the alleged contract]. Rather, we are talking about the objective principles of contract law."); Mesaros, 845 F.2d at 1581 ("A basic rule of contracts holds that whether an offer has been made depends on the objective reasonableness of the alleged offeree's belief that the advertisement or solicitation was intended as an offer."); Farnsworth, supra, § 3.10, at 237; Williston, supra, § 4:7 at 296-97.

If it is clear that an offer was not serious, then no offer has been made:

What kind of act creates a power of acceptance and is therefore an offer? It must be an expression of will or intention. It must be an act that leads the offeree reasonably to conclude that a power to create a contract is conferred. This applies to the content of the power as well as to the fact of its existence. It is on this ground that we must exclude invitations to deal or acts of mere preliminary negotiation, and acts evidently done in jest or without intent to create legal relations.

Corbin on Contracts, § 1.11 at 30 (emphasis added). An obvious joke, of course, would not give rise to a contract. See, e.g., Graves v. Northern N.Y. Pub. Co., 260 A.D. 900, 22 N.Y.S.2d 537 (1940) (dismissing claim to offer of $1000, which appeared in the "joke column" of the newspaper, to any person who could provide a commonly available phone number). On the other hand, if there is no indication that the offer is "evidently in jest," and that an objective, reasonable person would find that the offer was serious, then there may be a valid offer. See Barnes, 549 P.2d at 1155 ("[I]f the jest is not apparent and a reasonable hearer would believe that an offer was being made, then the speaker risks the formation of a contract which was not intended."); see also Lucy v. Zehmer, 196 Va. 493, 84 S.E.2d 516, 518, 520 (1954) (ordering specific performance of a contract to purchase a farm despite defendant's protestation that the transaction was done in jest as "`just a bunch of two doggoned drunks bluffing'").

2. Necessity of a Jury Determination

Plaintiff also contends that summary judgment is improper because the question of whether the commercial conveyed a sincere offer can be answered only by a jury. Relying on dictum from Gallagher v. Delaney, 139 F.3d 338 (2d Cir. 1998), plaintiff argues that a federal judge comes from a "narrow segment of the enormously broad American socio-economic spectrum," id. at 342, and, thus, that the question whether the commercial constituted a serious offer must be decided by a jury composed of, inter alia, members of the "Pepsi Generation," who are, as plaintiff puts it, "young, open to adventure, willing to do the unconventional." (See Leonard Aff. ¶ 2.) Plaintiff essentially argues that a federal judge would view his claim differently than fellow members of the "Pepsi Generation."

Plaintiff's argument that his claim must be put to a jury is without merit. Gallagher involved a claim of sexual harassment in which the defendant allegedly invited plaintiff to sit on his lap, gave her inappropriate Valentine's Day gifts, told her that "she brought out feelings that he had not had since he was sixteen," and "invited her to help him feed the ducks in the pond, since he was `a bachelor for the evening.'" Gallagher, 139 F.3d at 344. The court concluded that a jury determination was particularly appropriate because a federal judge lacked "the current real-life experience required in interpreting subtle sexual dynamics of the workplace based on nuances, subtle perceptions, and implicit communications." Id. at 342. This case, in contrast, presents a question of whether there was an offer to enter into a contract, requiring the Court to determine how a reasonable, objective person would have understood defendant's commercial. Such an inquiry is commonly performed by courts on a motion for summary judgment. See Krumme, 143 F.3d at 83; Bourque, 42 F.3d at 708; Wards Co., 761 F.2d at 120.

3. Whether the Commercial Was "Evidently Done In Jest"

Plaintiff's insistence that the commercial appears to be a serious offer requires the Court to explain why the commercial is funny. Explaining why a joke is funny is a daunting task; as the essayist E.B. White has remarked, "Humor can be dissected, as a frog can, but the thing dies in the process...."^[11] The commercial is the embodiment of what defendant appropriately characterizes as "zany humor." (Def. Mem. at 18.)

First, the commercial suggests, as commercials often do, that use of the advertised product will transform what, for most youth, can be a fairly routine and ordinary experience. The military tattoo and stirring martial music, as well as the use of subtitles in a Courier font that scroll terse messages across the screen, such as "MONDAY 7:58 AM," evoke military and espionage thrillers. The implication of the commercial is that Pepsi Stuff merchandise will inject drama and moment into hitherto unexceptional lives. The commercial in this case thus makes the exaggerated claims similar to those of many television advertisements: that by consuming the featured clothing, car, beer, or potato chips, one will become attractive, stylish, desirable, and admired by all. A reasonable viewer would understand such advertisements as mere puffery, not as statements of fact, see, e.g., Hubbard v. General Motors Corp., 95 Civ. 4362(AGS), 1996 WL 274018, at *6 (S.D.N.Y. May 22, 1996) (advertisement describing automobile as "Like a Rock," was mere puffery, not a warranty of quality); Lovett, 207 N.Y.S. at 756; and refrain from interpreting the promises of the commercial as being literally true.

Second, the callow youth featured in the commercial is a highly improbable pilot, one who could barely be trusted with the keys to his parents' car, much less the prize aircraft of the United States Marine Corps. Rather than checking the fuel gauges on his aircraft, the teenager spends his precious preflight minutes preening. The youth's concern for his coiffure appears to extend to his flying without a helmet. Finally, the teenager's comment that flying a Harrier Jet to school "sure beats the bus" evinces an improbably insouciant attitude toward the relative difficulty and danger of piloting a fighter plane in a residential area, as opposed to taking public transportation.^[12]

Third, the notion of traveling to school in a Harrier Jet is an exaggerated adolescent fantasy. In this commercial, the fantasy is underscored by how the teenager's schoolmates gape in admiration, ignoring their physics lesson. The force of the wind generated by the Harrier Jet blows off one teacher's clothes, literally defrocking an authority figure. As if to emphasize the fantastic quality of having a Harrier Jet arrive at school, the Jet lands next to a plebeian bike rack. This fantasy is, of course, extremely unrealistic. No school would provide landing space for a student's fighter jet, or condone the disruption the jet's use would cause.

Fourth, the primary mission of a Harrier Jet, according to the United States Marine Corps, is to "attack and destroy surface targets under day and night visual conditions." United States Marine Corps, Factfile: AV-8B Harrier II (last modified Dec. 5, 1995) . Manufactured by McDonnell Douglas, the Harrier Jet played a significant role in the air offensive of Operation Desert Storm in 1991. See id. The jet is designed to carry a considerable armament load, including Sidewinder and Maverick missiles. See id. As one news report has noted, "Fully loaded, the Harrier can float like a butterfly and sting like a bee — albeit a roaring 14-ton butterfly and a bee with 9,200 pounds of bombs and missiles." Jerry Allegood, Marines Rely on Harrier Jet, Despite Critics, News & Observer (Raleigh), Nov. 4, 1990, at C1. In light of the Harrier Jet's well-documented function in attacking and destroying surface and air targets, armed reconnaissance and air interdiction, and offensive and defensive anti-aircraft warfare, depiction of such a jet as a way to get to school in the morning is clearly not serious even if, as plaintiff contends, the jet is capable of being acquired "in a form that eliminates [its] potential for military use." (See Leonard Aff. ¶ 20.)

Fifth, the number of Pepsi Points the commercial mentions as required to "purchase" the jet is 7,000,000. To amass that number of points, one would have to drink 7,000,000 Pepsis (or roughly 190 Pepsis a day for the next hundred years — an unlikely possibility), or one would have to purchase approximately $700,000 worth of Pepsi Points. The cost of a Harrier Jet is roughly $23 million dollars, a fact of which plaintiff was aware when he set out to gather the amount he believed necessary to accept the alleged offer. (See Affidavit of Michael E. McCabe, 96 Civ. 5320, Aug. 14, 1997, Exh. 6 (Leonard Business Plan).) Even if an objective, reasonable person were not aware of this fact, he would conclude that purchasing a fighter plane for $700,000 is a deal too good to be true.^[13]

Plaintiff argues that a reasonable, objective person would have understood the commercial to make a serious offer of a Harrier Jet because there was "absolutely no distinction in the manner" (Pl. Mem. at 13,) in which the items in the commercial were presented. Plaintiff also relies upon a press release highlighting the promotional campaign, issued by defendant, in which "[n]o mention is made by [defendant] of humor, or anything of the sort." (Id. at 5.) These arguments suggest merely that the humor of the promotional campaign was tongue in cheek. Humor is not limited to what Justice Cardozo called "[t]he rough and boisterous joke ... [that] evokes its own guffaws." Murphy v. Steeplechase Amusement Co., 250 N.Y. 479, 483, 166 N.E. 173, 174 (1929). In light of the obvious absurdity of the commercial, the Court rejects plaintiff's argument that the commercial was not clearly in jest.

4. Plaintiff's Demands for Additional Discovery

In his Memorandum of Law, and in letters to the Court, plaintiff argues that additional discovery is necessary on the issues of whether and how defendant reacted to plaintiff's "acceptance" of their "offer"; how defendant and its employees understood the commercial would be viewed, based on test-marketing the commercial or on their own opinions; and how other individuals actually responded to the commercial when it was aired. (See Pl. Mem. at 1-2; Letter of David E. Nachman to the Hon. Kimba M. Wood, Apr. 5, 1999.)

Plaintiff argues that additional discovery is necessary as to how defendant reacted to his "acceptance," suggesting that it is significant that defendant twice changed the commercial, the first time to increase the number of Pepsi Points required to purchase a Harrier Jet to 700,000,000, and then again to amend the commercial to state the 700,000,000 amount and add "(Just Kidding)." (See Pl. Stat. Exh C (700 Million), and Exh. D (700 Million — Just Kidding).) Plaintiff concludes that, "Obviously, if PepsiCo truly believed that no one could take seriously the offer contained in the original ad that I saw, this change would have been totally unnecessary and superfluous." (Leonard Aff. ¶ 14.) The record does not suggest that the change in the amount of points is probative of the seriousness of the offer. The increase in the number of points needed to acquire a Harrier Jet may have been prompted less by the fear that reasonable people would demand Harrier Jets and more by the concern that unreasonable people would threaten frivolous litigation. Further discovery is unnecessary on the question of when and how the commercials changed because the question before the Court is whether the commercial that plaintiff saw and relied upon was an offer, not that any other commercial constituted an offer.

Plaintiff's demands for discovery relating to how defendant itself understood the offer are also unavailing. Such discovery would serve only to cast light on defendant's subjective intent in making the alleged offer, which is irrelevant to the question of whether an objective, reasonable person would have understood the commercial to be an offer. See Kay-R Elec. Corp., 23 F.3d at 57 ("[W]e are not concerned with what was going through the heads of the parties at the time [of the alleged contract]."); Mesaros, 845 F.2d at 1581; Corbin on Contracts, § 1.11 at 30. Indeed, plaintiff repeatedly argues that defendant's subjective intent is irrelevant. (See Pl. Mem. at 5, 8, 13.)

Finally, plaintiff's assertion that he should be afforded an opportunity to determine whether other individuals also tried to accumulate enough Pepsi Points to "purchase" a Harrier Jet is unavailing. The possibility that there were other people who interpreted the commercial as an "offer" of a Harrier Jet does not render that belief any more or less reasonable. The alleged offer must be evaluated on its own terms. Having made the evaluation, the Court concludes that summary judgment is appropriate on the ground that no reasonable, objective person would have understood the commercial to be an offer.^[14]

D. The Alleged Contract Does Not Satisfy the Statute of Frauds

The absence of any writing setting forth the alleged contract in this case provides an entirely separate reason for granting summary judgment. Under the New York^[15] Statute of Frauds,

a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker.

N.Y.U.C.C. § 2-201(1); see also, e.g., AFP Imaging Corp. v. Philips Medizin Systeme, 92 Civ. 6211(LMM), 1994 WL 652510, at *4 (S.D.N.Y. Nov. 17, 1994). Without such a writing, plaintiff's claim must fail as a matter of law. See Hilord Chem. Corp. v. Ricoh Elecs., Inc., 875 F.2d 32, 36-37 (2d Cir.1989) ("The adequacy of a writing for Statute of Frauds purposes `must be determined from the documents themselves, as a matter of law.'") (quoting Bazak Int'l. Corp. v. Mast Indus., Inc., 73 N.Y.2d 113, 118, 538 N.Y.S.2d 503, 535 N.E.2d 633 (1989)).

There is simply no writing between the parties that evidences any transaction. Plaintiff argues that the commercial, plaintiff's completed Order Form, and perhaps other agreements signed by defendant which plaintiff has not yet seen, should suffice for Statute of Frauds purposes, either singly or taken together. (See Pl. Mem. at 18-19.) For the latter claim, plaintiff relies on Crabtree v. Elizabeth Arden Sales Corp., 305 N.Y. 48, 110 N.E.2d 551 (1953). Crabtree held that a combination of signed and unsigned writings would satisfy the Statute of Frauds, "provided that they clearly refer to the same subject matter or transaction." Id. at 55, 110 N.E.2d 551. Yet the Second Circuit emphasized in Horn & Hardart Co. v. Pillsbury Co., 888 F.2d 8 (2d Cir.1989), that this rule "contains two strict threshold requirements." Id. at 11. First, the signed writing relied upon must by itself establish "`a contractual relationship between the parties.'" Id. (quoting Crabtree, 305 N.Y. at 56, 110 N.E.2d 551); see also O'Keeffe v. Bry, 456 F.Supp. 822, 829 (S.D.N.Y.1978) ("To the extent that Crabtree permits the use of a `confluence of memoranda,' the minimum condition for such use is the existence of one [signed] document establishing the basic, underlying contractual commitment."). The second threshold requirement is that the unsigned writing must "`on its face refer to the same transaction as that set forth in the one that was signed.'" Horn & Hardart, 888 F.2d at 11 (quoting Crabtree, 305 N.Y. at 56, 110 N.E.2d 551); see also Bruce Realty Co. of Florida v. Berger, 327 F.Supp. 507, 510 (S.D.N.Y.1971).

None of the material relied upon by plaintiff meets either threshold requirement. The commercial is not a writing; plaintiff's completed order form does not bear the signature of defendant, or an agent thereof; and to the extent that plaintiff seeks discovery of any contracts between defendant and its advertisers, such discovery would be unavailing: plaintiff is not a party to, or a beneficiary of, any such contracts. Because the alleged contract does not meet the requirements of the Statute of Frauds, plaintiff has no claim for breach of contract or specific performance.

E. Plaintiff's Fraud Claim

In addition to moving for summary judgment on plaintiff's claim for breach of contract, defendant has also moved for summary judgment on plaintiff's fraud claim. The elements of a cause of action for fraud are "`representation of a material existing fact, falsity, scienter, deception and injury.'" New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308, 639 N.Y.S.2d 283, 662 N.E.2d 763 (1995) (quoting Channel Master Corp. v. Aluminium Ltd. Sales, Inc., 4 N.Y.2d 403, 407, 176 N.Y.S.2d 259, 262, 151 N.E.2d 833 (1958)).

To properly state a claim for fraud, "plaintiff must allege a misrepresentation or material omission by defendant, on which it relied, that induced plaintiff" to perform an act. See NYU, 639 N.Y.S.2d at 289, 662 N.E.2d 763. "General allegations that defendant entered into a contract while lacking the intent to perform it are insufficient to support the claim." See id. (citing Rocanova v. Equitable Life Assur. Soc'y, 83 N.Y.2d 603, 612 N.Y.S.2d 339, 634 N.E.2d 940 (1994)); see also Grappo v. Alitalia Linee Aeree Italiane, S.p.A., 56 F.3d 427, 434 (2d Cir.1995) ("A cause of action does not generally lie where the plaintiff alleges only that the defendant entered into a contract with no intention of performing it"). Instead, the plaintiff must show the misrepresentation was collateral, or served as an inducement, to a separate agreement between the parties. See Bridgestone/Firestone v. Recovery Credit, 98 F.3d 13, 20 (2d Cir.1996) (allowing a fraud claim where plaintiff "`demonstrate[s] a fraudulent misrepresentation collateral or extraneous to the contract'") (quoting Deerfield Communications Corp. v. Chesebrough-Ponds, Inc., 68 N.Y.2d 954, 510 N.Y.S.2d 88, 89, 502 N.E.2d 1003 (1986)).

For example, in Stewart v. Jackson & Nash, 976 F.2d 86 (2d Cir.1992), the Second Circuit ruled that plaintiff had properly stated a claim for fraud. In the course of plaintiff's negotiations for employment with defendant, a law firm, defendant represented to plaintiff not only that plaintiff would be hired (which she was), but also that the firm had secured a large environmental law client, that it was in the process of establishing an environmental law department, and that plaintiff would head the environmental law department. See id. at 89-90. The Second Circuit concluded that these misrepresentations gave rise to a fraud claim, because they consisted of misrepresentations of present fact, rather than future promises.

Plaintiff in this case does not allege that he was induced to enter into a contract by some collateral misrepresentation, but rather that defendant never had any intention of making good on its "offer" of a Harrier Jet. (See Pl. Mem. at 23.) Because this claim "alleges only that the defendant entered into a contract with no intention of performing it," Grappo, 56 F.3d at 434, judgment on this claim should enter for defendant.

III. Conclusion

In sum, there are three reasons why plaintiff's demand cannot prevail as a matter of law. First, the commercial was merely an advertisement, not a unilateral offer. Second, the tongue-in-cheek attitude of the commercial would not cause a reasonable person to conclude that a soft drink company would be giving away fighter planes as part of a promotion. Third, there is no writing between the parties sufficient to satisfy the Statute of Frauds.

For the reasons stated above, the Court grants defendant's motion for summary judgment. The Clerk of Court is instructed to close these cases. Any pending motions are moot.

[1] The Court's recitation of the facts of this case is drawn from the statements of uncontested facts submitted by the parties pursuant to Local Civil Rule 56.1. The majority of citations are to defendant's statement of facts because plaintiff does not contest many of defendant's factual assertions. (See Plaintiff Leonard's Response to PepsiCo's Rule 56.1 Statement ("Pl.Stat.").) Plaintiff's disagreement with certain of defendant's statements is noted in the text.

In an Order dated November 24, 1997, in a related case (96 Civ. 5320), the Court set forth an initial account of the facts of this case. Because the parties have had additional discovery since that Order and have crafted Local Civil Rule 56.1 Statements and Counter-statements, the recitation of facts herein should be considered definitive.

[2] At this point, the following message appears at the bottom of the screen: "Offer not available in all areas. See details on specially marked packages."

[3] Because Leonard and PepsiCo were each plaintiff in one action and defendant in the other, the Court will refer to the parties as "Leonard" and "PepsiCo," rather than plaintiff and defendant, for its discussion of the procedural history of this litigation.

[4] The Florida suit alleged that the commercial had been shown in Florida. Not only was this assertion irrelevant, in that plaintiff had not actually seen the commercial in Florida, but it later proved to be false. See Leonard v. PepsiCo, 96-2555 Civ.-King, at 1 (S.D.Fla. Nov. 6, 1996) ("The only connection this case has to this forum is that Plaintiff's lawyer is in the Southern District of Florida.").

[5] Foremost Pro was overruled on other grounds by Hasbrouck v. Texaco, Inc., 842 F.2d 1034, 1041 (9th Cir.1987), aff'd, 496 U.S. 543, 110 S.Ct. 2535, 110 L.Ed.2d 492 (1990). See Chroma Lighting v. GTE Products Corp., 111 F.3d 653, 657 (9th Cir.1997), cert. denied sub nom., Osram Sylvania Products, Inc. v. Von Der Ahe, 522 U.S. 943, 118 S.Ct. 357, 139 L.Ed.2d 278 (1997).

[6] It also communicated additional words of reservation: "Offer not available in all areas. See details on specially marked packages."

[7] The reservation of the details of the offer in this case distinguishes it from Payne v. Lautz Bros. & Co., 166 N.Y.S. 844 (N.Y.City Ct.1916). In Payne, a stamp and coupon broker purchased massive quantities of coupons produced by defendant, a soap company, and tried to redeem them for 4,000 round-trip tickets to a local beach. The court ruled for plaintiff, noting that the advertisements were "absolutely unrestricted. It contained no reference whatever to any of its previous advertising of any form." Id. at 848. In the present case, by contrast, the commercial explicitly reserved the details of the offer to the Catalog.

[8] Although the Court of Appeals's opinion is silent as to exactly what a carbolic smoke ball was, the historical record reveals it to have been a compressible hollow ball, about the size of an apple or orange, with a small opening covered by some porous material such as silk or gauze. The ball was partially filled with carbolic acid in powder form. When the ball was squeezed, the powder would be forced through the opening as a small cloud of smoke. See Simpson, supra, at 262-63. At the time, carbolic acid was considered fatal if consumed in more than small amounts. See id. at 264.

[9] Carbolic Smoke Ball includes a classic formulation of this principle: "If I advertise to the world that my dog is lost, and that anybody who brings the dog to a particular place will be paid some money, are all the police or other persons whose business it is to find lost dogs to be expected to sit down and write a note saying that they have accepted my proposal?" Carbolic Smoke Ball, 1 Q.B. at 270 (Bowen, L.J.).

[10] In his affidavit, plaintiff places great emphasis on a press release written by defendant, which characterizes the Harrier Jet as "the ultimate Pepsi Stuff award." (See Leonard Aff. ¶ 13.) Plaintiff simply ignores the remainder of the release, which makes no mention of the Harrier Jet even as it sets forth in detail the number of points needed to redeem other merchandise.

[11] Quoted in Gerald R. Ford, Humor and the Presidency 23 (1987).

[12] In this respect, the teenager of the advertisement contrasts with the distinguished figures who testified to the effectiveness of the Carbolic Smoke Ball, including the Duchess of Sutherland; the Earls of Wharncliffe, Westmoreland, Cadogan, and Leitrim; the Countesses Dudley, Pembroke, and Aberdeen; the Marchionesses of Bath and Conyngham; Sir Henry Acland, the physician to the Prince of Wales; and Sir James Paget, sergeant surgeon to Queen Victoria. See Simpson, supra, at 265.

[13] In contrast, the advertisers of the Carbolic Smoke Ball emphasized their earnestness, stating in the advertisement that "£ 1,000 is deposited with the Alliance Bank, shewing our sincerity in the matter." Carbolic Smoke Ball, 1 Q.B. at 257. Similarly, in Barnes, the defendant's "subsequent statements, conduct, and the circumstances show an intent to lead any hearer to believe the statements were made seriously." Barnes, 549 P.2d at 1155. The offer in Barnes, moreover, was made in the serious forum of hearings before a state commission; not, as defendant states, at a "gambling convention." Compare Barnes, 549 P.2d at 1154, with Def. Reply Mem. at 6.

[14] Even if plaintiff were allowed discovery on all of these issues, such discovery would be relevant only to the second basis for the Court's opinion, that no reasonable person would have understood the commercial to be an offer. That discovery would not change the basic principle that an advertisement is not an offer, as set forth in Section II.B of this Order and Opinion, supra; nor would it affect the conclusion that the alleged offer failed to comply with the Statute of Frauds, as set forth in Section II.D, infra.

[15] Having determined that defendant's advertisement was not an offer, the last act necessary to complete the contract would be defendant's acceptance in New York of plaintiff's Order Form. Thus the Court must apply New York law on the statute of frauds issue. See supra Section II.A.2.

[424] Thomas P. Luning, Schiff Hardin & Waite, Chicago, Ill., for plaintiff-appellant.

John L. Hines, Jr., Tuite, Mejia & Giacchetti, Chicago, Ill., for defendants-appellees.

Before EASTERBROOK, RIPPLE, and MANION, Circuit Judges.

EASTERBROOK, Circuit Judge.

We have a pattern common in commercial life. Two firms reach concord on the general terms of their transaction. They sign a document, captioned "agreement in principle" or "letter of intent", memorializing these terms but anticipating further negotiations and decisions — an appraisal of the assets, the clearing of a title, the list is endless. One of these terms proves divisive, and the deal collapses. The party that perceives itself the loser then claims that the preliminary document has legal force independent of the definitive contract. Ours is such a dispute.

Ball-Co Manufacturing, a maker of specialty valve components, floated its assets on the market. Empro Manufacturing showed interest. After some preliminary negotiations, Empro sent Ball-Co a three-page "letter of intent" to purchase the assets of Ball-Co and S.B. Leasing, a partnership holding title to the land under Ball-Co's plant. Empro proposed a price of $2.4 million, with $650,000 to be paid on closing and a 10-year promissory note for the remainder, the note to be secured by the "inventory and equipment of Ballco." The letter stated "[t]he general terms and conditions of such proposal (which will be subject to and incorporated in a formal, definitive Asset Purchase Agreement signed by both parties)". Just in case Ball-Co might suppose that Empro had committed itself to buy the assets, paragraph four of the letter stated that "Empro's purchase shall be subject to the satisfaction of certain conditions precedent to closing including, but not limited to" the definitive Asset Purchase Agreement and, among five other conditions, "[t]he approval of the shareholders and board of directors of Empro".

Although Empro left itself escape hatches, as things turned out Ball-Co was the one who balked. The parties signed the letter of intent in November 1987 and negotiated through March 1988 about many terms. Security for the note proved to be the sticking point. Ball-Co wanted a security interest in the land under the plant; Empro refused to yield.

When Empro learned that Ball-Co was negotiating with someone else, it filed this diversity suit. Contending that the letter of intent obliges Ball-Co to sell only to it, Empro asked for a temporary restraining order. The district judge set the case for a prompt hearing and, after getting a look at the letter of intent, dismissed the complaint under Fed.R.Civ.P. 12(b)(6) for failure to state a claim on which relief may be granted. Relying on Interway, Inc. v. Alagna, 85 Ill.App.3d 1094, 41 Ill.Dec. 117, 407 N.E.2d 615 (1st Dist.1980), the district judge concluded that the statement, appearing twice in the letter, that the agreement is "subject to" the execution of a definitive contract meant that the letter has no independent force.

Empro insists on appeal that the binding effect of a document depends on the parties' intent, which means that the [425] case may not be dismissed — for Empro says that the parties intended to be bound, a factual issue. Empro treats "intent to be bound" as a matter of the parties' states of mind, but if intent were wholly subjective there would be no parol evidence rule, no contract case could be decided without a jury trial, and no one could know the effect of a commercial transaction until years after the documents were inked. That would be a devastating blow to business. Contract law gives effect to the parties' wishes, but they must express these openly. Put differently, "intent" in contract law is objective rather than subjective — a point Interway makes by holding that as a matter of law parties who make their pact "subject to" a later definitive agreement have manifested an (objective) intent not to be bound, which under the parol evidence rule becomes the definitive intent even if one party later says that the true intent was different. As the Supreme Court of Illinois said in Schek v. Chicago Transit Authority, 42 Ill.2d 362, 364, 247 N.E.2d 886, 888 (1969), "intent must be determined solely from the language used when no ambiguity in its terms exists". See also Feldman v. Allegheny International, Inc., 850 F.2d 1217 (7th Cir.1988) (Illinois law); Skycom Corp. v. Telstar Corp., 813 F.2d 810, 814-17 (7th Cir.1987) (New York and Wisconsin law). Parties may decide for themselves whether the results of preliminary negotiations bind them, Chicago Investment Corp. v. Dolins, 107 Ill.2d 120, 89 Ill.Dec. 869, 871, 481 N.E.2d 712, 715 (1985), but they do this through their words.

Because letters of intent are written without the care that will be lavished on the definitive agreement, it may be a bit much to put dispositive weight on "subject to" in every case, and we do not read Interway as giving these the status of magic words. They might have been used carelessly, and if the full agreement showed that the formal contract was to be nothing but a memorial of an agreement already reached, the letter of intent would be enforceable. Borg-Warner Corp. v. Anchor Coupling Co., 16 Ill.2d 234, 156 N.E.2d 513 (1958). Conversely, Empro cannot claim comfort from the fact that the letter of intent does not contain a flat disclaimer, such as the one in Feldman pronouncing that the letter creates no obligations at all. The text and structure of the letter — the objective manifestations of intent — might show that the parties agreed to bind themselves to some extent immediately. Borg-Warner is such a case. One party issued an option, which called itself "firm and binding"; the other party accepted; the court found this a binding contract even though some terms remained open. After all, an option to purchase is nothing if not binding in advance of the definitive contract. The parties to Borg-Warner conceded that the option and acceptance usually would bind; the only argument in the case concerned whether the open terms were so important that a contract could not arise even if the parties wished to be bound, a subject that divided the court. See 156 N.E.2d at 930-36 (Schaefer, J., dissenting).

A canvass of the terms of the letter Empro sent does not assist it, however. "Subject to" a definitive agreement appears twice. The letter also recites, twice, that it contains the "general terms and conditions", implying that each side retained the right to make (and stand on) additional demands. Empro insulated itself from binding effect by listing, among the conditions to which the deal was "subject", the "approval of the shareholders and board of directors of Empro". The board could veto a deal negotiated by the firm's agents for a reason such as the belief that Ball-Co had been offered too much (otherwise the officers, not the board, would be the firm's final decision-makers, yet state law vests major decisions in the board). The shareholders could decline to give their assent for any reason (such as distrust of new business ventures) and could not even be required to look at the documents, let alone consider the merits of the deal. See Earl Sneed, The Shareholder May Vote As He Pleases: Theory and Fact, 22 U.Pittsburgh L.Rev. 23, 31-36, 40-42 (1960) (collecting cases). Empro even took care to require the return of its [426] $5,000 in earnest money "without set off, in the event this transaction is not closed", although the seller usually gets to keep the earnest money if the buyer changes its mind. So Empro made clear that it was free to walk.

Neither the text nor the structure of the letter suggests that it was to be a one-sided commitment, an option in Empro's favor binding only Ball-Co. From the beginning Ball-Co assumed that it could negotiate terms in addition to, or different from, those in the letter of intent. The cover letter from Ball-Co's lawyer returning the signed letter of intent to Empro stated that the "terms and conditions are generally acceptable" but that "some clarifications are needed in Paragraph 3(c) (last sentence)", the provision concerning Ball-Co's security interest. "Some clarifications are needed" is an ominous noise in a negotiation, foreboding many a stalemate. Although we do not know what "clarifications" counsel had in mind, the specifics are not important. It is enough that even on signing the letter of intent Ball-Co proposed to change the bargain, conduct consistent with the purport of the letter's text and structure.

The shoals that wrecked this deal are common hazards in business negotiations. Letters of intent and agreements in principle often, and here, do no more than set the stage for negotiations on details. Sometimes the details can be ironed out; sometimes they can't. Illinois, as Chicago Investment, Interway, and Feldman show, allows parties to approach agreement in stages, without fear that by reaching a preliminary understanding they have bargained away their privilege to disagree on the specifics. Approaching agreement by stages is a valuable method of doing business. So long as Illinois preserves the availability of this device, a federal court in a diversity case must send the disappointed party home empty-handed. Empro claims that it is entitled at least to recover its "reliance expenditures", but the only expenditures it has identified are those normally associated with pre-contractual efforts: its complaint mentions the expenses "in negotiating with defendants, in investigating and reviewing defendants' business, and in preparing to acquire defendants' business." Outlays of this sort cannot bind the other side any more than paying an expert to tell you whether the painting at the auction is a genuine Rembrandt compels the auctioneer to accept your bid.

AFFIRMED.

[784] Russell H. McMains, McMains & Constant, Corpus Christi, Gibson Gayle, Jr., James B. Sales, Fulbright & Jaworski, Richard B. Miller, Richard P. Keeton, Miller, Keeton, Bristow & Brown, Houston, William R. Edwards, Edwards & Terry, Corpus Christi, for appellant.

Joseph D. Jamail, Jamail & Kolius, John L. Jeffers, G. Irvin Terrell, Randall A. Hopkins, Baker & Botts, W. James Kronzer, Law Offices of W. James Kronzer, Harry M. Reasoner, Vinson & Elkins, Houston, Luther H. Soules, III, Soules & Reed, San Antonio, Royal H. Brin, Jr., Thomas C. Unis, Strasburger & Price, Dallas, Louis S. Muldrow, Waco, for appellee.

Before WARREN, JACK SMITH and SAM BASS, JJ.

OPINION

WARREN, Justice.

This is an appeal from a judgment awarding Pennzoil damages for Texaco's tortious interference with a contract between Pennzoil and the "Getty entities" (Getty Oil Company, the Sarah C. Getty Trust, and the J. Paul Getty Museum).

The jury found, among other things, that:

(1) At the end of a board meeting on January 3, 1984, the Getty entities intended to bind themselves to an agreement providing for the purchase of Getty Oil stock, whereby the Sarah C. Getty Trust would own 4/7th of the stock and Pennzoil the remaining 3/7th; and providing for a division of Getty Oil's assets, according to their respective ownership if the Trust and Pennzoil were unable to agree on a restructuring of Getty Oil by December 31, 1984;

(2) Texaco knowingly interfered with the agreement between Pennzoil and the Getty entities;

(3) As a result of Texaco's interference, Pennzoil suffered damages of $7.53 billion;

(4) Texaco's actions were intentional, willful, and in wanton disregard of Pennzoil's rights; and,

(5) Pennzoil was entitled to punitive damages of $3 billion.

The main questions for our determination are: (1) 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; (2) whether the trial court properly instructed the [785] jury on the law pertinent to the case; (3) whether the evidence supported the jury's damage awards; (4) whether the trial court committed reversible error in its admission and exclusion of certain evidence; (5) whether the conduct and posture of the trial judge denied Texaco a fair trial; and (6) whether the judgment violates certain articles of the United States Constitution.

Though many facts are disputed, the parties' main conflicts are over the inferences to be drawn from, and the legal significance of, these facts. There is evidence that for several months in late 1983, Pennzoil had followed with interest the well-publicized dissension between the board of directors of Getty Oil Company and Gordon Getty, who was a director of Getty Oil and also the owner, as trustee, of approximately 40.2% of the outstanding shares of Getty Oil. On December 28, 1983, Pennzoil announced an unsolicited, public tender offer for 16 million shares of Getty Oil at $100 each.

Soon afterwards, Pennzoil contacted both Gordon Getty and a representative of the J. Paul Getty Museum, which held approximately 11.8% of the shares of Getty Oil, to discuss the tender offer and the possible purchase of Getty Oil. In the first two days of January 1984, a "Memorandum of Agreement" was drafted to reflect the terms that had been reached in conversations between representatives of Pennzoil, Gordon Getty, and the Museum.

Under the plan set out in the Memorandum of Agreement, Pennzoil and the Trust (with Gordon Getty as trustee) were to become partners on a 3/7ths to 4/7ths basis respectively, in owning and operating Getty Oil. Gordon Getty was to become chairman of the board, and Hugh Liedtke, the chief executive officer of Pennzoil, was to become chief executive officer of the new company.

The Memorandum of Agreement further provided that the Museum was to receive $110 per share for its 11.8% ownership, and that all other outstanding public shares were to be cashed in by the company at $110 per share. Pennzoil was given an option to buy an additional 8 million shares to achieve the desired ownership ratio. The plan also provided that Pennzoil and the Trust were to try in good faith to agree upon a plan to restructure Getty Oil within a year, but if they could not reach an agreement, the assets of Getty Oil were to be divided between them, 3/7ths to Pennzoil and 4/7ths to the Trust.

The Memorandum of Agreement stated that it was subject to approval of the board of Getty Oil, and it was to expire by its own terms if not approved at the board meeting that was to begin on January 2. Pennzoil's CEO, Liedtke, and Gordon Getty, for the Trust, signed the Memorandum of Agreement before the Getty Oil board meeting on January 2, and Harold Williams, the president of the Museum, signed it shortly after the board meeting began. Thus, before it was submitted to the Getty Oil board, the Memorandum of Agreement had been executed by parties who together controlled a majority of the outstanding shares of Getty Oil.

The Memorandum of Agreement was then presented to the Getty Oil board, which had previously held discussions on how the company should respond to Pennzoil's public tender offer. A self-tender by the company to shareholders at $110 per share had been proposed to defeat Pennzoil's tender offer at $100 per share, but no consensus was reached.

The board voted to reject recommending Pennzoil's tender offer to Getty's shareholders, then later also rejected the Memorandum of Agreement price of $110 per share as too low. Before recessing at 3 a.m., the board decided to make a counter-proposal to Pennzoil of $110 per share plus a $10 debenture. Pennzoil's investment banker reacted to this price negatively. In the morning of January 3, Getty Oil's investment banker, Geoffrey Boisi, began calling other companies, seeking a higher bid than Pennzoil's for the Getty Oil shares.

When the board reconvened at 3 p.m. on January 3, a revised Pennzoil proposal was presented, offering $110 per share plus a $3 "stub" that was to be paid after the sale of a Getty Oil subsidiary ("ERC"), from the [786] excess proceeds over $1 billion. Each shareholder was to receive a pro rata share of these excess proceeds, but in any case, a minimum of $3 per share at the end of five years. During the meeting, Boisi briefly informed the board of the status of his inquiries of other companies that might be interested in bidding for the company. He reported some preliminary indications of interest, but no definite bid yet.

The Museum's lawyer told the board that, based on his discussions with Pennzoil, he believed that if the board went back "firm" with an offer of $110 plus a $5 stub, Pennzoil would accept it. After a recess, the Museum's president (also a director of Getty Oil) moved that the Getty board should accept Pennzoil's proposal provided that the stub be raised to $5, and the board voted 15 to 1 to approve this counter-proposal to Pennzoil. The board then voted themselves and Getty's officers and advisors indemnity for any liability arising from the events of the past few months. Additionally, the board authorized its executive compensation committee to give "golden parachutes" (generous termination benefits) to the top executives whose positions "were likely to be affected" by the change in management. There was evidence that during another brief recess of the board meeting, the counter-offer of $110 plus a $5 stub was presented to and accepted by Pennzoil. After Pennzoil's acceptance was conveyed to the Getty board, the meeting was adjourned, and most board members left town for their respective homes.

That evening, the lawyers and public relations staff of Getty Oil and the Museum drafted a press release describing the transaction between Pennzoil and the Getty entities. The press release, announcing an agreement in principle on the terms of the Memorandum of Agreement but with a price of $110 plus a $5 stub, was issued on Getty Oil letterhead the next morning, January 4, and later that day, Pennzoil issued an identical press release.

On January 4, Boisi continued to contact other companies, looking for a higher price than Pennzoil had offered. After talking briefly with Boisi, Texaco management called several meetings with its in-house financial planning group, which over the course of the day studied and reported to management on the value of Getty Oil, the Pennzoil offer terms, and a feasible price range at which Getty might be acquired. Later in the day, Texaco hired an investment banker, First Boston, to represent it with respect to a possible acquisition of Getty Oil. Meanwhile, also on January 4, Pennzoil's lawyers were working on a draft of a formal "transaction agreement" that described the transaction in more detail than the outline of terms contained in the Memorandum of Agreement and press release.

On January 5, the Wall Street Journal reported on an agreement reached between Pennzoil and the Getty entities, describing essentially the terms contained in the Memorandum of Agreement. The Pennzoil board met to ratify the actions of its officers in negotiating an agreement with the Getty entities, and Pennzoil's attorneys periodically attempted to contact the other parties' advisors and attorneys to continue work on the transaction agreement.

The board of Texaco also met on January 5, authorizing its officers to make an offer for 100% of Getty Oil and to take any necessary action in connection therewith. Texaco first contacted the Museum's lawyer, Lipton, and arranged a meeting to discuss the sale of the Museum's shares of Getty Oil to Texaco. Lipton instructed his associate, on her way to the meeting in progress of the lawyers drafting merger documents for the Pennzoil/Getty transaction, to not attend that meeting, because he needed her at his meeting with Texaco. At the meeting with Texaco, the Museum outlined various issues it wanted resolved in any transaction with Texaco, and then agreed to sell its 11.8% ownership in Getty Oil.

That evening, Texaco met with Gordon Getty to discuss the sale of the Trust's shares. He was informed that the Museum had agreed to sell its shares to Texaco. Gordon Getty's advisors had previously warned him that the Trust shares might be "locked out" in a minority position if Texaco [787] bought, in addition to the Museum's shares, enough of the public shares to achieve over 50% ownership of the company. Gordon Getty accepted Texaco's offer of $125 per share and signed a letter of his intent to sell his stock to Texaco, as soon as a California temporary restraining order against his actions as trustee was lifted.

At noon on January 6, Getty Oil held a telephone board meeting to discuss the Texaco offer. The board voted to withdraw its previous counter-proposal to Pennzoil and unanimously voted to accept Texaco's offer. Texaco immediately issued a press release announcing that Getty Oil and Texaco would merge.

Soon after the Texaco press release appeared, Pennzoil telexed the Getty entities, demanding that they honor their agreement with Pennzoil. Later that day, prompted by the telex, Getty Oil filed a suit in Delaware for declaratory judgment that it was not bound to any contract with Pennzoil. The merger agreement between Texaco and Getty Oil was signed on January 6; the stock purchase agreement with the Museum was signed on January 6; and the stock exchange agreement with the Trust was signed on January 8, 1984.

INSUFFICIENCY OF THE EVIDENCE

In Points of Error 46 through 56, Texaco contends that the evidence at trial was legally and factually insufficient to support the jury's answers to Special Issues 1 and 2.

The parties agree that in our review, we are required to apply the substantive law of New York and the procedural law of Texas.

There are two standards of review for questions attacking the sufficiency of the evidence: (1) legal insufficiency and (2) factual insufficiency review. In reviewing legal insufficiency points or "no evidence" points, we must consider only the evidence tending to support the finding, viewing it in the light most favorable to the finding, giving effect to all reasonable inferences that may properly be drawn from that evidence, and disregarding all contrary or conflicting evidence. King v. Bauer, 688 S.W.2d 845 (Tex.1985); Garza v. Alviar, 395 S.W.2d 821 (Tex.1965). A "no evidence" point must be sustained if we find a complete absence of evidence of probative force or only a scintilla of evidence to support the finding, or if the evidence tending to support the finding must be disregarded because it is legally incompetent. If there is more than a scintilla of probative evidence to support the finding, the point must be overruled. Calvert, "No Evidence" and "Insufficient Evidence" Points of Error, 38 Texas L.Rev. 361 (1960).

In reviewing factual insufficiency points, we must consider all of the evidence in the record that is relevant to the fact finding being challenged. In re King's Estate, 150 Tex. 662, 244 S.W.2d 660 (1951). We must sustain a "factual insufficiency" point if we determine that the finding of a vital fact is so contrary to the great weight and preponderance of the evidence as to be clearly wrong. Id., 150 Tex. at 664-65, 244 S.W.2d at 661; Calvert, 38 Tex.L.Rev. 361.

Texaco argues first that there was no evidence or there was insufficient evidence to support the jury's answers to Special Issue No. 1. The jury found that the Trust, the Museum, and Getty Oil Company intended to bind themselves to an agreement with Pennzoil containing certain enumerated terms at the end of the Getty Oil Company board meeting on January 3, 1984. Texaco claims that not only is there insufficient evidence of any intent to be bound but also that the "agreement" referred to in Special Issue No. 1 is too indefinite to be a legally enforceable contract.

Second, Texaco asserts that the evidence is legally and factually insufficient to support the jury's answer to Special Issue No. 2, which inquired whether Texaco knowingly interfered with any agreement that the jury had found between Pennzoil and the Getty entities. Texaco contends that there is insufficient evidence that it had actual knowledge of a legally enforceable contract, or that Texaco actively induced a breach of the alleged contract. Texaco further asserts that the alleged contract was [788] not valid and enforceable, because it was based on a mutual mistake, because it would violate SEC Rule 10b-13 and the statute of frauds, and because it would be a breach by Gordon Getty and by the Getty Oil directors of their fiduciary duties; thus, Texaco argues, the alleged contract will not support a tort action for inducement of breach.

SPECIAL ISSUE NO. 1

Texaco contends that under controlling principles of New York law, there was insufficient evidence to support the jury's finding that at the end of the Getty Oil board meeting on January 3, the Getty entities intended to bind themselves to an agreement with Pennzoil.

Pennzoil responds that the question of the parties' intent is a fact question, and the jury was free to accept or reject Texaco's after-the-fact testimony of subjective intent. Pennzoil contends that the evidence showed that the parties intended to be bound to the terms in the Memorandum of Agreement plus a price terms of $110 plus a $5 stub, even though the parties may have contemplated a later, more formal document to memorialize the agreement already reached. Pennzoil also argues that the binding effect of the Memorandum of Agreement was conditioned only upon approval of the board, not also upon execution of the agreement by a Getty signator.

Under New York law, if parties do not intend to be bound to an agreement until it is reduced to writing and signed by both parties, then there is no contract until that event occurs. Scheck v. Francis, 26 N.Y.2d 466, 311 N.Y.S.2d 841, 260 N.E.2d 493 (1970). If there is no understanding that a signed writing is necessary before the parties will be bound, and the parties have agreed upon all substantial terms, then an informal agreement can be binding, even though the parties contemplate evidencing their agreement in a formal document later. Municipal Consultants & Publishers, Inc. v. Town of Ramapo, 47 N.Y.2d 144, 417 N.Y.S.2d 218, 220, 390 N.E.2d 1143, 1145 (1979); R.G. Group, Inc. v. Horn & Hardart Co., 751 F.2d 69, 74 (2d Cir.1984).

If the parties do intend to contract orally, the mere intention to commit the agreement to writing does not prevent contract formation before execution of that writing, Winston v. Mediafare Entertainment Corp., 777 F.2d 78, 80 (2d Cir.1985), and even a failure to reduce their promises to writing is immaterial to whether they are bound. Schwartz v. Greenberg, 304 N.Y. 250, 107 N.E.2d 65 (1952).

However, if either party communicates the intent not to be bound before a final formal document is executed, then no oral expression of agreement to specific terms will constitute a binding contract. Winston, 777 F.2d at 80; R.G. Group, 751 F.2d at 74.

Thus, under New York law, the parties are given the power to obligate themselves informally or only by a formal signed writing, as they wish. R.G. Group, 751 F.2d at 74. The emphasis in deciding when a binding contract exists is on intent rather than on form. Reprosystem, B.V. v. SCM Corp., 727 F.2d 257, 261 (2d Cir.), cert. denied, 469 U.S. 828, 105 S.Ct. 110, 83 L.Ed.2d 54 (1984).

It is the parties' expressed intent that controls which rule of contract formation applies. To determine intent, a court must examine the words and deeds of the parties, because these constitute the objective signs of such intent. Winston, 777 F.2d at 80; R.G. Group, 751 F.2d at 74. Only the outward expressions of intent are considered—secret or subjective intent is immaterial to the question of whether the parties were bound. Porter v. Commercial Casualty Insurance Co., 292 N.Y. 176, 54 N.E.2d 353 (1944).

Several factors have been articulated to help determine whether the parties intended to be bound only by a formal, signed writing: (1) whether a party expressly reserved the right to be bound only when a written agreement is signed; (2) whether there was any partial performance by one party that the party disclaiming the contract accepted; (3) whether all essential terms of the alleged contract had been [789] agreed upon; and (4) whether the complexity or magnitude of the transaction was such that a formal, executed writing would normally be expected. Winston, 777 F.2d at 80; R.G. Group, 751 F.2d at 76.

Evaluating the first factor, Texaco contends that the evidence of expressed intent not to be bound establishes conclusively that there was no contract at the time of Texaco's alleged inducement of breach. Texaco argues that this expressed intent is contained in (1) the press releases issued by the Getty entities and Pennzoil, which stated that "the transaction is subject to execution of a definitive merger agreement"; (2) the phrasing of drafts of the transaction agreement, which Texaco alleges "carefully stated that the parties' obligations would become binding only `after the execution and delivery of this Agreement'"; and (3) the deliberate reference by the press releases to the parties' understanding as an "agreement in principle."

In its brief, Texaco asserts that, as a matter of black letter New York law, the "subject to" language in the press release established that the parties were not then bound and intended to be bound only after signing a definitive agreement, citing Banking & Trading Corp. v. Reconstruction Finance Corp., 147 F.Supp. 193, 204 (S.D.N.Y.1956), aff'd, 257 F.2d 765 (2d Cir. 1958). The court in that case stated that "if the agreement is expressly subject to the execution of a formal contract, this intent must be respected and no contract found until then." However, the court went on to say that where intent is less sharply expressed, the trier of fact must determine it as best he can. Id. at 204-05. Although the intent to formalize an agreement is some evidence of an intent not to be bound before signing such a writing, it is not conclusive. Id. at 204. The issue of when the parties intended to be bound is a fact question to be decided from the parties' acts and communications. Id.; see Chromalloy American Corp. v. Universal Housing Systems of America, Inc., 495 F.Supp. 544, 550 (S.D.N.Y.1980), aff'd, 697 F.2d 289 (2d Cir.1982).

The press release issued first by Getty, then by Pennzoil, on January 4, 1984, stated:

Getty Oil Company, The J. Paul Getty Museum and Gordon Getty, as Trustee of the Sarah C. Getty Trust, announced today that they have agreed in principle with Pennzoil Company to a merger of Getty Oil and a newly formed entity owned by Pennzoil and the Trustee.

In connection with the transaction, the shareholders of Getty Oil ... will receive $110 per share cash plus the right to receive a deferred cash consideration in a formula amount. The deferred consideration will be equal to a pro rata share of the ... proceeds, in excess of $1 billion,... of ERC Corporation, ... and will be paid upon the disposition. In any event, under the formula, each shareholder will receive at least $5 per share within five years.

Prior to the merger, Pennzoil will contribute approximately $2.6 billion in cash and the Trustee and Pennzoil will contribute the Getty Oil shares owned by them to the new entity. Upon execution of a definitive merger agreement, the ... tender offer by a Pennzoil subsidiary for shares of Getty Oil stock will be withdrawn.

The agreement in principle also provides that Getty Oil will grant to Pennzoil an option to purchase eight million treasury shares for $110 per share.

The transaction is subject to execution of a definitive merger agreement, approval by the stockholders of Getty Oil and completion of various governmental filing and waiting period requirements.

Following consummation of the merger, the Trust will own 4/7ths of the ... stock of Getty Oil and Pennzoil will own 3/7ths. The Trust and Pennzoil have also agreed in principle that following consummation of the merger they will endeavor in good faith to agree upon a plan for restructuring Getty Oil [within a year] and that if they are unable to reach such an agreement then they will cause a division of assets of the company. (Emphasis added.)

[790] Any intent of the parties not to be bound before signing a formal document is not so clearly expressed in the press release to establish, as a matter of law, that there was no contract at that time. The press release does refer to an agreement "in principle" and states that the "transaction" is subject to execution of a definitive merger agreement. But the release as a whole is worded in indicative terms, not in subjunctive or hypothetical ones. The press release describes what shareholders will receive, what Pennzoil will contribute, that Pennzoil will be granted an option, etc.

The description of the transaction as subject to a definitive merger agreement also includes the need for stockholder approval and the completion of various governmental filing and waiting requirements. There was evidence that this was a paragraph of routine details, that the referred to merger agreement was a standard formal document required in such a transaction under Delaware law, and that the parties considered these technical requirements of little consequence.

There is also an arguable difference between a "transaction" being subject to various requirements and the formation of the agreement itself being dependent upon completion of these matters. In F. W. Berk & Co. v. Derecktor, 301 N.Y. 110, 92 N.E.2d 914 (1950), cited in Texaco's brief, the defendant's very acceptance of the plaintiff's order was made subject to the occurrence of certain events. The court defined the phrase "subject to" as being the equivalent of "conditional upon or depending on" and held that making the acceptance of an offer subject to a condition was not the kind of assent required to make it a binding promise. However, making the acceptance of an offer conditional, or expressly making an agreement itself conditional, is a much clearer expression of an intent not to be bound than the use of the more ambiguous word "transaction."

Other cases cited by Texaco involved writings that specifically stated that no party would be committed until a written contract was executed. See, e.g., Reprosystem, B.V., 727 F.2d at 260 (draft agreements clearly stated that formal execution was required before the contract would have any binding effect); Chromalloy American Corp., 495 F.Supp. at 547-48 (letter of intent stated that neither party would be committed until a contract was executed). Yet, despite the clear language of reservation in those cases, the parties' intent to be bound was still evaluated as a question of fact to be determined from all the circumstances of the case. Reprosystem, B. V., 727 F.2d at 261-62; Chromalloy American Corp., 495 F.Supp. at 550.

So it is here. Regardless of what interpretation we give to the conditional language in the press release, we conclude that it did not so clearly express the intent of the parties not to be bound to conclusively resolve that issue, as Texaco asserts.

Texaco also contends that explicit language of reservation in drafts of Pennzoil's transaction agreement indicates the parties' expressed intent not to be bound without a signed writing. Texaco asserts that "Pennzoil's lawyers carefully stated that the parties' obligations would become binding only `after the execution and delivery of this Agreement.'"

That assertion is not accurate. In fact, "after the execution and delivery of this Agreement" was merely used as an introductory phrase before each party's obligations were described, e.g., after the execution and delivery of this Agreement, Pennzoil shall terminate the tender offer;... Pennzoil and the Company shall terminate all legal proceedings; ... the Company shall purchase all shares held by the Museum; etc. Other clauses in the transaction agreement did not contain that phrase, e.g., the Company hereby grants to Pennzoil the option to purchase up to 8 million shares of treasury stock; on or prior to the effective date, Pennzoil and the Trustee shall form the merging company; etc.

A reasonable conclusion from reading the entire drafts is that the phrase "after the execution and delivery of this Agreement" was used chiefly to indicate the timing of various acts that were to occur, and not to impose an express precondition to [791] the formation of a contract. Compare Reprosystem, B.V., 727 F.2d at 262 ("when executed and delivered," the agreement would become "a valid and binding agreement"). Again, the language upon which Texaco relies does not so clearly express an intent not to be bound to resolve that issue or to remove the question from the ambit of the trier of fact.

Next, Texaco states that the use of the term "agreement in principle" in the press release was a conscious and deliberate choice of words to convey that there was not yet any binding agreement. Texaco refers to defense testimony that lawyers for Getty Oil and the Museum changed the initial wording of the press release from "agreement" to "agreement in principle" because they understood and intended that phrase to mean that there was no binding contract with Pennzoil.

Texaco cites Mine Safety Appliance Co. v. Energetics Science, Inc., No. 75 Civ. 4925, slip op. at 3, n. 2 (S.D.N.Y., Feb. 5, 1980), an unreported case where the court in dicta characterized an agreement in principle as "a far cry from a final contract." However, the court in that case acknowledged that intent to be bound was a fact issue. A motion to declare an alleged agreement binding and enforceable was denied, because the court found that a question of material fact had been raised on whether the non-movants intended to be bound. In another of Texaco's cited cases, Debreceni v. Outlet Co., 784 F.2d 13, 18 (1st Cir.1986), an offer was subject to the execution of definitive agreements of sale, and the agreement itself provided that it would become a binding obligation only after execution. Applying New York law, the court stated that the parties would not be bound until a written agreement was executed if that was their intention.

Pennzoil and Texaco presented conflicting evidence at trial on the common business usage and understanding of the term "agreement in principle." Texaco's witnesses testified that the term is used to convey an invitation to bid or that there is no binding contract. Pennzoil's witnesses testified that when business people use "agreement in principle," it means that the parties have reached a meeting of the minds with only details left to be resolved. There was testimony by Sidney Petersen, Getty Oil's chief executive officer, that an "agreement in principle" requires the parties to proceed to try to implement the details of the agreement in good faith, and that that was the case with the agreement in principle with Pennzoil.

The jury was the sole judge of the credibility of the witnesses and was entitled to accept or reject any testimony it wished, as well as to decide what weight to give the testimony. Rego Co. v. Brannon, 682 S.W.2d 677, 680 (Tex.App.—Houston [1st Dist] 1984, writ ref'd n.r.e.). There was sufficient evidence at trial on the common business usage of the expression "agreement in principle" and on its meaning in this case for the jury reasonably to decide that its use in the press release did not necessarily establish that the parties did not intend to be bound before signing a formal document.

A second factor that may indicate whether the parties intended to be bound only by a signed, formal writing is whether there was partial performance by one party that the party disclaiming the contract accepted. Winston, 777 F.2d at 80; R.G. Group, 751 F.2d at 76.

Texaco asserts that there was no partial performance that would indicate an intent to be bound, but conversely, that the conduct of the parties here was inconsistent with the existence of a binding contract.

Texaco points out that Pennzoil amended its tender offer statement with the SEC on January 4, stating its intent to withdraw the tender offer "if" a definitive merger agreement was executed. Pennzoil filed a copy of the press release to update its SEC statement. Texaco claims that Pennzoil would have been required to withdraw the tender offer under SEC rule 10b-13, 17 C.F.R. § 240.10b-13 (1985), if a binding contract had existed on that date. These contentions will be discussed later in this opinion. Texaco also argues that Getty Oil and the other Getty entities demonstrated a belief that no contract existed yet by actively [792] soliciting other bids for the purchase of Getty Oil and by representing to Texaco that they were free to deal.

Pennzoil points out that Texaco's alleged interference with Pennzoil's agreement occurred scarcely 48 hours after the agreement came into existence, and there was very little time for any performance under the agreement to have occurred. Pennzoil asserts that there was affirmative partial performance nevertheless, in that representatives of Pennzoil and the Trust worked to coordinate the issuance of a joint press release, as provided by the Memorandum of Agreement upon approval of the plan, and also in that Pennzoil made arrangements to have $1 billion in cash available for the payment of the Museum's shares in escrow.

Other than the preliminary financial arrangements made by Pennzoil, we find little relevant partial performance in this case that might show that the parties believed that they were bound by a contract. However, the absence of relevant part performance in this short period of time does not compel the conclusion that no contract existed. Texaco has pointed out that there was some conduct inconsistent with the existence of an intent to be bound to a contract. But partial performance, and on the other hand, conduct that is inconsistent with an intent to be bound, are again merely circumstances that the finder of fact could consider in reaching a decision on whether the parties intended to be bound. The evidence on the parties' conduct was presented to the jury, which could either accept or reject the inferences the parties asked it to draw from these facts.

The next factor showing intent to be bound is whether there was agreement on all essential terms of the alleged agreement. Texaco contends that numerous items of "obvious importance" were still being negotiated at the time Pennzoil claims a contract had been formed.

First, Texaco asserts that there was no agreement on which party would buy the Museum's stock. Pennzoil contends that its contract was formed on January 3, and that intent to be bound must be determined as of that date. The jury specifically found, in response to Special Issue No. 6, that at the end of the January 3 board meeting, the Getty Oil Company, the Museum, the Trust, and Pennzoil each intended to be bound to an agreement that provided that Getty Oil would purchase the Museum's shares forthwith as provided in the Memorandum of Agreement. There is evidence in the record to support this finding.

The Copley notes of the Getty Oil board meeting (made by Ralph Copley, General Counsel, and Secretary of the Board of Getty Oil) reflect that at the board meeting on January 3, all but one of Getty's directors voted to accept "the Pennzoil proposal," provided that the price being paid per share was $110 plus a minimum $5 stub. The testimony is sharply conflicting on exactly what the "Pennzoil proposal" was that the board approved, as are the inferences that could be drawn from the record of that board meeting.

Texaco's witnesses testified that the Getty board approved only a price proposal by Pennzoil, a basis upon which to negotiate further, and not the other terms originally presented to the board in the Memorandum of Agreement, which Texaco contends was rejected by the board and never considered again after that first vote. Pennzoil's evidence showed that the only "Pennzoil proposal" before the board was the terms contained in the Memorandum of Agreement, which among other things provided that Getty Oil was to buy the Museum's shares. The Memorandum of Agreement was signed by representatives of Pennzoil and of the Museum and the Trust, holders of a majority of Getty's shares, and was subject only to approval of the board of Getty Oil. The terms described in the press release issued by the Getty entities and then by Pennzoil the next day correspond to those contained in the Memorandum of Agreement except for the higher price term.

It was the jury's task to judge the credibility of the witnesses, to resolve conflicts in the factual evidence, and to decide which inferences to draw from the evidence presented. LeMaster v. Fort Worth Transit Co., 138 Tex. 512, 160 S.W.2d 224 [793] (1942). The reviewing court may not substitute its own opinion for that of the jury on these matters. We find that there was sufficient evidence to support the jury's finding that at the end of the Getty Oil board meeting on January 3, the parties had reached agreement on Getty's purchase of the Museum's shares.

There was evidence that the parties were made aware, on January 4, that Getty's purchase of the Museum's shares might trigger a tax penalty applicable to sales of stock between charitable trusts and related entities. It was agreed that this possibility had to be explored, and further discussions developed the alternative of having Pennzoil, rather than Getty Oil, buy the Museum's shares. The Museum's attorney drafted an escrow agreement to effect Pennzoil's purchase of those shares. There was testimony that Pennzoil also began making arrangements to have the necessary cash available in escrow.

There is sufficient evidence to refute Texaco's assertion that the question of who would buy the Museum's shares was a significant open issue that the parties had not agreed upon at the time Pennzoil contends, and the jury found, the parties intended to be bound. Nor does the conflicting evidence of events after January 3 compel the conclusion that the parties considered it a problem that Pennzoil, rather than Getty Oil, would be buying the Museum's shares.

There was evidence that the Museum's main concerns were price protection and that its shares would be purchased at once. The Museum's attorney suggested that any potential tax problem could be avoided by having Pennzoil buy its shares, and she drafted an escrow agreement for effecting this. Pennzoil's witnesses testified that Pennzoil did not object to this change of mechanics from the original agreement. Under the alleged agreement, Pennzoil was to purchase 24 million shares, and Pennzoil's CEO testified that it made no difference to Pennzoil which 24 million shares it bought. Although one of Getty's attorneys had expressed an objection to Pennzoil's buying the Museum shares, he also objected to Getty Oil itself buying those shares, as provided in the Memorandum of Agreement. There was concern, he said, that if Pennzoil and the Trust acquired control of Getty before buying all outstanding shares, the remaining public shares would not be bought at the same price. However, the Memorandum of Agreement and the press release both stated the same price to be paid to all selling shareholders. There was also testimony that the attorneys representing Getty Oil, the Museum, and the Trust agreed on January 5 that it was better to have Pennzoil rather than Getty buy the Museum's shares.

Texaco lists the extent of the Museum's "top up" price protection as another open issue showing the lack of the parties' intent to be bound.

The "top up" provision in the Memorandum of Agreement guaranteed that the Museum would receive a higher price per share than specified if anyone buying at least 10 percent of the stock paid a higher price for those shares. This provision effectuated the Museum's requirement of price protection for the sale of its Getty shares, should Pennzoil or the company pay another shareholder a higher price. Pennzoil's president acknowledged that Pennzoil was bound to the "top up" clause in the Memorandum of Agreement, which was signed by Pennzoil and the Museum, and which Pennzoil alleges became a binding contract upon its approval, with a higher price term, by the Getty board on January 3. Though no "top up" clause appeared in the first draft of the transaction agreement, such provisions were contained in subsequent drafts. The evidence as a whole does not support Texaco's contention that the parties did not reach agreement on price protection for the Museum, or that it remained a significant open issue.

Next, Texaco argues that the parties never resolved a number of questions relating to the payment of Getty's first quarter dividend and to the $5 stub that was to be part of the consideration for the Getty Oil shares. The stub represented the minimum payment shareholders were to receive [794] within 5 years from the excess proceeds from the sale of ERC.

Getty's outside counsel, Winokur, testified that open issues remained on who would control the sale, who would guarantee payment of the stub in the event of liquidation, how "net proceeds" would be defined, and what ERC's dividend policy would be under the new ownership. Pennzoil points out that the Copley notes of the board meeting do not show that the Getty Oil board expressed any concern over the mechanics of the ERC sale before it approved the Pennzoil proposal on January 3. Pennzoil's CEO testified that none of the parties ever brought up these matters at all before the agreement was made, and that Pennzoil was never told that resolution of such questions was essential to the agreement. There was evidence that the Getty entities' main concern was the price that shareholders would receive for their shares, and that questions over the exact mechanics of achieving that price were no obstacle to reaching agreement on the transaction.

Nor does the evidence show that Getty's first quarter dividend was an important unresolved issue. There was evidence that Pennzoil did not object to paying the dividend, and that there were customary ways of handling such questions in a merger situation. Pennzoil considered the amount involved insignificant in relation to the magnitude of the entire transaction. The jury was entitled to resolve the contradicting testimony on the significance of these matters and to decide the implications on the question of the parties' intent.

Texaco also asserts, again based on the testimony of its witness Winokur, that the parties never reached agreement on whether the definitive agreement would ensure that once Pennzoil and the Trust acquired control, they could not avoid the commitment to purchase the remaining outstanding public shares.

Pennzoil's witnesses testified that Pennzoil considered itself bound to the terms of the Memorandum of Agreement after the Getty board approved the transaction on January 3. The Memorandum of Agreement was signed by representatives of Pennzoil, the Trust, and the Museum before it was presented to the Getty board. The terms of the Memorandum of Agreement provided for the purchase of all outstanding shares at the same price.

As stated above, there was conflicting evidence on whether the board approved the transaction contemplated by the Memorandum of Agreement with a higher price term, or whether, as Texaco contends, it approved only a price proposal that was to form the basis for further negotiations. The press release issued the morning after the board meeting listed essentially the same terms as the Memorandum of Agreement, with the exception of price per share, in describing the transaction agreed upon in principle by the parties. All selling shareholders were to receive the same price. There was evidence that the board was concerned chiefly with the price per shares it could achieve for all the shareholders of Getty, and not with the mechanics of the transaction.

There was sufficient evidence for the jury to believe that the board approved more than just a price proposal, i.e., the Memorandum of Agreement terms modified by a higher price term. The jury could reasonably infer that, by those terms, Pennzoil and the Trust had agreed to pay the same price for all outstanding shares. There was very little evidence, other than Winokur's conjecture, that Pennzoil sought any "out" to its obligations under the agreement conflicting with the interests expressed by Getty.

Finally, Texaco contends that Pennzoil never agreed to honor Getty's employee benefit plans and provide adequate termination provisions.

There was testimony that Pennzoil did not anticipate terminating any employees, because Getty Oil was to continue in existence and would require all its employees under the new ownership of Pennzoil and the Trust. Given that scenario, there was no urgency in including provisions for employee termination benefits in the Memorandum of Agreement, press release, or [795] transaction agreement drafts, according to Pennzoil's evidence. Pennzoil's CEO testified that, given that there were no plans to fire anyone, there was no necessity to include termination benefits in the agreement, and that it was a "non-problem." Standard provisions on employee benefits were in fact drafted by one of the Getty attorneys and were sent over to Pennzoil's lawyers for incorporation into the transaction agreement.

There was sufficient evidence for the jury to conclude that the parties had reached agreement on all essential terms of the transaction with only the mechanics and details left to be supplied by the parties' attorneys. Although there may have been many specific items relating to the transaction agreement draft that had yet to be put in final form, there is sufficient evidence to support a conclusion by the jury that the parties did not consider any of Texaco's asserted "open items" significant obstacles precluding an intent to be bound.

The fourth factor that Texaco discusses as showing that the parties did not intend to be bound before executing a formal contract is the magnitude and complexity of the transaction. There is little question that the transaction by which Getty Oil was to be taken private by the Trust and Pennzoil involved an extremely large amount of money. It is unlikely that parties to such a transaction would not have expected a detailed written document, specifically setting out the parties' obligations and the exact mechanics of the transaction, whether it was to be executed before the parties intended to be bound or only to memorialize an agreement already reached.

We agree with Texaco that this factor tends to support its position that the transaction was such that a signed contract would ordinarily be expected before the parties would consider themselves bound. However, we cannot say, as a matter of law, that this factor alone is determinative of the question of the parties' intent.

The trial of this case lasted many weeks, with witnesses for both sides testifying extensively about the events of those first days of January 1984. Eyewitnesses and expert witnesses interpreted and explained various aspects of the negotiations and the alleged agreement, and the jury was repeatedly made aware of the value of Getty Oil's assets and how much money would be involved in the company's sale. There was testimony on how the sale of the company could be structured and on the considerations involved in buying and restructuring, or later liquidating, the company. But there was also testimony that there were companies that in the past had bound themselves to short two-page acquisition agreements involving a lot of money, and Getty's involvement banker testified that the Texaco transaction included "one page back-of-the-envelope kinds of agreements" that were formalized. The Memorandum of Agreement containing the essential terms of the Pennzoil/Getty agreement was only four pages long.

Although the magnitude of the transaction here was such that normally a signed writing would be expected, there was sufficient evidence to support an inference by the jury that that expectation was satisfied here initially by the Memorandum of Agreement, signed by a majority of shareholders of Getty Oil and approved by the board with a higher price, and by the transaction agreement in progress that had been intended to memorialize the agreement previously reached.

The record as a whole demonstrates that there was legally and factually sufficient evidence to support the jury's finding in Special Issue No. 1 that the Trust, the Museum, and the Company intended to bind themselves to an agreement with Pennzoil at the end of the Getty Oil board meeting on January 3, 1984. Point of Error 46 is overruled.

Texaco next claims that even if the parties intended to bind themselves before a definitive document was signed, no binding contract could result because the terms that they intended to include in their agreement were too vague and incomplete to be enforceable as a matter of law. Texaco attacks the terms, found by the jury, of the alleged agreement as being so uncertain as [796] to render the alleged contract fatally indefinite.

Where a question of the parties' intent is determinable by written agreement, the question is one of law for the court. Marinas of the Future, Inc. v. City of New York, 87 A.D.2d 270, 450 N.Y.S.2d 839, 844 (App.Div.1982). As discussed above, however, the parties' intent here is not conclusively discernible from their writings alone; therefore, extrinsic evidence of relevant events is properly considered on the question of that intent. St. Regis Paper Co. v. Hubbs & Hastings Paper Co., 235 N.Y. 30, 138 N.E. 495 (1923). Further, the case at bar is distinguishable from those cited by Texaco that involved writings stating specifically that certain essential terms were "to be agreed upon" in the future. See, e.g., Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher, 52 N.Y.2d 105, 436 N.Y. S.2d 247, 417 N.E.2d 541 (1981); Willmott v. Giarraputo, 5 N.Y.2d 250, 184 N.Y.S.2d 97, 157 N.E.2d 282 (1959).

For a contract to be enforceable, the terms of the agreement must be ascertainable to a reasonable degree of certainty. Candid Productions, Inc. v. International Skating Union, 530 F.Supp. 1330, 1333 (S.D.N.Y.1982). The question of whether the agreement is sufficiently definite to be enforceable is a difficult one. The facts of the individual case are decisively important. Mason v. Rose, 85 F.Supp. 300, 311 (S.D.N. Y.1948), aff'd, 176 F.2d 486 (2d Cir.1949). "The agreement need not be so definite that all the possibilities that might occur to a party in bad faith are explicitly provided for, but it must be sufficiently complete so that parties in good faith can find in the agreement words that will fairly define their respective duties and liabilities." Id. On review, the agreement must be sufficiently definite for the court to be able to recognize a breach and to fashion a remedy for that breach. Candid Productions, Inc., 530 F.Supp. at 1333-34.

Texaco does not assert that a specific essential term was completely omitted from the agreement, but rather alleges very briefly why the terms of the agreement found by the jury are fatally incomplete. Texaco cites to the lack of description of the mechanics of various aspects of the transaction, e.g., how and when the determined price would be paid to shareholders, how the agreed stock ownership ratio was to be achieved, how a potential tax penalty on Getty's purchasing the Museum shares would be resolved, and what limitations, if any, existed on the option granted to Pennzoil to buy 8 million shares of Getty Oil stock.

Texaco's attempts to create additional "essential" terms from the mechanics of implementing the agreement's existing provisions are unpersuasive. The terms of the agreement found by the jury are supported by the evidence, and the promises of the parties are clear enough for a court to recognize a breach and to determine the damages resulting from that breach. Point of Error 47 is overruled.

SPECIAL ISSUE NO. 2

Texaco's next points of error concern the jury's finding in Special Issue No. 2 that Texaco knowingly interfered with the agreement, if so found, between Pennzoil and the Getty entities. Texaco contends that the evidence is legally and factually insufficient to show that Texaco had actual knowledge of any agreement, that it actively induced breach of the alleged contract, and that the alleged contract was valid and capable of being interfered with.

First, Texaco asserts that Pennzoil failed to prove that Texaco had actual knowledge that a contract existed.

New York law requires knowledge by a defendant of the existence of contractual rights as an element of the tort of inducing a breach of that contract. Hornstein v. Podwitz, 254 N.Y. 443, 173 N.E. 674 (1930). However, the defendant need not have full knowledge of all the detailed terms of the contract. Guard-Life Corp. v. S. Parker Hardware Manufacturing Corp., 50 N.Y.2d 183, 428 N.Y.S.2d 628, 406 N.E.2d 445 (1980); Gold Medal Farms, Inc. v. Rutland County Co-operative Creamery, Inc., 10 A.D.2d 584, 9 A.D.2d 473, 195 N.Y.S.2d 179, 185 (App.Div.1959).

[797] There is even some indication that a defendant need not have an accurate understanding of the exact legal significance of the facts giving rise to a contractual duty, but rather may be liable if he knows those facts, but is mistaken about whether they constitute a contract. Restatement (Second) of Torts § 766, comment i (1977); see Entertainment Events, Inc. v. Metro-Goldwyn-Mayer Inc., No. 74 Civ. 2959, slip op. at 15 (S.D.N.Y., May 31, 1978).

For example, the commentary to the Restatement (Second) of Torts describes the knowledge requirement as follows:

Actor's knowledge of other's contract. To be subject to liability ... the actor must have knowledge of the contract with which he is interfering.... [I]t is not necessary that the actor appreciate the legal significance of the facts giving rise to the contractual duty ... If he knows those facts, he is subject to liability even though he is mistaken as to their legal significance and believes that the agreement is not legally binding....

Sec. 766, comment i. New York's highest court has followed the principles and precepts embodied in the Restatement in this developing area of tort law. See, e.g., Guard-Life Corp., 50 N.Y.2d 183, 428 N.Y. S.2d 628, 406 N.E.2d 445.

The element of knowledge by the defendant is a question of fact, and proof may be predicated on circumstantial evidence. See American Cyanamid Co. v. Elizabeth Arden Sales Corp., 331 F.Supp. 597 (S.D.N.Y.1971). Since there was no direct evidence of Texaco's knowledge of a contract in this case, the question is whether there was legally and factually sufficient circumstantial evidence from which the trier of fact reasonably could have inferred knowledge.

Texaco argues that the writings known to Texaco and the verbal assurances it was given are matters of undisputed fact that do not add up to actual knowledge of a binding contract. It states that the only written evidence known to Texaco was the Memorandum of Agreement, the January 4 press release, and the January 2 "Dear Hugh" letter from Gordon Getty to Hugh Liedtke, Pennzoil's CEO. Texaco contends that these writings confirm the absence of a binding agreement.

First, it argues that the only reasonable conclusion that Texaco could draw from inconsistencies in the Memorandum of Agreement and the subsequent press release was that there was no binding agreement. Texaco points out that the Memorandum of Agreement provides for Pennzoil to amend its tender offer, but the press release states that Pennzoil was to withdraw the tender offer. The Memorandum of Agreement contains a price of $110 per share, whereas the press release states a price of $110 plus a $5 stub. Finally, Texaco argues that the failure of the press release to report who would buy the Museum shares was inconsistent with the Memorandum of Agreement's provision for Getty Oil's purchase of those shares.

Pennzoil responds that a comparison of the Memorandum of Agreement with the press release compels the conclusion that the Memorandum of Agreement was approved by the Getty Oil board with a price increment. We disagree that either of the parties' interpretations is the only possible interpretation of these two writings. Where different inferences may reasonably be drawn from the evidence, the question is one for the jury. LeMaster v. Fort Worth Transit Co., 138 Tex. 512, 160 S.W.2d 224.

Based on the other evidence at trial, different inferences could have been drawn from the fact that the press release did not state exactly the same information contained in the Memorandum of Agreement. One of Getty's lawyers testified that the Memorandum was phrased in such a way as to be "the last word," binding on Getty Oil. Before it was ever presented to the board, the Memorandum of Agreement had been signed by Pennzoil and representatives of the Trust and the Museum, who together owned a majority of the stock of Getty. The Memorandum of Agreement, which was written to become binding upon Getty Oil board approval, was presented to the board, and on the morning after the board meeting, the Getty press release announced that the Getty entities had reached [798] an agreement in principle with Pennzoil on essentially the same terms as the Memorandum of Agreement, but listed a higher price to be paid per share. The press release appeared on the Dow Jones "broad tape" under the headline "Getty Oil Announces Merger."

Though defense witnesses testified that Texaco was told that the board had completely rejected the Memorandum of Agreement, the jury did not have to believe this testimony and could reasonably have decided that when Texaco compared the two writings, it saw that the Memorandum of Agreement had been approved by the board after a renegotiation of the price and a change in the structure of effectuating the purchase of Getty (amending versus withdrawing the tender offer). Nor is the press release's silence on who would buy the Museum's shares a fatal inconsistency. Silence generally implies consistency rather than contradiction.

Texaco also asserts that the fact that the Memorandum of Agreement was expressly subject to board approval, along with the fact that the document's signature line for Getty Oil was blank, were unmistakable signals to Texaco that the Memorandum of Agreement was not a final contract. We agree such an inference could arise.

However, we find that a contrary inference is also reasonable, given the other evidence in this case. The discussion above, pertaining to a comparison of the Memorandum of Agreement with the Getty press release, is also applicable to Texaco's contentions here. There was testimony that the Memorandum of Agreement was written in such a way as to become binding upon board approval. Getty's press release announcing the transaction between Pennzoil and the Getty entities, and outlining basically the Memorandum of Agreement terms, was issued the next morning after the board meeting. Since the price announced in the press release was higher, it was not surprising that Getty Oil, after presumably negotiating that higher price, did not sign the original Memorandum of Agreement, which would have given shareholders a lower price per share. But the jury could reasonably infer from the Getty announcement of the terms of the agreement in principle reached with Pennzoil, that the terms of the Memorandum of Agreement had been approved by the board with a higher price. It was for the jury to decide what weight to give to the evidence, and where conflicting inferences were possible from the evidence, it was the jury's task to choose between them. LeMaster, 138 Tex. 512, 160 S.W.2d 224.

Texaco's next contention is that the unambiguous wording of the press release, i.e., the "subject to" and agreement "in principle" language, demonstrated that there was no contract. We disagree that the press release is unambiguous, and our discussion above of the press release's use of the terms: agreement "in principle," and "subject to" a definitive agreement, applies equally here. That language did not in itself preclude the existence of a contract, nor a jury finding of Texaco's knowledge of one.

Next, Texaco acknowledges that it was given the "Dear Hugh" letter from Gordon Getty to Pennzoil's CEO along with other writings relevant to the dealings with Pennzoil. But Texaco claims that the Trust's advisors indicated that the letter did not restrict the Trust's freedom to go forward with Texaco. The "Dear Hugh" letter was dated January 2, 1984, and was signed by Gordon Getty as trustee. It stated:

Dear Hugh:

This is to confirm the understanding between us relating to the Plan dated January 2, 1984 that is being presented to the Board of Getty Oil Company today.

Subject only to my fiduciary obligations, I agree that I will support the Plan before the Board and will oppose any alternative proposals or other arrangements submitted to the Board that do not provide for your participation in Getty Oil Company on the same basis as outlined in the Plan.

Subject only to my fiduciary obligations, if the Board does not approve the Plan [799] today, I will execute a Consent to remove that board and to replace the directors with directors who will support the best interests of the shareholders, as reflected in the Plan.

Subject only to my fiduciary obligations, I will also use my best efforts to urge the J. Paul Getty Museum to execute a Consent to the same effect....

Texaco contends that because the letter contained the reservation that its promises were "subject only to [Gordon Getty's] fiduciary duties," it did not give Texaco notice of any binding contractual relations. There was testimony that the advisors of Gordon Getty and the Trust told Texaco that the Trust was free to deal and that the letter was not an obstacle, because it contained the restrictive "subject only to my fiduciary obligations."

At the very least, the letter reaffirms other evidence that indicated how important the decisions made at the January 2-3 Getty board meeting were to the question of whether there was a contract with Pennzoil, and implies what the likely outcome of the board vote was. The letter was signed by a shareholder who, as trustee, controlled over 40 percent of the company's voting stock. It confirmed an understanding between Pennzoil and the trustee that the latter would not only support the Memorandum of Agreement before the board of Getty Oil and oppose any other proposals that would not include Pennzoil, but that he would also execute a Consent to remove the board and replace the directors if the Pennzoil plan was not approved. Under Delaware law, the holders of a majority of a company's stock could agree in writing to take action binding on the board without formal board approval.

Given the Trust's large ownership percentage in Getty, the jury could reasonably decide that Texaco knew that the "Dear Hugh" letter's promises were not insignificant on whether the Pennzoil proposal had been approved. In late autumn of 1983, the well-publicized dissension between Gordon Getty and members of the Getty Oil board resulted in the Trust and Museum executing a previous Consent, which amended Getty Oil's bylaws to require that all significant board action, including agreements to merge or to sell Getty's assets, had to have the approval of 14 of 16 directors. There was testimony that the company had been a candidate for a takeover struggle even before the Consent, but that that further confirmed and publicized it. Since Gordon Getty had so recently executed a Consent to resolve his difficulties with the Getty board, and specifically his conflicts with Getty CEO Sidney Petersen, a reader of the "Dear Hugh" letter would know that the promise of a Consent was not an idle threat, but rather made Gordon Getty's undertaking to obtain board approval for the Pennzoil plan much more certain.

Texaco acknowledges that the writings it saw relating to a possible agreement with Pennzoil were the Memorandum of Agreement, the press release, and the "Dear Hugh" letter. Based on these documents, it is clear that Getty board approval was a critical element in determining whether the Getty entities had a binding agreement with Pennzoil. Texaco's evidence of its lack of knowledge about what decisions were made at the January 2-3 board meeting must be contrasted with the circumstantial evidence that could have persuaded the jury that Texaco was aware that the Pennzoil proposal had been approved.

Texaco contends that it received repeated verbal assurances, both by principals and representatives of the Getty entities, that there was no binding contract with Pennzoil and that the Getty entities were free to deal with Texaco.

On January 3, one of Getty Oil's investment advisors, Geoffrey Boisi, called Texaco to say that the Getty board would meet that day and to get an expression of interest in Getty's sale. Boisi stated that Getty was seeking bids from potential purchasers other than Pennzoil. Texaco expressed its interest in receiving more information, and Boisi agreed to keep Texaco informed.

Texaco called Boisi back early on the next morning, when the Getty press release was issued and appeared on the Dow [800] Jones broad tape under the headline "Getty Oil Announces Merger." Boisi had not yet arrived for work when Texaco called, so he returned the call later that morning "as a courtesy" to explain the appearance of the announcement concerning Pennzoil. There was testimony that Texaco expressed heightened interest in Getty's sale. Boisi testified that he told Texaco that the agreement in principle with Pennzoil was subject to execution of a definitive agreement, that no definitive agreement had been signed yet, that there was just a handshake on price with other issues still open, and that there was no binding deal with Pennzoil.

Texaco's chairman, John McKinley, testified that Texaco talked to two investment banking firms that day, First Boston and Morgan Stanley, who wanted to represent Texaco in making a bid for Getty, and that they all knew that the situation was open for bids. Getty's investment bankers called Texaco back on the afternoon of January 4 and told McKinley again that Getty wanted to receive bids and would be pleased to receive a proposal from Texaco.

There was testimony that on January 4 and 5, Getty's CEO, another Getty director, and the Museum's lawyer, all stated to Texaco that there was no deal yet with Pennzoil, that no definitive contract had been signed, that Getty was not bound yet, that open issues remained in the negotiations with Pennzoil, and that Getty and the Museum were free to hear an offer. There was testimony that when Texaco made its offer on the evening of January 5, Gordon Getty and his advisors stated that the Trust also had no binding agreement with Pennzoil. There was also testimony that Texaco was assured again during final negotiations on its definitive agreement, which contained indemnities against any liability to Pennzoil, that the Getty board had rejected the Memorandum of Agreement and that there was no binding contract with Pennzoil.

Texaco asserts that this evidence shows that it made repeated efforts, in the absence of any duty to do so, to determine whether an offer would interfere with any pre-existing contract. Texaco witnesses testified that Texaco was repeatedly told that there was no binding contract with Pennzoil, and it accepted those assurances.

Pennzoil responds that there was legally and factually sufficient evidence to support the jury's finding of knowledge, because the jury could reasonably infer that Texaco knew about the Pennzoil deal from the evidence of (1) how Texaco carefully mapped its strategy to defeat Pennzoil's deal by acting to "stop the train" or "stop the signing"; (2) the notice of a contract given by a January 5 Wall Street Journal article reporting on the Pennzoil agreement—an article that Texaco denied anyone at Texaco had seen; (3) the knowledge of an agreement that would arise from comparing the Memorandum of Agreement with the Getty press release; (4) the demands made by the Museum and the Trust for full indemnity from Texaco against any claims by Pennzoil arising out of the Memorandum of Agreement; and (5) the Museum's demand that, even if the Texaco deal fell through, the Museum would be guaranteed the price Pennzoil had agreed to pay for the Museum's shares. Pennzoil contends that these circumstances indicated Texaco's knowledge of Pennzoil's deal too strongly to be overcome by Texaco's "self-serving verbal protestations at trial" that Texaco was told and believed that there was no agreement.

First, Pennzoil argues that an inference of Texaco's knowledge of its agreement arises from Texaco's carefully mapped strategy to dismantle each component of the Pennzoil deal. Pennzoil speculates that if Texaco had believed that there was no binding contract, it would have simply announced a public tender offer for 100 percent of Getty's shares. But a tender offer would not bring in all of Getty's stock if Pennzoil already had a binding agreement (the signed Memorandum of Agreement, approved by the Getty board with a higher price term) with the Trust and the Museum, who together held a majority of Getty shares. This would mean that Texaco could acquire only the remaining public shares through a tender offer and would be left with a minority interest in Getty Oil. So instead, Pennzoil argues, Texaco developed [801] a strategy to approach first the Museum, then the Trust, and finally the Getty board, with a higher price than Pennzoil had agreed to pay to persuade them to avoid that deal.

There was evidence that the public announcement of Getty's agreement in principle with Pennzoil had attracted Texaco's attention and prompted it to move quickly. Top executives of Texaco cut short their vacations and returned to New York because of Texaco's interest in Getty, and Texaco assembled its in-house financial planning group on January 4. A series of meetings were held throughout the day to study the Getty situation and Pennzoil's part in it. There were indications that the structure of the Pennzoil plan was examined in detail, and Texaco notes showed calculations on such matters as the price per barrel of Getty oil that Pennzoil would be paying and on Pennzoil's financing of this purchase. Getty's press release was reviewed, and extensive notes were made on "who pays and who gets what" under the Pennzoil plan.

Other Texaco notes admitted into evidence implied that Texaco believed it had "24 hours" to "stop the train" and "take care of Liedtke [Pennzoil's CEO]." Texaco's chairman testified that "the train" probably meant Pennzoil, and that "stop" meant that prompt action was necessary. Texaco recognized that under the Pennzoil plan, if an agreement on restructuring couldn't be reached within one year, Getty's "assets [were] to be divided!" (emphasis in original Texaco note).

There was evidence that Texaco had strong motivation to acquire Getty's extensive oil reserves. Texaco's own proven reserves had been declining steadily, and its recent exploration and development costs had been the highest in the industry. Texaco witnesses explained that the high finding costs were attributable mainly to a recent increase in exploration investment and that over a longer period, its average finding costs were much lower. But there was also evidence that it would be much less expensive for Texaco to buy Getty's large proven reserves than to find such reserves on its own. The purchase of Getty Oil would and did double Texaco's worldwide oil reserves. Texaco knew that under the Pennzoil plan, Getty's valuable reserves were to be divided between the Trust and Pennzoil if that partnership did not work out within one year.

On January 4, Texaco decided that it wanted to pursue its interest in Getty, but also decided that it needed outside advice on strategy and tactics. It retained First Boston, an aggressive investment banking firm that already had contacts with the Museum's counsel, Martin Lipton. On the evening of January 4, a number of strategy meetings were held to discuss how Texaco could best acquire Getty Oil.

There was evidence that Texaco considered Lipton to be a "key person" in its strategy, and that the Museum had to be approached first. Lipton had previously represented Texaco and knew McKinley and Texaco's lawyers and investment bankers. Once Texaco secured the Museum shares, it planned to "talk to Gordon."

Texaco notes indicate that it knew that there would be a "problem to get Gordon on base first." Texaco knew that under the Trust instrument, the trustee was authorized to sell its Getty Oil shares only to avoid a loss. Texaco also knew that Gordon Getty did not want the Trust's shares to be in a minority position at Getty Oil, and Texaco's notes read: "create concern that he [Gordon Getty] will take a loss"; "if there's a tender offer and Gordon doesn't tender, then he could wind up with [worthless] paper"; and finally, "pressure."

Texaco's last step was to get the Getty board's support. Texaco knew that many Getty board members were hostile to Gordon Getty, and Texaco had a report that Getty did not like Pennzoil's price. But Texaco also knew that the board could not take major corporate action, since the Consent, without the agreement of 14 of 16 directors, and some directors owed loyalty to Gordon Getty. It was therefore important to secure the agreement with the Trust and the Museum before Texaco's proposal went to the Getty board.

[802] We find that an inference could arise that Texaco had some knowledge of Pennzoil's agreement with the Getty entities, given the evidence of Texaco's detailed studies of the Pennzoil plan, its knowledge that some members of the Getty board were not happy with Pennzoil's price, and its subsequent formulation of strategy to "stop the [Pennzoil] train" and "take care of Liedtke."

Pennzoil contends that the jury could also draw an inference of Texaco's knowledge of its agreement from the evidence relating to a Wall Street Journal article dated January 5. That article reported on the terms of the Pennzoil/Getty merger and referred to an "agreement" 17 times.

In answer to an interrogatory, Texaco swore that no one working on matters related to Getty Oil or Pennzoil had seen the Wall Street journal article. Pennzoil argues that the jury could have disbelieved this representation that no one at Texaco had read the article, published in a major daily business newspaper, about the company that Texaco wanted to acquire.

This is an acceptable inference, given the evidence. Texaco's president, Alfred DeCrane, testified that he read the Wall Street Journal regularly, but he did not recall whether he read the article about the Getty/Pennzoil agreement on January 5. Getty's investment advisor, Boisi, testified that Texaco's chairman, McKinley, "may have" mentioned the article to him in their conversations. McKinley testified that several people at Texaco took the Wall Street Journal at the office, but that his own copy was delivered to his home. He testified that he did not see the article, and claimed that it was not mentioned at the Texaco board meeting that day, although the status of Pennzoil's negotiations with Getty was discussed by the board. Based on this testimony, the jury could reasonably have believed that the testimony of some of these witnesses was less than truthful, and that someone at Texaco connected with these events had seen the article, and that Texaco thus had further knowledge of the Pennzoil agreement.

Finally, Pennzoil points out that certain demands made by the Museum and the Trust also gave Texaco knowledge of their contractual obligations to Pennzoil.

The Museum demanded, as a condition of any sale of its shares to Texaco, full indemnity against any liability to Pennzoil arising from the Memorandum of Agreement. It also refused to give any written representation or warranty that selling its shares to Texaco would not result in a breach of the Memorandum of Agreement. Finally, the Museum insisted that, even if the Texaco purchase of Getty was not consummated, Texaco had to guarantee that the Museum would be paid a minimum price of $112.50 (the present value of Pennzoil's price of $110 plus a $5 stub to be paid within five years) for its shares. Texaco's witnesses testified that these demands were accompanied by assurances that the Museum had no binding contract with Pennzoil, but other evidence showed that the Museum refused to sell its shares unless these conditions were met.

Texaco's president, DeCrane, testified that when he saw the draft of Texaco's definitive agreement, he asked specifically about the indemnity and whether relevant documents had been reviewed. He said that his counsel told him that Texaco's only exposure would be litigation fees. When he asked about the warranty clause, he was told that the Museum's refusal to give a full warranty was consistent with what Texaco had been told about the Museum's position.

Texaco's chairman testified that it was a matter of concern to him that the Museum would not warrant its sale of stock against Pennzoil claims, but that Texaco accepted it that way. McKinley testified that it alerted him to check with his legal advisors, who reassured him. There is no evidence that Texaco received any statement in writing from any of the parties that they were free to deal with Texaco.

The jury could reasonably infer that Texaco was given knowledge of the Pennzoil agreement from this evidence. Though an indemnity does not necessarily imply liability, [803] Texaco was confronted here with the parties' specific demands for protection against claims by Pennzoil, with the refusal to warrant that the sale to Texaco would not breach the Memorandum of Agreement, and with the requirement that the Museum be guaranteed the Pennzoil price if Texaco's purchase was not consummated. The evidence showed that the Museum and the Trust considered these conditions essential, and that Texaco knew that they would not sell their shares without such protection.

Finally, Texaco cites American Cyanamid Co. v. Elizabeth Arden Sales Corp., 331 F.Supp. 597, as controlling authority to show that Pennzoil did not prove the required element of knowledge of a contract here. Though many of the facts of that case appear to be similar to the instant one, we find the case at bar to be distinguishable. Pennzoil correctly points out that the question of the defendant's knowledge is one of fact, and the holding in American Cyanamid was based on certain findings of fact. One defendant there was held to be not liable because the only information it was found to have possessed showed on its face that there was no binding contract. The plaintiff had contended that certain background negotiations between the parties made an incomplete writing a binding contract, but that defendant was found to have no knowledge of those circumstances.

Here, Texaco presented evidence that it was told repeatedly that Pennzoil had no binding agreement with the Getty interests. But there was other circumstantial evidence, as discussed above, from which the jury could conclude that Texaco did indeed have knowledge of the parties' obligations to Pennzoil.

The jury was not required to accept Texaco's version of events in this case, and this Court may not substitute its own interpretation of the evidence for the decision of the trier of fact. There was legally and factually sufficient evidence to support an inference by the jury that Texaco had the required knowledge of an agreement. Point of Error 49 is overruled.

The second major issue Texaco raises under Special Issue No. 2 is that the evidence was legally and factually insufficient to show that Texaco actively induced breach of the alleged Pennzoil/Getty contract.

A necessary element of the plaintiff's cause of action is a showing that the defendant took an active part in persuading a party to a contract to breach it. State Enterprises, Inc. v. Southridge Cooperative Section 1, Inc., 18 A.D.2d 226, 238 N.Y.S.2d 724 (App.Div.1963). Merely entering into a contract with a party with the knowledge of that party's contractual obligations to someone else is not the same as inducing a breach. P.P.X. Enterprises, Inc. v. Catala, 17 A.D.2d 808, 232 N.Y.S.2d 959 (App.Div.1962). It is necessary that there be some act of interference or of persuading a party to breach, for example by offering better terms or other incentives, for tort liability to arise. State Enterprises, Inc., 238 N.Y.S.2d at 726; Cosmopolitan Film Distributors, Inc. v. Feuchtwanger Corp., 226 N.Y.S.2d 584, 591 (Sup.Ct.1962). The issue of whether a defendant affirmatively took steps to induce the breach of an existing contract is a question of fact for the jury. See State Enterprises, Inc., 238 N.Y.S.2d at 726.

Texaco contends that it did not actively procure the alleged breach and that the required inducement did not occur. Texaco argues that it merely responded to a campaign of active solicitation by Getty Oil and the Museum, who were dissatisfied by the terms of Pennzoil's offer.

There was testimony that on January 2, Getty's investment advisor, Boisi, was instructed to seek a higher price for Getty's shares than Pennzoil had offered. Early on the morning of January 3, Boisi contacted Texaco's president, DeCrane, among others, to tell him that the Getty Oil board was meeting that day and to get a specific expression of interest in Getty's sale. DeCrane told Boisi that Texaco was interested in more information and to keep him informed.

That afternoon, Boisi told the Getty board of directors that he had been calling [804] other potential bidders and that some of those contacts had expressed interest in Getty's sale. After the board recessed, Boisi talked with some of the board members in more detail about his conversations and told them he thought that Getty could get more than Pennzoil's $110 per share.

Later in the evening on January 3, despite Boisi's report of other interest in Getty, the board of Getty Oil voted 15 to 1 to accept "the Pennzoil proposal," provided that the price per share be increased to $110 plus a minimum $5 stub. Pennzoil accepted the higher price, and the board was told that Pennzoil had accepted its counter-proposal. Yet, one of Getty's directors testified, for the defendant, that the board's consensus at that time was to encourage the overall bidding process. Petersen, the chairman of Getty, told Boisi to continue to search for a better price.

On January 4 Texaco called Boisi early in the morning. Getty Oil issued its press release that morning, and it appeared on the Dow Jones broad tape under the headline "Getty Oil Announces Merger." Boisi was not in his office yet, but returned the call later that morning to explain the press release. Boisi testified that he told DeCrane that the Getty board had voted on a price with Pennzoil; that no definitive merger contract had been signed yet, so there was no binding agreement; and that open issues remained for negotiation. Boisi testified that Texaco expressed a heightened degree of interest in Getty, and Texaco's witnesses testified that Texaco's interest in Getty increased as Texaco got more information.

As discussed above, Texaco assembled its in-house financial planning group, which worked all day on January 4 to study Getty and the Pennzoil situation and then reported to management. The evidence of Texaco's strong motivation to acquire Getty's reserves, given Texaco's own declining reserves and high finding costs, is also relevant here. There was testimony that in the afternoon of January 4, Texaco decided to pursue its interest in Getty, and it hired First Boston investment bankers to advise it on the most effective strategy to purchase Getty. Meetings with Texaco executives and First Boston advisors continued through the evening.

There was testimony for Texaco that on January 4, other representatives of the Getty entities told Texaco that Getty Oil wanted to receive bids and would be pleased to hear a proposal from Texaco. These representatives included one of Getty's directors, another Getty advisor from its investment bankers Goldman Sachs, and Getty's chairman. There was testimony that Texaco and its advisors were told that there were other potential competitors for Getty and that Texaco should put its "best shot" forward.

The evidence discussed above on Texaco's calculated formulation and implementation of its ideal strategy to acquire Getty is also inconsistent with its contention that it was merely the passive target of Getty's aggressive solicitation campaign and did nothing more than to accept terms that Getty Oil and the Museum had proposed. The evidence showed that Texaco knew it had to act quickly, and that it had "24 hours" to "stop the train." Texaco's strategy was to approach the Museum first, through its "key person" Lipton, to obtain the Museum's shares, and then to "talk to Gordon." It knew that the Trust instrument permitted Gordon Getty to sell the Trust shares only to avoid a loss, and it knew of the trustee's fear of being left in a powerless minority ownership position at Getty Oil. Texaco notes indicated a deliberate strategy to "create concern that he will take a loss"; "if there's a tender offer and Gordon doesn't tender, then he could wind up with paper"; and "pressure." This evidence contradicts the contention that Texaco passively accepted a deal proposed by the other parties.

Texaco then implemented its plan by contacting the Museum's lawyer, Lipton, arranging for a meeting on the evening of January 5 to discuss an offer by Texaco for Getty Oil. Lipton ordered his associate, on her way to join the meeting of attorneys drafting Pennzoil's transaction agreement, to not attend that meeting, because he needed her assistance in the meeting with [805] Texaco. At the Texaco meeting, Lipton reviewed an outline of points that the Museum wanted covered in any sale of its Getty shares to Texaco; for example, it wanted price protection and an indemnity against any claim brought by Pennzoil. Texaco agreed to the Museum's demands, and the Museum agreed to sell. Lipton testified that though he asked repeatedly about price, the Texaco officers at that time would say only that Texaco's chairman, McKinley, wanted to do the talking about price.

Texaco then contacted the Trust to arrange for a meeting between Texaco's chairman, McKinley, and Gordon Getty, the trustee. There was evidence that the initial meeting did not go well, and Lipton was asked to go over to Gordon Getty's hotel suite to speak with the trustee. Lipton testified that he went over because all the parties wanted to act together, and it was his understanding from Texaco that it wanted the Museum, the Trust, and the company to each "desire" a proposal from Texaco and express that desire. After talking to Gordon Getty, Lipton joined the Texaco people in the lobby and told them that the trustee did want to receive a proposal. When McKinley went back to Gordon Getty's suite, the trustee accepted Texaco's offer before McKinley could even name the price. Texaco initially offered the Getty entities $125 per share, compared to Pennzoil's price of $110 plus a $5 stub (present value $112.50), and eventually paid $128 per share.

Texaco argues that its testimony shows that Getty Oil and the Museum were the real moving forces that eventually led to the Texaco contract. However, we find that there is legally and factually sufficient evidence in the record to support the jury's finding that Texaco actively induced the breach of the Getty entities' agreement with Pennzoil.

Texaco also contends that Getty's shopping for bids constituted a breach of an implied "no-shop" provision of Pennzoil's alleged contract before Texaco ever entered the picture. We reject this contention. It was no defense that Getty was not happy with the Pennzoil price, or might have been dissatisfied with the agreement. See Gold Medal Farms, Inc., 195 N.Y.S.2d at 185. We overrule Points of Error 48 and 50, contending that there was no evidence or factually insufficient evidence to support the jury's finding that Texaco knowingly induced the breach of Pennzoil's agreement.

VALIDITY OF THE CONTRACT

Texaco's last contention regarding the sufficiency of the evidence is that Pennzoil failed to prove that the alleged contract was valid and enforceable, so there could be no interference. Texaco argues that the alleged contract would have violated SEC Rule 10b-13; that it would have violated state law governing fiduciary duties of directors, controlling stockholders, and trustees; that it would have been unenforceable because of mutual mistake; and that it would have violated the statute of frauds.

Pennzoil responds that because it made a prima facie showing that it had a binding contract, it was Texaco's burden to affirmatively plead and prove any defense that challenged the validity of that contract. Tex.R.Civ.P. 94, 279; see, e.g., Mabry v. Priester, 161 Tex. 173, 338 S.W.2d 704 (1960) (illegality); Durham v. Uvalde Rock Asphalt Co., 599 S.W.2d 866, 869 (Tex.Civ. App.—San Antonio 1980, no writ) (mutual mistake); Mann v. Fender, 587 S.W.2d 188 (Tex.Civ.App.—Waco 1979, writ ref'd n.r. e.); (statute of frauds). Pennzoil argues that Texaco waived its defenses based on invalidity because it failed to plead some of them and failed to obtain jury findings to support the defenses it did plead.

Rule 94, Texas Rules of Civil Procedure, requires the defendant to plead and prove affirmative defenses such as fraud, estoppel, illegality, statute of frauds, and any other matter constituting an avoidance or affirmative defense. Unless the affirmative defense is established as a matter of law, the burden is also on the defendant to obtain jury findings to establish the necessary elements of its affirmative defense. See, e.g., Oilwell Division, United States [806] Steel Corp. v. Fryer, 493 S.W.2d 487, 490 (Tex.1973).

We find that Texaco has waived its claim of mutual mistake, Durham, 599 S.W.2d at 869, and insufficiency under the statute of frauds, Tex.R.Civ.P. 94, because these affirmative defenses were not properly alleged in Texaco's amended trial pleadings. In its appellate brief, Texaco alleges generally that a mutual mistake about the possible tax treatment of the Museum's shares would have made the agreement unenforceable. Texaco's amended pleading alleges only a mistake by Pennzoil and Gordon Getty, and not one mutually shared by all the parties. There was also no request for a jury issue on the question of mistake, nor was the statute of frauds asserted in Texaco's operative pleadings. These contentions are waived, and Points of Error 55 and 56 are overruled.

Illegality as an affirmative defense is not limited to contracts prohibited by law, but also includes contracts rendered unenforceable because of some failure to comply with the law. Mabry, 161 Tex. at 176., 338 S.W.2d at 706.

Texaco contends that the alleged contract would have been void as violating SEC Rule 10b-13, which provides that once a party has publicly announced a tender offer, the offeror may not buy stock of the target company, except through the tender offer, for as long as the tender offer remains open. 17 C.F.R. § 240.10b-13 (1985). Texaco alleges that any contract made in violation of the rule is void.

Texaco points out that even under Pennzoil's version of the facts, Pennzoil allegedly contracted to buy the Museum's shares immediately and the public shares later at $110 plus a $5 stub per share—a higher price than the $100 tender offer price—at a time when the tender offer was still open. Texaco claims that this constituted a per se violation of the rule, whether or not any shareholder received a special benefit from the purchase occurring outside the tender offer. But Texaco also argues that the Museum did receive a substantial benefit that the public shareholders did not, in that it was to have received payment for its shares "immediately," which could possibly have been months before the public shareholders would be paid. Texaco contends that this timing difference could have amounted to millions of dollars in interest, and it was exactly this kind of treatment favoring large shareholders that the SEC rule was designed to prevent.

Rule 10b-13 was promulgated to protect the interests of shareholders who have already tendered their shares pursuant to a publicly announced tender offer, by prohibiting the offeror from making purchases outside the tender offer on different terms. Wellman v. Dickinson, 475 F.Supp. 783, 833 (S.D.N.Y.1979), aff'd, 682 F.2d 355 (2d Cir.1982), cert. denied, 460 U.S. 1069, 103 S.Ct. 1522, 75 L.Ed.2d 946 (1983); Heine v. Signal Companies, Inc., [1976-77 Transfer Binder] Fed.Sec.L.Rep. (CCH) par. 95,898 (S.D.N.Y. March 4, 1977). In particular, the rule seeks to prevent outside purchases by the offeror at a different price than that stated in the tender offer. Wellman, 475 F.Supp. at 833.

The rule itself provides a mechanism by which an exemption from its coverage can be obtained. In subsection (d), it provides that the rule will not prohibit a transaction if the Commission, upon written request or on its own motion, exempts the transaction as not constituting a manipulative, fraudulent, or deceptive device, act, or practice as comprehended by the purpose of the section. 17 C.F.R. § 10b-13(d). The emphasis is thus on applying the rule to further its stated purposes.

Although Texaco is not a party whom the rule is intended to protect in any way, it complains that Pennzoil's transaction violated the rule, was automatically void for that reason, and therefore could not give rise to an action for tortious interference. The express exemption provision of the rule negates the suggestion that any infraction of the rule automatically makes the transaction void. If the transaction is only voidable, Texaco has no standing to assert the rule, and we may not speculate [807] on whether a proper party would have successfully asserted it.

We disagree with Texaco's contention that it was irrelevant that Pennzoil might have obtained an exemption from the prohibitions of the rule, because it did not. Pennzoil had no control over the timing of Texaco's interference with its agreement with Getty entities. If an exemption had been obtained, the rule would not have prevented the purchase of Getty shares outside the tender offer, and Texaco's argument about the invalidity of the agreement for this reason fails.

With the purpose of rule 10b-13 in mind, we note that the agreement called for the same price to be paid per share for all selling shareholders, and that these terms were announced to the public in the press release and appeared in newspaper articles two weeks before the date Pennzoil would have been able to begin buying any tendered shares under the original $100 tender offer. There was testimony that the Museum, and indeed all parties, insisted that all shareholders were to be treated equally in the Pennzoil transaction, and that the parties all proceeded on this assumption. Pennzoil points out that if the Museum had been paid for its shares before the public shareholders, any benefit that it might have received from having its shares purchased sooner would have been offset by payment of Getty's first quarter dividend to those remaining shareholders. There was testimony that there were customary ways of handling the payment of regular dividends in a merger situation.

In any event, Pennzoil amended its SEC tender offer statement on January 4 to incorporate the information about its agreement with the Getty entities contained in the press release and to state that the tender offer at $100 would be withdrawn upon the execution of the definitive merger contract. Texaco's contention in Point of Error 51 that the alleged contract would have been void under rule 10b-13 is overruled.

Next, Texaco claims that the alleged contract would have violated Delaware state law governing the fiduciary duties of various parties. Texaco contends that agreeing to a contract that provided for the sale of Getty at a "bargain basement" price would have been a breach by Gordon Getty of his fiduciary duty as a controlling shareholder, and also a breach by the Getty Oil directors of their fiduciary duty to Getty stockholders.

Gordon Getty, as trustee, owned approximately 40.2 percent of the shares of Getty Oil. In addition to the fact that this does not constitute legal "control" of the corporation, the record does not support Texaco's implication that Gordon Getty had de facto control of Getty Oil, in spite of the Trust's large ownership percentage. On the contrary, the record evinces Gordon Getty's continual conflicts with the Getty Oil board of directors and management, which acted independently of and sometimes without the knowledge of Gordon Getty.

The jury found, in response to a special issue, that the agreed price was a fair price for the Getty shares. There was evidence that at the January 2 Getty Oil board meeting, the Trust and Museum had both been willing to sell at $110 or above. The Trust and the Museum had received opinions from their investment bankers that $110 plus the minimum $5 stub was a fair price. Prior to that board meeting, there had been discussions of having the company itself propose a self-tender to its shareholders at $110 per share to respond to Pennzoil's $100 tender offer.

Though the Getty entities eventually sold to Texaco at a higher price per share than they had agreed to accept from Pennzoil, that fact alone does not prove that selling to Pennzoil would have been a breach of fiduciary duty to the minority shareholders. There was evidence that public minority stockholders, with no direct claim to a company's assets, are primarily interested in the return on their investment, i.e., in realizing a profit from the increase in market value of their shares. Pennzoil's price represented a significant premium over the previous trading price of Getty's shares.

[808] The test of fairness in a merger situation is that a minority shareholder receives the substantial equivalent in value of what he had before. Sterling v. Mayflower Hotel Corp., 33 Del.Ch. 293, 93 A.2d 107, 114 (1952). Thus, the fairness of the price that the public minority shareholders received is not to be judged by the pro rata value of Getty's assets, as Texaco implies, but rather by the value of the shares in the hands of those minority shareholders, who had no direct right to the company's assets. In the two years before the Pennzoil agreement, Getty stock had traded at $83 per share or less, and the jury found that $110 plus the $5 stub was a fair price. Agreeing to sell to Pennzoil at this price did not constitute a breach of fiduciary duty to the minority shareholders.

Finally, Texaco argues that the Getty directors had an obligation to exercise informed business judgment and to maximize Getty Oil's sale value, based on the information available to them. It claims that agreeing to any implied no-shop provision or good faith obligation to complete negotiations with Pennzoil would have breached its duty to get the highest price possible for the Getty Oil shares.

Under Delaware law, the directors of a corporation owe a fiduciary duty of care to the corporation and its shareholders in carrying out their managerial roles. Smith v. Van Gorkom, 488 A.2d 858, 872-73 (Del.1985). The business judgment rule is based on a presumption that in making a business decision, the directors acted on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the company. Id. at 872. Whether the board's business judgment is an informed one depends on whether the directors informed themselves prior to making a business decision, of all material information reasonably available to them. Id. Additionally, if a board takes anti-takeover measures, there is always the suspicion that the board may be acting primarily in its own interests and not in those of the corporation and shareholders. Revlon v. MacAndrews & Forbes Holding Inc., 506 A.2d 173, 180 (Del., 1986). Absent an abuse of discretion, the judgment of directors in making a business decision will be respected by the courts. Aronson v. Lewis, 473 A.2d 805, 812 (Del.1984).

The evidence supports the jury finding that the agreed price between Pennzoil and the Getty entities was a fair one. There is also sufficient evidence that the directors were informed on the other aspects of the transaction and exercised their business judgment in approving the Pennzoil proposal. A majority of Getty's shareholders had approved the transaction before it was presented to the board. Getty's investment advisor informed the board that he had been calling other companies and had received some indications of interest, though he had no specifics at that time. In smaller meetings with some individual board members, Texaco's name was mentioned as a possible bidder. When the meeting resumed, the board decided to present a higher price to Pennzoil, which had agreed to go that high if the board came back "firm." The board approved Pennzoil's proposal, provided that the price be raised to $110 plus a $5 stub. The board also voted themselves indemnities and "golden parachutes." Pennzoil accepted and conveyed its acceptance to the board, which then adjourned. One of Pennzoil's lawyers testified that after the meeting, he shook hands with some of the Getty directors, who congratulated him on their deal. Investment advisors for the Trust and Museum gave fairness opinions on the Pennzoil price. Getty itself announced the terms of the transaction in a press release the next morning.

The evidence shows that the board made an informed decision to enter the agreement with Pennzoil. It had notice of other companies' interest, but there is some evidence that the board might have thought it more prudent to commit to a sure thing, rather than to speculate on whether other offers would eventually materialize. Getty's CEO was quoted in Fortune magazine some months later, "it was a bird-in-the-handish situation. We approved the deal but we didn't favor it." Once the agreement was made, Getty could [809] not evade it, citing fiduciary duty, just because a higher offer came along. See Smith, 488 A.2d at 888. Points of Error 52, 53, and 54 are overruled.

ALLEGED ERRORS IN THE COURT'S CHARGE

Texaco's first 45 points of error complain of the court's jury charge. These 45 points fall into three basic categories: (1) points asserting that the special issues assume a disputed fact; (2) points asserting that the instructions are improperly "personalized" to the parties and evidence; and (3) points asserting that the instructions prejudice Texaco.

Initially, Texaco claims that the trial court erred in improperly commenting on the case to the jury panel ("this is the largest civil case ever filed in Harris County"), in refusing its requested instruction to ameliorate the harm, and alternatively in refusing to grant Texaco's motion for mistrial.

During voir dire, the trial court made the following statements:

But this isn't your average civil case. This is the largest civil case ever filed in anyone's knowledge in Harris County.

And you prospective jurors are here to be examined by the attorneys and by myself to see whether you will be the ones who will hear the largest case ever filed in Harris County.

At this time, I am going to ask the attorneys—

MR. KEETON: Your Honor, may we approach the bench?

(Conference at the bench)

MR. KEETON: Your Honor, on behalf of Texaco, we object to the continued reference of largest case. You will note that the agreed statement has struck that because that has a—

THE COURT: I have not mentioned the amount.

MR. KEETON: I understand, but you said it's the largest case, Your Honor, that's ever been filed in Harris County. That tends, in our view, to give credence to the claim, and we ask the Court to refrain from such statements, if your Honor please, and to adhere to what is stated in the agreed statement, please.

MR. JAMAIL: I don't see that you are prohibited from saying what you want to say. This statement is something different than what you are talking about—

MR. KEETON: We view, Your Honor, that as a comment by the Court that we think is not proper.

THE COURT: I think that's a fair request. I will abide by that.

MR. KEETON: Thank you, Your Honor.

MR. MILLER: We would like also, Your Honor, for—in view of the Court's comments, for the Court to advise the jury that when he says this is the largest case, what he means is that this is a case in which the largest damages are being claimed, and it may or may not be the largest case when the case is over with.

MR. JAMAIL: Your Honor, I object to that.

THE COURT: Mr. Miller, I think that if I do that, it will just throw the spotlight on it. That will bring us right back to the largest case.

MR. MILLER: The only thing we want to be sure is that the jury, the fact that a large number of jurors having been summoned is not because of the size of the case; is because of the length of the case, the length that it is likely to last, and it has nothing to do with the amount of damages.

THE COURT: I am not going to tell them about the amount of damages.

In other words, the amount of the punitive damages. I am merely going to tell them the rest of it which is the length of the case.

MR. MILLER: That's fine. We want our objection but—

MR. KEETON: Well, Your Honor, I want to make a formal motion for mistrial because of the comment that has been made up to now and let's get another panel.

THE COURT: Your motion—your oral motion for mistrial is denied.

[810] A presiding judge is vested with broad discretion in the manner in which he controls the trial of the case. Thus, reversal should not be ordered absent a showing of impropriety, probable prejudice, and the rendition of an improper verdict. Texas Employers Insurance Association v. Draper, 658 S.W.2d 202, 209 (Tex.App.— Houston [1st Dist.] 1983, no writ).

In the instant case, the remarks were made prior to jury selection. Texaco has failed to show how such remarks prejudiced it in this trial. Consequently, we cannot say that the remarks amounted to such a denial of Texaco's rights as was reasonably calculated to cause and probably did cause rendition of an improper judgment. Tex.R.App.P. 81(b)(1); see Meat Producers, Inc. v. McFarland, 476 S.W.2d 406, 414 (Tex.Civ.App.—Dallas 1972, writ ref'd n.r.e.).

Further, Texaco's first point is not argued in any of its grouped briefing points, and Texaco cites no authority to support this point. Tex.R.Civ.P. 414(e) (now Tex.R.App.P. 74(f)) requires a party to include such discussion of the authorities as is deemed necessary to make the points complained of clear. Texaco's failure to cite to any authority constitutes a waiver of the point. O'Dowd v. Johnson, 666 S.W.2d 619, 620 (Tex.App.—Houston [1st Dist.] 1984, writ ref'd n.r.e.).

Texaco's first point of error is overruled.

In its second point of error, Texaco claims that Special Issue No. 3 (damages) improperly assumes that Texaco "knowingly interfer[ed]" with an agreement, thus suggesting an affirmative answer to Special Issue No. 2.

Special Issue No. 3 asked the jury the following:

What sum of money, if any, do you find from a preponderance of the evidence would compensate Pennzoil for its actual damages, if any, suffered as a direct and natural result of Texaco's knowingly interfering with the agreement between Pennzoil and the Getty entities, if any?

Answer in dollars and cents.

Texaco objects to the omission of conditional language after the phrase "knowingly interfering." It contends that as worded, Special Issue No. 3 assumes a disputed fact, i.e., that Texaco "knowingly interfer[ed]" with the agreement between the Getty entities and Pennzoil; this disputed fact was the subject of Special Issue No. 2. At trial, Texaco objected to Special Issue No. 3, in part, on the following ground:

The issue should have the phrase "after interfering, if it did so" because the issue is submitted to the jury without predicate and is otherwise a comment on the weight of the evidence suggesting that Texaco had, in fact, knowingly interfered with the agreement.

Pennzoil responds that the omission of any words of condition, such as "Texaco's knowingly interfering, if you have so found," (as suggested by the court) was inadvertent. The trial judge expressed his desire to include such language; however, when typed, the issue failed to include the requested language, and no objection was apparently lodged until Texaco filed its written objections to the charge on November 14, 1985.

Nonetheless, Pennzoil responds that Special Issue No. 3 does not assume a fact because (1) the "if any" language contained at the end of the sentence modifies the entire phrase "Texaco's knowingly interfering with the agreement between Pennzoil and the Getty entities"; therefore, the entire phrase is made conditional; and (2) even if Special Issue No. 3 were construed grammatically as an assumption of the fact of Texaco's interference, the error, if any, was harmless.

It is arguable that the "if any" language used in the issue modifies the entire verbal (gerund) phrase: "Texaco's knowingly interfering with the agreement between Pennzoil and the Getty entities."

In the instant case, the phrase "Texaco's knowingly interfering with the agreement between Pennzoil and the Getty entities" is a gerund phrase. "[I]nterfering" is the gerund used as the object of the preposition "of," which precedes the possessive noun "Texaco's." The final "if any" is a [811] phrase modifying the entire gerund phrase, thereby making conditional the fact of Texaco's "knowingly interfering with the agreement...." We do not agree that Special Issue No. 3 assumes the disputed issue of fact as alleged by Texaco.

Additionally, Tex.R.Civ.P. 277 provides that the court in its charge shall not "comment directly on the weight of the evidence or advise the jury of the effect of their answers." Thus, special issues are to be framed so as to avoid assuming the truth of a material, controverted issue of fact. Alvarez v. Missouri-Kansas-Texas Railroad Co., 683 S.W.2d 375, 377 (Tex.1984). However, even if the wording of a special issue constitutes an implied comment, not every such comment is cause for reversal. Id.; Mason v. Yellow Cab & Baggage Co., 153 Tex. 344, 269 S.W.2d 329, 330 (1954); Texas Employers Insurance Association v. McKay, 146 Tex. 569, 210 S.W.2d 147, 149 (1948). To warrant reversal, the comment must be one that "was reasonably calculated to cause and probably did cause rendition of an improper judgment...." Tex.R.App.P. 81(b)(1); Alvarez, 683 S.W.2d at 377. To determine whether an alleged error in the charge is reversible, this Court must consider the pleadings, evidence, and the charge in its entirety. Island Recreational Development Corp. v. Republic of Texas Savings Association, 710 S.W.2d 551 (Tex.1986).

Reversal is not mandated where under the circumstances of the case, including the charge as a whole, the force of the comment may be so weak that it is either not a comment at all or may be said to be harmless. Mason, 269 S.W.2d at 330.

In Texas Employers Insurance Association v. McKay, 146 Tex. 569, 210 S.W.2d 147, the court was faced with a similar problem. In McKay, the alleged comment consisted of a reference to the plaintiff's "injury," without the qualifying phrase "if any" in a defensive issue. Appellant asserted that the use of "injury" without the conditional "if any" assumed the existence of a disputed fact. The court was "satisfied from the very terms of the charge itself, considered as a whole, that the error... was not one which ... was reasonably calculated to cause and probably did cause the rendition of an improper judgment.... Tex.R.Civ.P. 434 [(repealed) (now Tex.R. App.P. 81(b))]."

The reviewing court based its holding on the following: (1) the court gave an elaborate preliminary admonition to the jury to answer the issues upon the general instructions and the evidence; (2) the court gave full definitions to guide the jury in its determination of the issues; (3) the court gave separate special issues regarding injuries sustained; and (4) the use of the conditional language "if any" was present 14 separate times in 12 issues and prior to the offending issue. Finally, the court noted that the repetition of "injury, if any" obviously emphasized the undetermined status of the injury question. See also Alvarez, 683 S.W.2d at 377 (issue constituted a harmless comment, which was not a proper ground for reversal).

As previously noted, in viewing the charge as a whole, the final "if any" conditional language of Special Issue No. 3 reasonably appears to qualify the entire phrase "Texaco's knowingly interfering with the agreement between Pennzoil and the Getty entities." Consequently, the jury could not assume this fact. Additionally, the trial court here, as in McKay, gave preliminary instructions to the jury to "consider only the evidence introduced" in arriving at their answers. Also, before the jury ever reached the contested Special Issue No. 3, it was required to answer Special Issue No. 2. Special Issue No. 2, with accompanying instructions, inquired whether Texaco "knowingly interfered with the agreement between Pennzoil and the Getty entities ...?" Unless plaintiff obtained an affirmative answer to Special Issue No. 2, its answer to Special Issue No. 3 was meaningless. Finally, Special Issue No. 4, the charge's other reference to Texaco's conduct, conditioned "Texaco's actions" with the "if any" language. As in McKay, every other mention of Texaco's "interference," except for Special Issue No. 3, contained the conditional language, thereby indicating [812] that the court was not assuming that disputed issue of fact.

Special Issue No. 3 could have been better worded. However, as articulated by the Texas Supreme Court, "in an already complicated field like that of special issues, we cannot strain too hard for perfection without ultimate damage to the whole jury system in civil cases." Alvarez, 683 S.W.2d at 378 (quoting Mason, 269 S.W.2d at 331).

Point of Error No. 2 is overruled.

In Points of Error 3 through 6, Texaco contends that the trial court erred in submitting Special Issue No. 1.

Special Issue No. 1 asked:

Do you find from a preponderance of the evidence that at the end of the Getty Oil board meeting of January 3, 1984, Pennzoil and each of the Getty entities, to wit, the Getty Oil Company, the Sarah C. Getty Trust and the J. Paul Getty Museum, intended to bind themselves to an agreement that included the following terms:

a. all Getty Oil shareholders except Pennzoil and the Sarah C. Getty Trust were to receive $110 per share, plus the right to receive a deferred cash consideration from the sale of ERC Corporation of at least $5 per share within five years;

b. Pennzoil was to own 3/7ths of the stock of Getty Oil and the Sarah C. Getty Trust was to own the remaining 4/7ths of the stock of Getty Oil; and

c. Pennzoil and the Sarah C. Getty Trust were to endeavor in good faith to agree upon a plan for restructuring Getty Oil on or before December 31, 1984, and if they were unable to reach such agreement then they would divide the assets of Getty Oil between them also on a 3/7ths-4/7ths basis.

Answer: "We do" or "We do not."

The accompanying instructions to the Special Issues No. 1 state:

1. An agreement may be oral, it may be written or it may be partly written and partly oral. Where an agreement is fully or partially in writing, the law provides that persons may bind themselves to that agreement even though they do not sign it, where their assent is otherwise indicated.

2. In answering Issue No. 1, you should look to the intent of Pennzoil and the Getty entities as outwardly or objectively demonstrated to each other by their words and deeds. The question is not determined by the parties' secret, inward, or subjective intentions.

3. Persons may intend to be bound to an agreement even though they plan to sign a more formal and detailed document at a later time. On the other hand, parties may intend not to be bound until such a document is signed.

4. There is no legal requirement that parties agree on all the matters incidental to their agreement before they can intend to be bound. Thus, even if certain matters were left for future negotiations, those matters may not have been regarded by Pennzoil and the Getty entities as essential to their agreement, if any, on January 3. On the other hand, you may find that the parties did not intend to be bound until each and every term of their transaction was resolved.

5. Every binding agreement carries with it a duty of good faith performance. If Pennzoil and the Getty entities intended to be bound at the end of the Getty Oil board meeting of January 3, they were obliged to negotiate in good faith the terms of the definitive merger agreement and to carry out the transaction.

6. Modification or discussions to modify an agreement may not defeat or nullify a prior intention to be bound. Parties may always, by mutual consent and understanding, add new provisions spelling out additional terms that were not included in their original agreement.

In Point of Error No. 3, Texaco contends that Special Issue No. 1 improperly assumes that the three listed terms (a-c) constitute the sole essential terms to the alleged "agreement," thereby commenting on the weight of the evidence. Texaco alleges that by its wording, Special Issue No. 1 allowed the jury to return an affirmative answer on the contract element (intent [813] to be bound) even if there were other terms essential to any of the parties and not yet agreed upon. Additionally, Texaco argues that Special Issue No. 1 should have asked whether the three listed elements were the only essential terms to the contract and if not, whether there were other essential terms.

Under New York law, parties are free to enter into a binding contract without "memorializing their agreement in a fully executed document." Winston v. Mediafare Entertainment Corp., 777 F.2d 78, 80 (2d Cir.1985). This right to contract orally remains although the parties contemplate a formal writing to evidence their agreement; consequently, the mere intention to commit the agreement to writing will not prevent contract formation prior to execution. Id.; R.G. Group, Inc. v. Horn & Hardart Co., 751 F.2d 69, 74 (2d Cir.1984). The intent of the parties determines the time of the contract formation. Winston, 777 F.2d at 80.

In determining whether the parties intended to enter a contractual agreement, New York law applies an objective test, looking "to the objective manifestations of the intent of the parties as gathered by their expressed words and deeds." Brown Brothers Electrical Contractors, Inc. v. Beam Construction Corp., 41 N.Y.2d 397, 393 N.Y.S.2d 350, 352, 361 N.E.2d 999, 1001 (1977). Several factors are relied upon when ascertaining intent:

(1) whether there has been an express reservation of the right not to be bound in the absence of a writing; (2) whether there has been partial performance of the contract; (3) whether all of the terms of the alleged contract have been agreed upon; and (4) whether the agreement at issue is the type of contract usually committed to writing.

Winston, 777 F.2d at 80.

In the instant case, the question of whether the parties had agreed to all the essential terms is one of the factors considered in determining the controlling issue, submitted by Special Issue No. 1, i.e., whether the parties intended to be bound to their agreement at the conclusion of the January 3, 1984 board meeting. Texaco's argument erroneously focuses on the three listed elements and dismisses the fact that as worded, Special Issue No. 1 presents a broad submission of that controlling issue of the case.

By its argument, Texaco ignores the fact that Tex.R.Civ.P. 277, as amended in 1973, authorizes the trial court, in its discretion, to submit controlling issues broadly. Island Recreational Development Corp., 710 S.W.2d at 554; Lemos v. Montez, 680 S.W.2d 798, 801 (Tex.1984). The trial court is not required to submit each fact question separately and distinctly. Alvarez, 683 S.W.2d at 377.

Issues that are merely evidentiary should not be submitted. Making the distinction between evidentiary and controlling issues rests within the discretion of the court and will not be disturbed on appeal, unless there is a showing of probable harm. Stalder v. Bowen, 373 S.W.2d 824, 828 (Tex.Civ.App.—Dallas 1963, writ ref'd n.r. e.).

Additionally, Tex.R.Civ.P. 277 states in pertinent part:

It shall be discretionary with the Court whether to submit separate questions with respect to each element of a case or to submit issues broadly. It shall not be objectionable that a question is general or includes a combination of elements or issues.

In Special Issue No. 1, the jury was asked a controlling question in the case—whether Pennzoil and the Getty entities had an intent to be bound. By its broad submission and accompanying explanatory instructions, Special Issue No. 1 required the jury to determine that all elements essential to the agreement had been resolved, including the three listed elements, before the jury could answer affirmatively.

The trial court did not err in submitting Special Issue No. 1 broadly, as is authorized by Tex.R.Civ.P. 277.

In Points of Error 4 through 6, Texaco argues that the assumption established in Special Issue No. 1, that the three listed elements constitute the sole elements to [814] the contract formation, is aggravated by the use of the word "agreement" in a manner that signals that an "agreement" is less than a "binding contract." Consequently, Texaco requested: (1) that the word "agreement" be defined as "a legally binding agreement consisting of a meeting of the minds of the agreeing parties to all essential terms and conditions and to which agreement the parties then intend to be bound," and (2) that the word "contract" be substituted for "agreement" and defined as "a legally binding agreement consisting of a meeting of the minds of the contracting parties to all essential terms and conditions and to which agreement the parties then intend to be bound." These requests were refused and objections to their omission were overruled.

Texaco's basic argument is that the court's refusal to substitute "contract" for "agreement" and its refusal to give a "proper legal definition" to "agreement" left the jury with no guidance as to what the words and phrases mean.

Definitions of terms used in a charge are proper when they would aid the jurors. Since jurors are presumed to have average intelligence, the court is not required to convert the charge into a dictionary. Texas Employers Insurance Association v. Hamor, 97 S.W.2d 1041, 1041 (Tex.Civ.App.— Amarillo 1936, no writ). Ordinary words used in their common meaning need not be defined. West Texas State Bank v. Tri-Service Drilling Co., 339 S.W.2d 249, 256 (Tex.Civ.App.—Eastland 1960, writ ref'd n.r.e.).

In the instant case, the accompanying instructions present the applicable New York law regarding contract formation. Additionally, the word "agreement" was before the jury as an ordinary word, used in its ordinary meaning, pursuant to the trial court's charge:

When words are used in this Charge in a sense which varies from the meaning commonly understood, you are given a proper legal definition which you are bound to accept in place of any other definition or meaning.

Consequently, no definition for the word "agreement" was necessary. Mann v. Fender, 587 S.W.2d 188, 199 (Tex.Civ.App. —Waco 1979, writ ref'd n.r.e.) ("oral agreement" was not used in any special issue in a particular legal sense); West Texas State Bank, 339 S.W.2d at 256 ("approve" and "agree" are words of common usage).

Additionally, Texaco's objection to the use of "agreement" on the grounds that it allowed the jury "to find such an agreement, without finding a binding agreement" was properly overruled, as was its requested definitions of "agreement" and alternatively, "contract," as "legally binding agreement[s]." Whether an agreement is legally enforceable or binding is a question of law; therefore, the jury may not be called upon to construe the legal effect of an instrument. Trinity University Insurance Co. v. Ponsford Brothers, 423 S.W.2d 571, 575 (Tex.1968); Wirtz v. Orr, 533 S.W.2d 468, 471 (Tex.Civ.App.— Eastland 1976, writ ref'd n.r.e.).

The trial court is afforded considerable discretion in determining what issues and instructions are proper in submitting its charge. Tex.R.Civ.P. 277; Members Mutual Insurance Co. v. Muckelroy, 523 S.W.2d 77, 83 (Tex.Civ.App.—Houston [1st Dist.] 1975, writ ref'd n.r.e.). Generally, the trial court should submit appropriate instructions, when requested. However, the failure to do so is not reversible error per se. Tex.R.Civ.P. 277; Island Recreational Development Corp., 710 S.W.2d at 555.

Special Issue No. 1 properly submitted the controlling issue of "intent to be bound." When the totality of the case is considered, we find no reversible error. See Island Recreational Development Corp., 710 S.W.2d at 555. Texaco's Points of Error 3 through 6 are overruled.

In its next four points of error (7 through 10) Texaco claims that Special Issue No. I (intent to be bound) and Instruction No. I improperly emphasize Pennzoil's "Contract" theory. The specific points read as follows:

Point of Error No. 7:

The trial court erred in refusing Texaco's Requested Special Issue No. 100 (intent [815] to be bound) and instead submitting Special Issue No. 1, since Texaco's requested special issue was the proper inquiry.

Point of Error No. 8:

The trial court erred in refusing Texaco's Requested Special Issue No. 101-D (intent to be bound and without approval of a definite merger agreement) and instead submitting Special Issue No. 1, since Texaco's requested special issue was the proper inquiry.

Point of Error No. 9:

The trial court erred in overruling Texaco's objection to Special Issue No. 1, and in denying Texaco's motions for judgment and judgment n.o.v., because Special Issue No. 1 fails to inquire as to the existence of a present intention to be bound.

Point of Error No. 10:

The trial court erred in submitting Instruction No. 1 to Special Issue No. 1 (agreement may be oral or written) over Texaco's timely objection that the instruction improperly suggests that the parties to the alleged agreement did not intend to insist upon a written contract before being bound, directly commenting on the weight of the evidence.

In points of error 7 and 8, Texaco contends that the trial court erred in refusing its Requested Special Issues Nos. 100 and 101-D, which it argues were the "proper" issues. Requested Special Issues No. 100 and 101-A asked:

Special Issue No. 100

Do you find from a preponderance of the evidence that the Getty Oil Company, the Museum, the Trust, and Pennzoil at the end of the Getty Oil Company Board of Director's meeting on January 3, 1984, each intended to be bound to a contract without all the parties executing a written definitive merger agreement?

Answer "Yes" for each entity below which did intend to be bound without an executed definitive merger agreement. Otherwise, answer "No."

Getty Oil Company: _____The Museum: _____The Trust: _____Pennzoil: _____

Special Issue No. 101-A

Do you find from a preponderance of the evidence that a written definitive Merger Agreement was submitted to the Getty Oil Company Board of Directors on or before January 3, 1984?

Answer "Yes" or "No." _____

Pennzoil points out that Texaco has failed to brief these points of error. Texaco has filed a cross-reference with this Court in which it asserts that Points 7-8 are argued at pages 17-19, and 23-24 of its brief. However, our reading of these pages negates its contention.

Points of error that are not supported by argument and authorities are waived. Tex.R.App.P. 74(f); Trenholm v. Ratcliff, 646 S.W.2d 927, 934 (Tex.1983); O'Dowd v. Johnson, 666 S.W.2d 619, 620 (Tex.App.—Houston [1st Dist.] 1984, writ ref'd n.r.e.). Having failed to brief points 7-8, Texaco has waived any allegation of error, but in the interest of judicial economy we will consider its argument.

In determining whether alleged error in the jury charge is reversible, this Court must consider the pleadings, the evidence, and the charge in its entirety. Error is reversible only if, "when viewed in the light of the totality of these circumstances, it amounted to such a denial of the rights of the complaining party as was reasonably calculated and probably did cause the rendition of an improper judgment." Island Recreational Development Corp., 710 S.W.2d at 555; Tex.R.App.P. 81(b)(1).

In the instant case, the controlling issue of intent to be bound was broadly submitted in Special Issue No. 1. Instruction No. 3 states:

Persons may intend to be bound to an agreement even though they plan to sign a more formal and detailed document at a later time. On the other hand, parties may intend not to be bound until such a document is signed.

[816] Under Texas law, the trial court has considerable discretion in deciding which issues are proper. Tex.R.Civ.P. 277; Members Mutual Insurance Co., 523 S.W.2d at 83. Pursuant to rule 277, where the broad form of submission is adopted, as here, "the extent of the jury's consideration of the elements comprising the controlling issue becomes a matter of evidence and argument, subject to appropriate instruction of the court." Members Mutual Insurance Co., 523 S.W.2d at 82.

Texaco's requested issues consist of evidentiary elements that are subsumed within the controlling issue submitted, Special Issue No. 1, "intent to be bound." Whether the parties intended to be bound without executing a definitive agreement and whether a definitive agreement was submitted to be board on January 3 are factors to be considered in determining intent. See Winston, 777 F.2d at 80.

The court here elected to submit broadly the controlling issue of "intent to be bound." Consequently, all of the elements comprising "intent to be bound," including those requested above, were a matter of evidence and argument, subject to the appropriate instructions given here, e.g., Instruction No. 3. See Members Mutual Insurance Co., 523 S.W.2d at 82.

In light of the totality of the circumstances, the denial of the requested issues did not amount to a denial of Texaco's rights as was reasonably calculated to cause the rendition of an improper judgment. See Island Recreational Development Corp., 710 S.W.2d at 555. Points of Error 7 and 8 are overruled.

Texaco argues in Point of Error No. 9 that the phrase "intended to bind themselves to an agreement," contained in Special Issue No. 1, is ambiguous. Consequently, it allowed the jury to return an affirmative answer even if it found an "agreement to agree," which is unenforceable under New York law. Specifically, Texaco contends that Special Issue No. 1 fails to establish a definite time frame as to when the parties, Pennzoil and the Getty entities, would be bound.

Special Issue No. 1 asks, in pertinent part:

Do you find from a preponderance of the evidence that at the end of the Getty Oil board meeting of January 3, 1984, Pennzoil and each of the Getty entities, to wit, the Getty Oil Company, the Sarah C. Getty Trust and the J. Paul Getty Museum, intended to bind themselves to an agreement that included the following terms.... (Emphasis added.)

Texaco's argument is without merit because it fails to consider the fact that the phrase, "at the end of the Getty Oil Board meeting of January 3, 1984," clearly establishes the "time frame" of when the parties intended to bind themselves, i.e., the intent to be bound was established at the end of the board meeting on January 3, 1984.

Additionally, Instruction Nos. 3-5 focus the jury's attention on the time frame in question, the end of the January 3, 1984 meeting. These instructions read as follows:

3. Persons may intend to be bound to an agreement even though they plan to sign a more formal and detailed document at a later time. On the other hand, parties may intend not to be bound until such a document is signed.

4. There is no legal requirement that parties agree on all the matters incidental to their agreement before they can intend to be bound. Thus, even if certain matters were left for future negotiations, those matters may not have been regarded by Pennzoil and the Getty entities as essential to their agreement, if any, on January 3. On the other hand, you may find that the parties did not intend to be bound until each and every term of their transaction was resolved.

5. Every binding agreement carries with it a duty of good faith performance. If Pennzoil and the Getty entities intended to be bound at the end of the Getty Oil board meeting of January 3, they were obliged to negotiate in good faith the terms of the definite merger agreement and to carry out the transaction.

(Emphasis added.)

In its 10th point of error, Texaco contends that the defects in Special Issue No. [817] 1 are aggravated by the following Instruction No. 1:

Instruction No. 1

An agreement may be oral, it may be written or it may be partly written and partly oral. Where an agreement is fully or partially in writing, the law provides that persons may bind themselves to that agreement even though they do not sign it, where their assent is otherwise indicated.

Texaco argues that the instruction suggests that the parties did not intend to insist upon a written contract prior to being bound, and therefore, it is a direct comment on the weight of the evidence, i.e., that the parties intended to be bound on January 3, 1984, although they had no written agreement.

Tex.R.Civ.P. 277 provides in pertinent part:

In submitting the case, the court shall submit such explanatory instructions and definitions as shall be proper to enable the jury to render a verdict.

* * * * * *

... [T]he court's charge shall not be objectionable on the ground that it incidentally constitutes a comment on the weight of the evidence or advises the jury of the effect of their answers where it is properly a part of an explanatory instruction or definition.

While the trial court may not comment on the weight of the evidence, "it may incidentally comment where the comment is necessary or proper as part of an explanatory instruction or definition." Mader v. Aetna Casualty & Surety Co., 683 S.W.2d 731, 733 (Tex.App.—Corpus Christi 1984, no writ). Trial courts have considerable discretion in deciding which instructions are necessary and proper. Johnson v. Whitehurst, 652 S.W.2d 441, 449 (Tex.App. —Houston [1st Dist.] 1983, writ ref'd n.r. e.). However, an improper comment on the weight of the evidence occurs in either an instruction or an issue when the trial court indicates an opinion about the accuracy of the facts in inquiry. Armes v. Campbell, 603 S.W.2d 249, 251 (Tex.Civ.App.—El Paso 1980, writ ref'd n.r.e.).

In the instant case, we find is nothing in the language of Instruction No. 1 that suggests the court's opinion on whether the parties did or did not intend to be bound at the end of the January 3, 1984 meeting. Instruction No. 1 instructs the jury about the applicable law. See Winston, 777 F.2d at 80. However, even if an incidental comment were implied, such comment was permissible pursuant to Tex.R. Civ.P. 277. When the totality of the case is considered, i.e., the pleadings, evidence, and the charge in its entirety (particularly the remaining instructions given in connection with Special Issue No. 1), there is no reversible error.

Texaco's 9th and 10th points of error are overruled.

In its 11th, 12th, and 13th points of error, Texaco claims that Instruction No. 2 to Special Issue No. 1 (intent to be bound) improperly instructs the jury that they "should" consider only Pennzoil's evidence.

The points of error follow:

Point of Error No. 11:

The trial court erred in submitting Instruction No. 2 to Special Issue No. 1 (parties' intent should be determined from their words and deeds manifested to each other) over Texaco's timely objection that the instruction improperly limits the jury's consideration to those items, directly commenting on the weight of the evidence.

Point of Error No. 12:

The trial court erred in refusing Texaco's request for, and overruling Texaco's objection to the omission of, Texaco's Requested Instruction D (factors relevant to intention to be bound) because the instruction correctly states the law and is proper.

Point of Error No. 13:

The trial court erred in overruling Texaco's objection to Instruction No. 2 to Special Issue No. 1 (intent to be bound) and denying Texaco's Requested Instruction A (determine intent from words, deeds, and circumstances).

[818] Texaco contends that Instruction No. 2 to Special Issue No. 1 is legally flawed because it mandates, through the use of the word "should" and the phrase "to each other," that the jury limit its consideration to evidence favorable to Pennzoil. Instruction No. 2 states:

In answering Issue No. 1, you should look to the intent of Pennzoil and the Getty entities as outwardly or objectively demonstrated to each other by their words and deeds. The question is not determined by the parties' secret, inward, or subjective intentions.

(Emphasis added.)

Webster's New Collegiate Dictionary defines "should" (as used in this instruction) as expressing an obligation, propriety, or expediency.

In the instant case, the term "should" instructs the jury that it is "obliged" or "compelled" to look to the intent of Pennzoil and the Getty entities as manifested by their words and deeds to each other. Texaco asserts that the court erroneously included words of limitations, "to each other," which mandate the jury's consideration of manifestations of intent between the parties only, and preclude the consideration of manifestations of intent to other parties such, as (1) a rule 14D-1 filing with the SEC, and (2) certain post-board meeting conversations between Getty and Texaco on January 4-6, 1984.

While the instruction limits the jury's consideration of evidence to manifestations of intent made "to each other," thereby excluding evidence of meetings between only Texaco and Getty, unknown to Pennzoil, the instruction does not preclude the jury from considering the evidence of intent, such as the press releases and the SEC filing, that was made public.

Under New York law, it is well established that the existence of a binding contract is not dependent upon the subjective intent of the parties. Brown Brothers Electrical Contractors, Inc., 41 N.Y.2d 397, 393 N.Y.S.2d 350, 361 N.E.2d 999. Rather, it is the objective manifestations of the intent of the parties, as expressed by words and deeds, that determine whether the parties have actually entered into a contract. Id., 393 N.Y.S.2d at 352, 361 N.E.2d at 1001; see also Winston, 777 F.2d at 80; R.G. Group, Inc., 751 F.2d at 74.

"[M]utual assent must be manifested by one party to the other...." Porter v. Commercial-Casualty Insurance Co., 292 N.Y. 176, 54 N.E.2d 353, 356 (1944) (emphasis added). The Restatement (Second) of Contracts, § 19(2) states: "The conduct of a party is not effective as a manifestation of his assent unless he intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents." (Emphasis added.)

The instruction allows the jury to consider all overt, objective manifestations while denying consideration of secret or subjective manifestations. The SEC filing and the press release were outward, objective manifestations; conversations between Texaco and Getty, to which Pennzoil was not a party, were subjective, secret manifestations that were properly precluded from consideration.

Texaco's argument is without merit.

Texaco next contends in Points of Error 12 and 13 that the trial court erred in refusing its request for and in overruling its objection to the omission of Requested Instructions A and D.

The requested instructions state:

Requested Instruction A

In answering Issue No. 1 you may look to the intent of Pennzoil, the Trust, the Museum and the Getty Oil Company as manifested by their words and deeds and by the existing circumstances.

Requested Instruction D

You are instructed that, although an oral or unsigned written agreement may be a binding contract if the parties so intend, it is not binding if any party intends to be bound to a contract only if there is a complete written document containing all the terms which have been agreed to and which document has been signed by all the parties. In such instance, none of [819] the parties will be bound until the signing occurs, even when all the parties have otherwise agreed on all the essential terms of the proposed contract.

Various factors are relevent to the determination of whether or not any of the parties intended to be bound without or prior to execution of a written definitive agreement. No single factor is decisive, but each provides significant guidance. Among the factors you may consider as evidence of intent to be bound only after execution of a written agreement are: (1) whether a party reserved the right to be bound only when a written agreement is signed, either orally during negotiations or in drafts of documents that condition the making of a binding agreement upon execution of the document; (2) whether there were any open issues that remained to be negotiated or settled; (3) whether the contract concerns complex and substantial business matters; and, (4) whether the situation is such that signed written agreements are standard or customary.

Texaco argues that by not including instructions that the jury should consider "all surrounding circumstances," particularly the four listed in Requested Instruction D, the court limited the jury's consideration of all relevant evidence and focused the jury's attention upon evidence favorable to Pennzoil.

It is noted that at trial, Texaco propounded Requested Instruction D, which was refused, and then filed specific objections to the refusal. In both instances, the requested instruction listed the following as one of the four circumstances to be considered: "(3) whether the contract concerns complex and substantial business matters." However, on appeal, Texaco argues that these four factors should have been submitted, but omits the number (3) factor and substitutes the following: "(b) whether there was partial performance indicative of agreement...."

Objections made on appeal that do not conform to those made at trial are waived. Conner v. Bean, 630 S.W.2d 697, 701 (Tex.App.—Houston [1st Dist.] 1981, writ ref'd n.r.e.). As Texaco's argument regarding Requested Instruction D does not conform to its objection at trial, it is waived. However, for the reasons previously stated, we will discuss and consider Texaco's complaint.

Tex.R.Civ.P. 277 provides that the trial court "shall submit such explanatory instructions and definitions as shall be proper to enable the jury to render a verdict...." Explanatory instructions are the tools that aid the jury in rendering a just and proper verdict, and as such, should be submitted when in the sole discretion of the trial judge, they will help the jury to understand the meaning and effect of the law and the presumption thereby created. Southern Pacific Transportation Co. v. Garrett, 611 S.W.2d 670, 674 (Tex.Civ.App.—Corpus Christi 1980, no writ).

Under New York law, the intent of the parties is discerned by looking to the parties' words and deeds that constitute objective signs in a given set of circumstances. See Winston, 777 F.2d at 80. Restatement (Second) of Contracts § 27 comment C (1981) suggests eight factors that "may be helpful in determining whether a contract has been concluded....":

The extent to which express agreement has been reached on all the terms to be included, whether the contract is of a type usually put in writing, whether it needs a formal writing for its full expression, whether it has few or many details, whether the amount involved is large or small, whether it is a common or unusual contract, whether a standard form of contract is widely used in similar transactions, and whether either party takes any action in preparation for performance during the negotiations.

These may be shown by "oral testimony or by correspondence or other preliminary or partially complete writings." Id.

In our case, Texaco chose only four of the suggested eight factors to be submitted [820] to the jury. Additionally, the four listed in Texaco's requested instruction are not the four often suggested in the case law. (It omitted "partial performance.") Finally, Texaco's requested "by the existing circumstances" language had the potential of allowing the jury erroneously to consider secret, subjective intentions.

Given these considerations and the trial court's broad discretion in submitting instructions, there was no reversible error in the court's denial of Requested Instructions A and D.

Texaco's Points of Error 11, 12, and 13 are overruled.

In its 14th point of error, Texaco argues that Instruction No. 4 to Special Issue No. 1 is misleading, incomplete, and a direct comment on the weight of the evidence. Specifically, it contends that Instruction No. 4: (1) fails to inform the jury that before there can be a contract, the parties have to agree to all material matters; (2) fails to inform the jury that if any element considered by any party is left for future consideration, there is no contract; (3) fails to inform the jury that even if the parties intend to be bound before resolution of "each and every" item, they cannot be bound until there is a resolution of "each and every" material item of the agreement; and (4) personalizes the parties, which personalization "nudges" the jury to adopt Pennzoil's position.

Instruction No. 4 states:

There is no legal requirement that parties agree on all the matters incidental to their agreement before they can intend to be bound. Thus, even if certain matters were left for future negotiations, those matters may not have been regarded by Pennzoil and the Getty entities as essential to their agreement, if any, on January 3. On the other hand, you may find that the parties did not intend to be bound until each and every term of their transaction was resolved.

At trial, Texaco objected as follows:

Instruction No. 4 is a direct comment on the weight of the evidence and is therefore improper because it personalizes the instruction to the party's case and thereby unduly emphasizes evidence favorable to Pennzoil.

We first note that Texaco's argument on appeal is different from its trial objection. As noted previously, it is well-settled that a party is confined to the objection made at trial and that he will not be allowed to enlarge his complaint on appeal. Tex.R.Civ.P. 274; Perez v. Baker Packers, 694 S.W.2d 138, 141-42 (Tex.App.—Houston [14th Dist.] 1985, writ ref'd n.r.e.); Conner, 630 S.W.2d at 701. Consequently, Texaco has waived all allegations of error regarding Instruction No. 4, except for the complaint of "personalization."

Texaco contends that Special Issue No. 1 fails to inquire whether there was agreement on all material issues and that Instruction No. 4 fails to tell the jury that there must be agreement on all material terms and that the parties cannot be bound until resolution of each material item. New York law does not contemplate such a specific formalistic rule:

Under the Uniform Commercial Code [2-204(3)], if the parties have intended to contract, and if an appropriate remedy may be fashioned, a contract for sale does not fail for indefiniteness if terms, even important terms, are left open ... It is no longer true that dispute over material terms inevitably prevents formation of a binding contract. What is true ... is that when a dispute over material terms manifests a lack of intention to contract, no contract results.

J. Baranello & Sons v. Hausmann Industries, Inc., 571 F.Supp. 333, 340-41 (E.D.N. Y.1983) (emphasis added); see also Restatement (Second) of Contracts § 33 comment A ("[T]he actions of the parties may show conclusively that they intended to conclude a binding agreement even though one or more terms are missing or are left to be agreed upon."); Kleinschmidt Division of SCM Corp. v. Futuronics Corp., 41 N.Y.2d 972, 395 N.Y.S.2d 151, 152, 363 N.E.2d 701, [821] 702 (1977) ("A contract for sale does not fail for indefiniteness if terms, even important terms, are left open."); V'Soske v. Barwick, 404 F.2d 495, 500 (2d Cir.1968), cert. denied, 394 U.S. 921, 89 S.Ct. 1197, 22 L.Ed.2d 454 (1969), ("[A]ll terms contemplated... need not be fixed with complete... certainty for a contract to have legal efficacy."); Camrex Contractors v. Reliance Marine Applicators, Inc., 579 F.Supp. 1420, 1427 (E.D.N.Y.1984); Reprosystem, B.V., 522 F.Supp. at 1275 ("[W]hile there is no enforceable agreement if the parties have not agreed on the essential terms, ... in New York and across the country a binding contract can be formed despite `material open issues.'").

Texaco also argues that Instruction No. 4 should have informed the jury that if any matter left for future negotiations was considered essential by any party, there was no contract.

Instruction No. 4 advises the jury that a contract can exist even though the parties have left certain "incidental" matters for future negotiations. It goes on to say that even if certain matters left for future negotiations, those matters may not have been regarded by the parties as essential to their agreement, if any. (Emphasis added.) This implies that essential items could not be left open. The instruction is a correct statement of the law and of the facts that Pennzoil, as plaintiff, had to prove. There is no requirement that the court additionally instruct the jury specifically on the converse, i.e., that a contract does not exist if essential items are left for future negotiations. Group Life & Health Insurance Co. v. Turner, 620 S.W.2d 670, 674 (Tex. App.—Dallas 1981, no writ) (no requirement that an affirmative statement be stated negatively). Additionally, the final sentence ("[o]n the other hand, you may find that the parties did not intend to be bound until each and every term of their transaction was resolved") clearly supplies relief to Texaco's objection by advising the jury that the parties here may not have intended to be bound until all terms were resolved.

Finally, Texaco contends that Instruction No. 4 "personalizes" the parties, which personalization impermissibly "nudges" the jury to adopt Pennzoil's position that any terms to be negotiated after the January 3, 1984 board meeting were merely "incidental" to the contract. (Again, we note that this is the only argument properly preserved on appeal under this point of error). Texaco's complaint here is with the second sentence of Instruction No. 4: "Thus, even if certain matters were left for future negotiations, those matters may not have been regarded by Pennzoil and the Getty entities as essential to their agreement, if any, on January 3."

We note that Texaco cites no authority directly on point that would support its argument that the "personalization" here was improper.

Courts frequently "personalize" or "individualize" the charge so as to make the law contained in the charge applicable to the facts in the case and more easily understood by the jury. See Herrera v. Balmorhea Feeders, Inc., 539 S.W.2d 84, 88 (Tex. Civ.App.—El Paso 1976, writ ref'd n.r.e.). Problems arise when the instruction deviates from "enabl[ing] the jury to render a verdict," Tex.R.Civ.P. 277, to actually misstating the law or misguiding the jury. Jackson v. Fontaine's Clinics, Inc., 499 S.W.2d 87 (Tex.1973). The following cases, cited by Texaco, evidence such improper and impermissible deviations:

1. Lemos v. Montez, 680 S.W.2d 798. (The court held that in light of the fact that the supreme court had previously defined "unavoidable accident," an appended definition of the term impermissibly "tilted" or "nudged" the jury thereby commenting on the weight of the evidence.)

2. Gulf Coast State Bank v. Emenhiser, 562 S.W.2d 449, 453 (Tex.1978). (It is impermissible to marshal the facts or parties' contentions into an instruction and then to instruct the jury to find for one party if it believed certain facts to be true.)

[822] 3. Owen Development Co. v. Calvert, 157 Tex. 212, 302 S.W.2d 640, 643 (1957). (An issue, which tied the jury to a 31-day time period, singled out and gave prominence to the testimony of an interested witness.)

4. McLeroy v. Stocker, 505 S.W.2d 615, 618 (Tex.Civ.App.—Houston [1st Dist.] 1974, no writ). (An instruction on "unavoidable accident," which appeared on a page preceding the first special issue, was probably considered by the jury as a direction to first consider the question of unavoidable accident, thereby commenting on the weight of the evidence.)

Our case is distinguishable from these cases. Instruction No. 4 is a true statement of the law; it personalizes the law to the parties without misleading the jury. Consequently, we find no error that was reasonably calculated to prejudice Texaco.

Texaco's 14th point of error is overruled.

In its 15th and 31st points of error, Texaco claims that Instruction No. 5 to Special Issue No. 1 (intent to be bound) is a "surplus" instruction that improperly emphasizes Pennzoil's "duty to negotiate" theory.

Instruction No. 5 states:

Every binding agreement carries with it a duty of good faith performance. If Pennzoil and the Getty entities intended to be bound at the end of the Getty Oil board meeting of January 3, they were obliged to negotiate in good faith the terms of the definitive merger agreement and to carry out the transaction.

Texaco objected to Instruction No. 5 as follows:

Instruction No. 5 is an improper instruction because it does not assist the jury in its consideration of its answer to Special Issue No. 1. It is irrelevant to the inquiry posed in Special Issue No. 1 as to whether the parties intended to be bound. Instead, this is merely a judicial comment to negate Texaco's evidence indicating no intention to be bound by virtue of the ongoing negotiations. It assumes a finding of some prior intention to be bound since only in those circumstances does any obligation to negotiate in good faith arise. No such instruction need or should be given.

Texaco presents four basic arguments:

(1) the instruction misstates New York law; (2) it is unnecessary surplusage; (3) it comments on the weight of the evidence because it assumes the existence of a binding contract; and (4) it attempts to avoid New York law that allegedly holds that an agreement in principle, subject to the execution of definitive documents, is not an enforceable contract.

Texaco first argues that Instruction No. 5 is a misstatement of the law because it erroneously converts the post-contractual duty of "good-faith performance" into a pre-contractual duty of "good-faith negotiation." It urges that this instruction abrogates its defense (to the tort of interference with prospective contractual relations) by erasing the distinction between pre-contractual and post-contractual conduct.

Tex.R.Civ.P. 277 provides that the trial court may give such explanatory instructions and definitions as shall be proper to enable the jury to render a verdict. A "proper" instruction is one that assists the jury and is legally correct. First State Bank & Trust Co. v. George, 519 S.W.2d 198, 207 (Tex.Civ.App.—Corpus Christi 1974, writ ref'd n.r.e.). An instruction that misstates the law or misleads the jury would not meet this standard. Jackson, 499 S.W.2d at 90.

Under New York law, there exists a duty of good faith and fair dealing that is read into every contract and requires a party not to act in a manner that defeats the purpose of the agreement. Candid Productions, Inc., 530 F.Supp. at 1334-35. "Where the parties are under a duty to perform that is definite and certain the courts will enforce a duty of good faith, including good faith negotiation, in order that a party not escape from the obligation he has contracted to perform." Teachers Insurance & Annuity Association of America v. Butler, 626 F.Supp. 1229, [823] 1231-32 (S.D.N.Y.), stay granted, 803 F.2d 61 (2d Cir.1986).

In the instant case, the "duty of good faith performance" language contained in Instruction No. 5 is stated to arise from the parties' agreement. It is worded clearly, instructing the jury that a duty of good faith performance on the part of the Getty entities and Pennzoil arose post-contractually, i.e., only if the jury found an intent to be bound on January 3. Thus, Instruction No. 5 is not a misstatement of the law.

Texaco next argues that Instruction No. 5 is mere surplusage because nothing in Special Issue No. 1 (intent to be bound) relates to a "good faith duty to negotiate," and consequently, this is the precise type of instruction that has been condemned by the Texas Supreme Court.

While trial courts are authorized to submit instructions that will enable the jury to reach a verdict, they should refuse to submit unnecessary instructions even if they are correct statements. Samsel v. Diaz, 659 S.W.2d 143, 144 (Tex.App.—Corpus Christi 1983, no writ); First State Bank & Trust Co., 519 S.W.2d at 207. The submission of unnecessary instructions may be so prejudicial that it requires reversal. Boaz v. White's Auto Store, 141 Tex. 366, 172 S.W.2d 481 (1943); Samsel, 659 S.W.2d at 145.

Instruction No. 5 is a correct statement of the law. It was submitted to aid the jury in answering Special Issue No. 1, which asks whether Getty and Pennzoil intended to be bound to an agreement at the end of the January 3, 1984 meeting. Texaco asserts that because a good faith obligation to perform does not arise unless there is a binding contract, this instruction was unnecessary surplusage.

The cases cited by Texaco are inapposite. In each instance, the court condemned the requested instruction because it deviated from or elaborated upon (1) court-promulgated instructions or (2) standard instructions.

In Fleishman v. Guadiano, 651 S.W.2d 730, 731 (Tex.1983), cited by Texaco, the court endorsed its previous instruction, promulgated in Turner v. General Motors Corp., 584 S.W.2d 844 (Tex.1979), and held that a requested additional instruction on "sole cause" would deflect the jury's attention to contributory negligence when it was considering whether a ladder in question was defectively designed.

In Acord v. General Motors Corp., 669 S.W.2d 111, 116 (Tex.1984), the Texas Supreme Court held that although the contested instruction given was a correct statement of the law, it constituted harmful error because it was a direct comment on the weight of the evidence. The Acord court indicated that the singling out of the law in such a way as to favor one side constitutes a comment on the weight of the evidence and is harmful error.

In Lemos, 680 S.W.2d at 801, the court found that an appended instruction to a previously-approved definition of "unavoidable accident" was wrong. The court indicated that its reversal and remand was based upon (1) the incorrectness of the instruction, and (2) the fact that it impermissibly titled or nudged the jury "one way or the other."

In First International Bank v. Roper Corp., 686 S.W.2d 602, 604 (Tex.1985), a products liability case cited by Texaco, the trial court embellished the standard definition of "producing cause" by adding a definition of "sole cause." The Texas Supreme Court held that the additional instruction, although correct as to the definition of "sole cause," was improper surplusage in this type of case, because it placed undue emphasis on the parents' negligence when the jury was considering the existence of a defect and its relationship to the injurious event.

In our case, Instruction No. 5 to Special Issue No. 1 advises the jury of a post-contractual duty; Special Issue No. 1 inquires into the existence of a contract. Thus, it seems that Instruction No. 5 was unnecessary to enable the jury to determine this [824] contract element. However, even though the instruction was unnecessary, we find that its inclusion was not so prejudicial as to require reversal. Tex.R.App.P. 81(b)(1).

The "character" of the negotiations between Pennzoil and Getty after the January 3 board meeting is hotly contested by both sides. Pennzoil asserts that the negotiations after January 3 were merely to formalize the implementing details of the contract already reached. Texaco contends that the fact that the parties continued to negotiate after January 3 on allegedly essential issues showed that no binding agreement had been reached.

Instruction No. 4 to Special Issue No. 1 advised the jury that the parties may not have intended to be bound until all negotiations were resolved. On the other hand, Instruction No. 5 advised the jury that the subsequent negotiations may have been exemplary of the parties' post-contractual duty of good faith effort to complete the details of what had been agreed to before. Consequently, the combined effect of Instructions 4 and 5 was to focus the jury upon the controlling issue, whether the parties had an intent to be bound.

Texaco further complains that the instruction was a comment on the weight of the evidence, because it assumes the existence of a binding contract and negates Texaco's evidence that the on-going negotiations indicate that there no intention to be bound. By its use of the conditional language, "If Pennzoil and the Getty entities intended to be bound ...," Instruction No. 5 does not assume the existence of any agreement; thus, it is not an improper judicial comment aimed at negating Texaco's evidence.

Finally, Texaco contends that Instruction No. 5 was offered for the purpose of neutralizing the January 4, 1984 Getty press release. This contention was not raised at trial. A party may not enlarge on appeal the objections made at trial. Conner, 630 S.W.2d at 701.

However, even if this argument had been preserved, it is without merit. Specifically, Texaco contends that by using the identical "definitive merger agreement" language, in Instruction No. 5, the court neutralized the language, allegedly favorable to Texaco's position, of the press release ("the agreement in principle is subject to execution of a definitive merger agreement").

Throughout the trial, the phrases "definitive merger agreement," "formal agreement," and "definitive agreement" were used repeatedly to refer to the document that would be the final written agreement between the parties. There was some evidence that "definitive merger agreement" could also refer to a formal boilerplate merger document required under Delaware law in all mergers. In its discretion, the court chose to use the phrase "definitive merger agreement" rather than one of the other terms used. We do not find that the use of this term was so prejudicial as to require reversal.

Texaco's Points of Error 15 and 31 are overruled.

In its 16th and 17th points of error, Texaco urges that Instruction No. 6 to Special Issue No. 1 (intent to be bound) improperly assumes the existence of an "agreement" and an "original agreement."

Instruction No. 6 states:

Modifications or discussions to modify an agreement may not defeat or nullify a prior intention to be bound. Parties may always, by mutual consent and understanding, add new provisions spelling out additional terms that were not included in their original agreement.

Texaco objected to Instruction No. 6 at trial as follows:

Instruction No. 6 is a direct comment on the weight of the evidence because it uses the term "do," rather than "may" and it fails to include a balancing instruction to the effect that modifications or discussions to modify may show an intention not to be bound. In this regard the Instruction unduly and unfairly comments on the weight of the evidence and favors Pennzoil's evidence. There is no [825] need to submit any such issue to aid the jury in their answer to Special No. 1.

If Instruction No. 6 is to be given in some form, Texaco requests that the following be added as the last sentence to the instruction: "On the other hand, such modifications or discussions to modify an agreement may show an intent not to be bound."

Texaco first contends that Instruction No. 6 was "surplus" and assumes the existence of an "agreement," thereby directly commenting on the weight of the evidence. It asserts that the trial court should have changed the instruction to include alternative directions that modifications could indicate an intent not to be bound. Specifically, Texaco contends that this instruction signaled the jury that it could find an intent to be bound even though there was on-going discussion regarding the purchase of the Museum shares.

Tex.R.Civ.P. 277 authorizes the court to submit explanatory instructions that are "proper" to enable the jury to reach a verdict. An instruction is "proper" if there is support for it in the evidence or the inferences to be drawn therefrom and if the instruction might aid the jury in answering the issues. Mejia v. Liberty Mutual Insurance Co., 544 S.W.2d 690, 691 (Tex.Civ.App.—Houston [14th Dist.] 1976, no writ).

In the instant case, evidence was presented that indicated that following the January 3 meeting, the parties discussed modifying details of the agreement, for example that Pennzoil rather than Getty Oil should would purchase the Museum shares. Consequently, this instruction aided the jury in answering Special Issue No. 1 by explaining the possible significance of the post-January 3 negotiations.

Additionally, even if Instruction No. 6 were surplus or unnecessary, its submission was not so prejudicial as to require reversal. To be an improper comment, the court must indicate an opinion as to the verity or accuracy of the facts. Samsel v. Diaz, 659 S.W.2d at 147. Instruction No. 6 refers to no facts; therefore, it is not a comment on the weight of the evidence. Id.

Texaco additionally argues in Point of Error 16 that Instruction No. 6 directly comments on the weight of the evidence by assuming the existence of an "agreement." Pennzoil correctly points out that this objection is not the same lodged at trial. As such, it is waived. Tex.R.Civ.P. 274.

Even if Texaco's objection had been properly preserved, its alleged error is without merit. Instruction No. 6 was submitted to aid the jury in determining whether the evidence proved an intent to be bound. The instruction correctly states the significance of post-agreement modifications on the question of the parties' prior intent to be bound, which prior intent was the subject of Special Issue No. 1. Additionally, throughout the remainder of the charge, the term "agreement" was modified with the conditional language "if any" or "if you have so found" numerous times. Consequently, it is unlikely that a juror would believe that the trial court assumed the existence of an agreement in Instruction No. 6. See Texas Employers Insurance Association v. McKay, 210 S.W.2d at 148-49.

Additionally, we note that Texaco's requested addition to Instruction No. 6 uses "agreement" in the same manner as now complained of, and that contrary to Texaco's contention, Instruction 6 uses "may" rather than "do."

Texaco also argues that because the trial court charged the jury that modifications may not defeat the agreement, it should have charged the jury that "a realization by the parties that modifications have to be made to material terms will defeat the formation of an `agreement,'" and that "a realization by the parties that new material terms have to be added to which the parties have not agreed, can defeat the formation of such an `agreement.'"

[826] This argument is waived for two reasons: (1) Texaco made no objection at trial on this ground ("[the instruction] fails to include a balancing instruction to the effect that modifications or discussion to modify may show an intent not to be bound"), Tex.R. Civ.P. 274; and (2) Texaco failed to request such explanatory instruction, Tex.R.Civ.P. 279.

Finally, Texaco argues that the trial court erred in denying its requested additional language to Instruction No. 6: "On the other hand, such modifications or discussions to modify an agreement may show an intention not to be bound."

In issuing explanatory instructions, the trial court is given wide discretion to determine the sufficiency of the explanations. K-Mart Corp. Store No. 7441 v. Trotti, 677 S.W.2d 632, 636 (Tex.App.—Houston [1st Dist.] 1984, writ ref'd n.r.e.). In deciding whether there has been an abuse of discretion, this Court may not substitute its judgment for that of the trial court but must decide only whether the court's action was arbitrary or unreasonable. Id.

Texaco's requested addition to Instruction No. 6 was not correct. Under New York law, negotiations on new provisions of an agreement do not defeat the agreement. Rose v. Spa Realty Associates, 42 N.Y.2d 338, 397 N.Y.S.2d 922, 928, 366 N.E.2d 1279 (1977). Parties may vary the terms of the agreement or add new ones by mutual agreement. "[T]his has no effect upon the validity of any contract, formal or informal." Corbin on Contracts, § 30 at 111-12 (1963) (emphasis added). Texaco's requested addition to Instruction No. 6 was properly denied.

Points of Error 16 and 17 are overruled.

Texaco next alleges that Instruction No. 1 to Special Issue No. 2 (knowing interference) improperly marshals Pennzoil's evidence on inducement and signals the jury that an "agreement" existed.

Special Issue No. 2 asks:

Do you find from a preponderance of the evidence that Texaco knowingly interfered with the agreement between Pennzoil and the Getty entities, if you have so found?

Answer: "We do" or "We do not."

The accompanying Instruction No. 1 states:

Knowledge of a fact can be shown either by direct evidence of what it knew or what it was told, or by indirect or circumstantial evidence. A fact may be established by indirect or circumstantial evidence when the fact is fairly and reasonably inferred from other facts proven in the case.

In order to find that Texaco interfered with the agreement, if any, inquired about above, it must be shown by a preponderance of the evidence that Texaco wanted to cause the breach, or to prevent the performance of this agreement, or that Texaco knew that a breach or failure to perform would occur as a result of its actions. (Emphasis added.)

Texaco complains of the underlined portion of the instruction. Texaco asserts that the use of the demonstrative adjective "this" before "agreement" aggravated the harmful effect of this allegedly improper instruction, because it instructed the jury that the court believed that an enforceable agreement did exist. Texaco's argument regarding the implications of the court's use of "this" is (1) waived (because there was no such objection made at trial, Tex.R. Civ.P. 274), and (2) erroneous, both conceptually and grammatically. In this context, the use of "this" did not instruct the jury that the court believed an enforceable contract did exist. As used, "this" is a demonstrative adjective modifying the noun "agreement." The function of a demonstrative adjective is to "designate" or "point out" something close at hand, near in thought, or something that has just been mentioned.

Texaco next argues that Instruction No. 1 constituted a direct comment on the weight of the evidence in that it marshaled [827] the evidence for the jury and individualized the instruction to Texaco's conduct. In support of this argument, Texaco relies exclusively upon Gulf Coast State Bank v. Emenhiser, 562 S.W.2d 449 (Tex. 1978), but that case does not support Texaco's contention.

Gulf Coast involved an action to recover funds that proved to be uncollectible. The trial court submitted four special instructions in which it recited the duties of a collecting bank, stated the legal effect of certain facts, directed the jury to find for the defendants if it believed certain facts, and asked the jury whether it "found for defendants." The reviewing court stated that it was "not permissible for the trial court to marshal the facts or parties' contentions in an instruction, and then instruct the jury to find for one party if they believed certain facts to be true." Id. at 453 (emphasis added). Reversal was required, because the court repeatedly instructed the jury that if it found certain facts, then it should find for the defendants. Individualization of the parties was never discussed in that case.

In the instant case, Instruction No. 1 advised the jury of the law and the burden of proof in assessing Special Issue No. 2 (knowledge). Actually, this instruction favored Texaco by informing the jury of Pennzoil's burden of proof, i.e., Pennzoil had to prove, by a preponderance of the evidence, that Texaco's interference was intentional. "The Court, in its charge to the jury, must so present its charge as to make the law contained in the charge applicable to the facts in the case." Herrera v. Balmorhea Feeders, Inc., 539 S.W.2d 84, 88 (Tex.Civ.App.—El Paso 1976, writ ref'd n.r.e.). This is what the trial court did.

Texaco's 18th point of error is overruled.

In Texaco's 19th point of error, it complains that Instruction No. 2 to Special Issue No. 2 (knowing interference) improperly emphasizes Pennzoil's evidence on knowledge of a contract.

Instruction No. 2 to Special Issue No. 2 states:

In order to find that Texaco had knowledge of the agreement, if any, it is not necessary that Texaco had an accurate understanding of the legal significance of the facts which produced the agreement. If Texaco knew the facts that gave rise to the agreement, then it knew of the agreement, even if it did not believe that those facts gave rise to an agreement, and even if it believed that any agreement that did exist violated the law. You may also find that Texaco knew of the agreement, if any, if you find that Texaco intentionally or willfully refused to ascertain the facts or if it exercised bad faith. Texaco is also charged with all the knowledge, if any, of its agents and representatives, whether communicated to each other or not.

At trial, Texaco objected to Instruction No. 2 in pertinent part, as follows:

The first two sentences of Instruction 2 are an incorrect statement of the law. Texaco requests that the following instruction be included in the charge to the jury in lieu of these sentences:

In order to find that Texaco knowingly interfered with the contract between the Getty Oil Company, the Trust, the Museum and Pennzoil, if any, it is necessary that Texaco had actual knowledge of the existence of such a contract. In order to have "actual knowledge" of a contract, a party must know that a contract exists. If a party should have known that a contract exists, he does not have "actual knowledge" of that contract.

The first two sentences of Instruction No. 2 are a direct comment on the weight of the evidence in that they imply that Texaco did not have an accurate understanding of the legal significance of the facts in its possession and that Texaco did know of the existence of the agreement.

Texaco contends that a portion of the second sentence in Instruction No. 2 ("[i]f Texaco knew the facts that gave rise to the agreement, then it knew of the agreement....") is incomplete, misleading, [828] and a direct comment on the weight of the evidence. It contends that the court should have given a "balanced" instruction "that if there were facts required for a binding contract that were not known to Texaco then Texaco did not have actual knowledge of the contract."

Under New York law, to recover on its claim of tortious interference with contract, Pennzoil had to establish that Texaco had knowledge of the agreement between the Getty entities and Pennzoil. But it was not necessary that Texaco have full knowledge of the detailed terms of the contract, Gold Medal Farms, Inc., 10 A.D.2d 584, 9 A.D.2d 473, 195 N.Y.S.2d 179. The instruction reflects the description of the knowledge requirement articulated in the Restatement (Second) of Torts § 766. The tort of inducing a breach of contract is a developing area of tort law, and New York courts have looked to the Restatement (Second) for guidance in this area. Section 766, comment i, focuses on the knowledge requirement, providing that although the defendant must know the facts giving rise to the contractual duty, it need not necessarily have an accurate understanding of the legal significance of those facts.

In the instant case, the first and second sentences of Instruction No. 2 instructed the jury that in order for Texaco to be liable, Texaco must have had "knowledge" of the facts giving rise to the contract and not necessarily of the legal ramifications of those facts. We find this to be an acceptable instruction on the element of knowledge.

Texaco's argument, that the instruction should have been balanced, is without merit. This argument is made for the first time on appeal and is therefore waived. Tex.R.App.P. 274. Even if this argument could be inferred from Texaco's trial objections, it is without merit, because there is no requirement that a negative instruction be given in addition to the affirmative one the trial court gave. Tex.R. Civ.P. 277; Saint Paul Mercury Indemnity Co. v. Tarver, 272 S.W.2d 795, 799 (Tex. Civ.App.—Eastland 1954, writ ref'd n.r.e.).

Texaco also asserts, for the first time on appeal, that the instruction's use of the article "the" in the phrase "the agreement" in the first two sentences of Instruction No. 2 is a signal to the jury that the court believed there was an agreement.

In the contested first two sentences of Instruction No. 2, the phrase "the agreement" is used four times. The first time it is used, it is conditioned by the phrase "if any." The latter part of the second sentence uses the indefinite phrases "an agreement" and "any agreement." The entire charge states the conditional "the agreement, if any" numerous times. It is unlikely that the jury rendered an improper verdict because the court here failed to qualify "the agreement."

Finally, Texaco contends that Instruction No. 2 "nudges" the jury toward favoring Pennzoil by emphasizing the significance of the evidence concerning Texaco's investigation of the contract. Texaco presents no argument on this point. Additionally, as noted by Pennzoil, at trial this "nudges" objection was made to the third sentence of Instruction 2; the substance of the argument presented in point 19 refers to the second sentence of the instruction. In its reply brief, Texaco counters Pennzoil by alleging that this "nudges" trial objection was aimed at the whole instruction. However, the trial objection states: "The third sentence in Instruction No. 2 `nudges'...." Texaco's argument presents nothing for review. Point of Error 19 is overruled.

In its 20th and 21st points of error, Texaco claims that Instruction No. 3 to Special Issue No. 2 (knowing interference) improperly emphasizes Pennzoil's evidence on inducement and virtually directs an affirmative answer to Special Issue No. 2.

Instruction No. 3 to Special Issue No. 2 states:

A party may interfere with an agreement by persuasion [sic] alone, by offering better terms, by giving an indemnity against damage claims to the party or parties [829] induced to breach, or by any act interfering with the performance of a legal duty arising from the agreement, such as the duty of good faith performance.

Texaco argues that the court erred in submitting Instruction No. 3, because (1) as written in the disjunctive, the court made it possible for the jury to answer Special Issue No. 2 negatively only if it found that Texaco committed none of the actions, and (2) it is "tailored to dovetail" with Pennzoil's evidence supporting inducement by Texaco. Texaco points out that it offered better terms and gave an indemnity; consequently, this instruction is in effect a direction by the court to the jury to return an affirmative answer.

What is missing in Texaco's argument is any allegation that the instruction, listing possible ways of interfering with an agreement, is a misstatement of the law. Indeed, each of the four acts has been identified as constituting tortious interference under New York law: (1) persuasion (Guard-Life Corp. v. S. Parker Hardware Manufacturing Corp., 50 N.Y.2d 183, 428 N.Y.S.2d 628, 406 N.E.2d 445; Restatement (Second) of Torts, § 768, Comment "e" (1979)); (2) offering better terms (Gold Medal Farms, 195 N.Y.S.2d at 185); (3) indemnity (American Law Book Co. v. Edward Thompson Co., 41 Misc. 396, 84 N.Y.S. 225, 226 (Sup.Ct.1903)); (4) interference with performance of a legal duty arising from the agreement (Morris v. Blume, 55 N.Y.S.2d 196, 199 (Sup.Ct.), aff'd, 269 A.D. 832, 56 N.Y.S.2d 414 (App.Div.1945)).

Texaco has failed to cite any authority to suggest the court erred in listing four possible specific acts of tortious interference. The only case cited, Lemos, 680 S.W.2d 798, is not supportive. The court there found reversible error in the use of an instruction defining "unavoidable accident," because (1) the instruction was incorrect, and (2) it was appended to an already correct definition as set forth in a prior decision and the Texas Pattern Jury Charges. In the instant case, the instruction is a correct statement of the law.

Points of Error 20 and 21 are overruled.

In Points of Error 22, 23, 24, and 25, Texaco claims that Instruction Nos. 4 and 5 to Special Issue No. 2 (knowing interference) improperly emphasize Pennzoil's evidence in response to Texaco defenses, are unnecessary to the issue presented and constitute direct comments on the weight of the evidence.

Instruction No. 4 to Special Issue No. 2 states:

A competitor has no privilege and is not permitted to interfere with the agreements of those with whom it is in competition. Also, a party is not justified in interfering with the agreement of another simply because it is advancing its own business interests.

Texaco objected to Instruction No. 4 on the following grounds:

Instruction No. 4 is an incorrect statement of the law, since a party is fully justified in interfering with an agreement with another party that is voidable or is terminable at will.

Instruction No. 4 is a direct comment on the weight of the evidence in that it unduly emphasizes evidence which may be relevant to Texaco's intent and does so in a negative manner.

Texaco first contends that this instruction seeks "to collapse the pre-contractual and post-contractual New York torts" by forcing the jury to find liability for the post-contractual tort based on proof of a pre-contractual tort, thus depriving Texaco of the defenses it could have asserted to the pre-contractual tort. It also urges that this instruction was obviously unhelpful in answering Special Issue No. 2.

Pennzoil responds that this instruction was essential to "undo any confusion" presented by Texaco's evidence of business competition because "competition" is only a defense to interference with prospective contractual relations.

Instruction No. 4 is a correct statement of the law. A party's status as a competitor [830] does not protect him from the consequences of interference with an existing contract. Guard-Life Corp., 428 N.Y.S.2d at 631, 406 N.E.2d at 448; see also Restatement (Second) of Contracts § 768(2):

The fact that one is a competitor of another for the business of a third person does not prevent his causing a breach of an existing contract with the other from being an improper interference if the contract is not terminable at will.

Additionally, because the evidence raised the issue of the ramifications of business competition, it was proper to instruct the jury regarding the law in this area. Tex.R.Civ.P. 277. Finally, there were no pleadings seeking relief for interference with a prospective contract, or alleging that the contract was terminable at will; thus the omission of these two exceptions to the general rule was correct.

Instruction No. 5 to Special Issue No. 2 states:

You may find that Texaco knowingly interfered with the Pennzoil agreement, if any, even though the Getty Oil directors, the Museum's President, and Gordon P. Getty, Trustee, were fiduciaries. If those fiduciaries intended to be bound to an agreement with Pennzoil on January 3, they could not avoid that agreement by later seeking or accepting a higher price or a more beneficial arrangement with a third party.

Texaco contends that this instruction is incomplete, misleading, and constitutes a direct comment on the weight of the evidence. Specifically, it contends that the instruction erroneously uses the language "even though," which serves as a direct comment by the court that it did not approve Texaco's argument that the alleged agreement between Pennzoil and Getty violated all fiduciary obligations of the parties and was therefore unenforceable.

Where a breach of fiduciary obligation occurs, the contract entered is valid and enforceable where the bona fide purchaser takes without notice of fraud or misuse by the directors. See Cross Properties, Inc. v. Brook Realty Co., 37 A.D.2d 193, 322 N.Y.S.2d 773, 781 (App.Div.1971), aff'd 31 N.Y.2d 938, 340 N.Y.S.2d 928, 293 N.E.2d 95 (1972); see also Restatement (Second) of Trusts § 284 (1959):

(1) If the trustee in breach of trust transfers trust property to, or creates a legal interest in the subject matter of the trust in, a person who takes for value and without notice of the breach of trust and who is not knowingly taking part in an illegal transaction, the latter holds the interest so transferred or created free of the trust and is under no liability to the beneficiary.

In its reply brief, Texaco asserts that any agreement entered into by a board to foreclose bidding is unenforceable, citing Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del.1986). However, the facts in Revlon are distinguishable. The Revlon board, having before it two bids, rejected the latest offer of one entity and authorized negotiations with the other parties interested in acquiring Revlon. One bidder was privy to certain financial data. The court determined that the board breached its primary duty when it entered into a lock-up agreement on the basis of impermissible considerations at the expense of the shareholders. Consequently, the lock-up agreement could not be sustained.

In our case, the negotiations and alleged agreement with Pennzoil occurred prior to Texaco's offer, so the Revlon case does not control. A reasonable construction of Instruction No. 5 would be that the court sought to advise the jury that the parties' fiduciary obligations were not relevant to the "interference" issue.

Additionally, Texaco's argument, that the use of the "even though" language was an impermissible comment, is without merit. While the use of "even though" language was held to be an impermissible comment in Gulf Insurance Co. v. [831] Vela, 361 S.W.2d 904, 906-907 (Tex.Civ. App.—Austin 1962, writ ref'd n.r.e.), the error was mitigated with the 1973 amendment to Rule 277 that liberalized the practice of giving explanatory instructions. The court in Forney v. Memorial Hospital, 543 S.W.2d 705, 708 (Tex.Civ.App.—Beaumont 1976, writ ref'd n.r.e.), in allowing such "even though" language, articulated that "the test by which an instruction is measured is ... whether it is a misstatement as to the law applicable to the facts." Id.

In the instant case, Instruction No. 5 is a correct statement of the law applicable to the facts of the case, i.e., fiduciaries cannot breach a binding contract for a better offer.

Points of Error 22, 23, 24, and 25 are overruled.

In Point of Error No. 26, Texaco claims that Instruction No. 2 to Special Issue No. 3 improperly directs the jury to consider Pennzoil's evidence on damages.

Instruction No. 2 to Special Issue No. 3 states:

Pennzoil must prove its damages, if any, with a reasonable degree of certainty. This does not, however, require proof as to an absolute mathematical certainty if a wrong has been done from which monetary loss results, you may make a just and reasonable estimate of damages based on relevant data, including opinion evidence, even if the extent of injury cannot be proven precisely. Damages cannot be remote or contingent. (Emphasis added.)

Texaco asserts that the instruction constitutes a direct comment on the weight of the evidence by directing the jury to consider "opinion evidence," that was presented by Pennzoil only.

The charge to the jury must be sufficient to enable the jury to make an assessment of damages on the proper grounds and legal principles. Jackson v. Fontaine's Clinics, Inc., 499 S.W.2d 87, 90 (Tex.1973); Osoba v. Bassichis, 679 S.W.2d 119, 121-22 (Tex.App.—Houston [14th Dist.] 1984, writ ref'd n.r.e.). Instruction No. 2 is a correct statement of the applicable principles, i.e., the fact that damages in a tort action cannot be ascertained with absolute mathematical certainty does not bar recovery if they can be approximately fixed. See Steitz v. Gifford, 280 N.Y. 15, 19 N.E.2d 661 (1939). Additionally, in the highly specialized field of oil and gas, expert testimony that is free of conjecture and speculation is proper and necessary to determine and estimate damages. Amoco Production Co. v. Alexander, 594 S.W.2d 467, 477, 622 (Tex.Civ.App.—Houston [1st Dist.] 1979), modified on other grounds, 622 S.W.2d 563 (Tex.1981).

The instruction here does not mandate that the jury accept the expert opinion testimony. Rather, by its use of "may" (meaning "have permission to"), the instruction allows the jury to consider all of the evidence, opinion or otherwise.

Point of Error No. 26 is overruled.

Texaco's remaining points of error pertaining to the charge argue that the charge contains numerous errors of substantive law. Its first grouping of points of error complains of the failure to submit special issues on essential elements.

Specifically, Texaco urges that Pennzoil failed to submit a special issue that would support a finding of a valid, binding contract (Points of Error Nos. 27-28); and that Pennzoil failed to submit a special issue on actual knowledge of the alleged contract (Point of Error Nos. 29-30, 35).

Texaco contends that Special Issue No. 2 failed to submit the element of "knowledge" to the jury. Special Issue No. 2 asked:

Do you find from a preponderance of the evidence that Texaco knowingly interfered with the agreement between Pennzoil, and the Getty entities, if you have so found?

Texaco contends that this issue collapses the second and third elements of Pennzoil's [832] cause of action—knowledge and inducement.

Texaco again presents a grammar argument, insisting that as framed ("knowingly" modifies "interfered"), the "knowledge" element is converted into knowledge of the acts of interference, rather than knowledge of the contract with Pennzoil. This argument is without merit. As used in this issue, "knowingly" is an adverb modifying the verb "interfered," and answering the question "how?" [did Pennzoil interfere with the agreement?]. A reasonable reading is that the issue asks about interference, with knowledge of the agreement.

Texaco also argues that, even if properly worded, Instruction No. 2 to Special Issue No. 2 erroneously tells the jury that it can answer affirmatively, without a finding of "knowledge" as defined by New York law. Instruction No. 2 states:

In order to find that Texaco had knowledge of the agreement, if any, it is not necessary that Texaco had an accurate understanding of the legal significance of the facts which produced the agreement. If Texaco knew the facts that gave rise to the agreement, then it knew of the agreement, even if it did not believe that those facts gave rise to an agreement and even if it believed that any agreement that did exist violated the law. You may also find that Texaco knew of the agreement, if any, if you find that Texaco intentionally or willfully refused to ascertain the facts or if it exercised bad faith. Texaco is also charged with all the knowledge, if any, of its agents and representatives, whether communicated to each other or not.

Texaco contends that this instruction presents a "should have known" standard that is insufficient under New York law. Roulette Records, Inc. v. Princess Production Corp., 15 A.D.2d 335, 338, 224 N.Y. S.2d 204, 207 (App.Div.), aff'd, 12 N.Y.2d 815, 236 N.Y.S.2d 65, 187 N.E.2d 132 (1962). Because of such argument, Texaco requested the following Special Issue No. 105 and Instruction F, which were denied:

Special Issue No. 105

Do you find from a preponderance of the evidence that at the time of the execution of the Texaco Museum Stock Purchase Agreement, Texaco had actual knowledge of a contract among the Getty Oil Company, the Museum, the Trust, and Pennzoil?

Answer "Texaco had actual knowledge" or "Texaco did not have actual knowledge."

Texaco Instruction: F

In order to find that Texaco knowingly interfered with the contract between the Getty Oil Company, the Trust, the Museum, and Pennzoil, if any, it is necessary that Texaco had actual knowledge of the existence of such a contract. In order to have "actual knowledge" of a contract, a party must know that a contract exists. If a party should have known that a contract exists, he does not have "actual knowledge" of that contract.

The requested issue and instruction were properly denied because Instruction No. 2 to Special Issue No. 2 adequately describes the knowledge requirement of the tort of inducing a breach of contract. See Gold Medal Farms, Inc., 195 N.Y.S.2d at 185; Restatement (Second) of Torts § 766, comment i. Points of Error 27 through 30, and 35 are overruled.

In Points of Error 32, 33, and 34, Texaco argues that Special Issue No. 2 and the accompanying instructions conflict with applicable New York law. It contends that the third sentence of Instruction No. 2 creates a "duty to investigate" that is contrary to New York law. Appellant requested an instruction that would have told the jury that a party had no duty to investigate concerning the existence of a contract beyond the information in its possession and any representations by parties to the contract.

In Kelly v. Central Hanover Bank, 11 F.Supp. 497 (S.D.N.Y.1935), rev'd on other [833] grounds, 85 F.2d 61 (2d Cir.1936), the court held that a negligent failure to investigate further would not lead to liability for interference with a contract, but did imply that a willful refusal to ascertain the facts would be more culpable.

I need not now determine whether knowledge that there were outstanding debentures would have led an ordinarily prudent man of [the defendant's] financial experience, ... to inquire whether they contained any, and if so what, restrictive covenants. Even if an ordinarily prudent man would have made such inquiry, [the defendants'] failure so to do cannot be attributed and is not charged to be due to any intentional or willful refusal to ascertain the facts.

At the best, there would be a negligent interference with contractual rights which, unlike an intentional invasion thereof, does not evidence bad faith and therefore does not call for an extension of equity jurisdiction beyond that heretofore established. In all of the cases cited in which specific performance of a contract was decreed against a third person, full knowledge on the part of the defendant of the plaintiff's contractual rights was proved. In granting such relief, the courts ordinarily stress the defendant's lack of good faith.

Kelly, 11 F.Supp. at 513 (emphasis added); see also Entertainment Events v. MGM, No. 74 Civ. 2959.

In this case, the court did not submit a charge on "negligent interference." Rather, it submitted an "intentional or willful refusal to ascertain the facts" or "lack of good faith" factor, as implied in Kelly. As such, the charge is an acceptable description of New York law.

Finally, Texaco contends that the third sentence comments on the weight of the evidence, because there is no evidence to support its submission. This argument is waived because there was no corresponding trial objection. Points of Error 32 through 34 are overruled.

In Points of Error 36 through 39, Texaco claims that Instruction No. 2 to Special Issue No. 2 conflicts with applicable law, which would not attribute to Texaco knowledge possessed by the Getty entities or Getty agents. It attacks the fourth sentence of Instruction No. 2 to Special Issue No. 2: "Texaco is also charged with all the knowledge, if any, of its agents and representatives, whether communicated to each other or not." Texaco fails to argue or cite to any supporting authority as to why the fourth sentence allegedly misstates the law. Consequently, that contention is waived. Tex.R.App.P. 74(f); Richardson v. Office Buildings, 704 S.W.2d 373, 375-76 (Tex.App.—Houston [14th Dist.] 1985, no writ).

Texaco next argues that because the words "agents" and "representatives" are not defined or qualified in Instruction No. 2, confusion is created as to "whose" knowledge can be attributed to appellant, i.e., alleging that knowledge of the Getty entities can also be attributed to Texaco. It urges that the harm in this was manifested when, on November 18, during jury deliberations, the jury asked whether "Texaco [was] liable for the actions of Lipton [the Museum's attorney], Winokur [Getty Oil's attorney], and Boisi [Getty Oil's investment banker]."

In response to this inquiry, the court instructed the jury as follows:

The court is unable in any way to specifically answer your question other than to advise you that you are to follow the Instruction of the Court, the Special Issues as encompassed in the Court's charge and the evidence as received in your court.

Texaco initially agreed to this instruction, ("This is fine with us Your Honor"), but the following day, requested the following instruction, which was denied:

The Court now instructs you that a party is only responsible for the actions of its own employees, agents or representatives acting within the scope of their employment.

Tex.R.Civ.P. 285 concerns the jury's communication with the court. Tex.R.Civ.P. [834] 286 provides that the jury may receive further instructions, "but no instruction shall be given except in conformity with the rules relating to the charge." Tex.R.Civ.P. 274 is such a rule "relating to the charge."

Tex.R.Civ.P. 274 provides that a party objecting to the charge must point out the objection or it is waived. In the instant case, Texaco failed to object to the instruction given until one day later. Consequently, such failure to object constitutes a waiver. See George Pharis Chevrolet, Inc. v. Polk, 661 S.W.2d 314, 317-18 (Tex.App.— Houston [1st Dist.] 1983, no writ).

Finally, Texaco argues that the harm of Instruction No. 2 is magnified by Pennzoil's statements during voir dire and closing argument, that Texaco could be held liable for the knowledge and conduct of the Getty entities or agents. The complained of statements during voir dire are:

You may be curious as to why Texaco is the only party here.... It's because they have indemnified Getty. They own Getty. They are the only necessary party to this action.

Whatever would befall Getty under the indemnity, it's Texaco's responsibility.

The complained of statements in closing argument are:

[Y]ou are to consider not just Texaco but also the circumstances and I suggest to you, these Getty people. And there was only one way that Texaco acquired Getty Oil Company. Indemnities. They were essential.

They [Texaco] bought and paid for this lawsuit when they gave the indemnities.

And they ask, you know, you don't see Getty in here, you don't see the Museum in here, you don't see the Trust in here. For what purpose?

For what purpose, Jury?

After they've guaranteed them and protected them from this very contingency, Pennzoil's lawsuit.

Well, why would there by any question in having them here, or for what reason?

Except for the voir dire shown above, Texaco failed to object to the argument. Where no objection is made, the general rule is that any impropriety is waived. Standard Fire Insurance v. Reese, 584 S.W.2d 835 (Tex.1979).

Furthermore, Texaco did not object to the voir dire argument until almost one week later. In both instances, however, reversal must come from an evaluation of the entire case, Luna v. North Star Dodge Sales, Inc., 667 S.W.2d 115, 120 (Tex.1984), and reversal is mandated only when the argument was so prejudicial that an instruction to disregard would not have removed the prejudice produced. Southern Pacific Co. v. Hubbard, 297 S.W.2d 120, 125 (Tex.1957).

The Texas Supreme Court set out the test for evaluating jury argument in Standard Fire Insurance Co. v. Reese, 584 S.W.2d at 839. The complainant must prove:

(1) an error (2) that was not invited or provoked, (3) that was preserved by the proper trial predicate, such as an objection, a motion to instruct, or a motion for mistrial, and (4) was not curable by an instruction, a prompt withdrawal of the statement, or a reprimand by the judge. 3 McDonald, Texas Civil Practice sec. 13.17.2 (1970). There are only rare instances of incurable harm from improper argument. The complainant has the further burden to prove (5) that the argument by its nature, degree and extent constituted reversibly harmful error. How long the argument continued, whether it was repeated or abandoned and whether there was cumulative error are proper inquiries. All of the evidence must be closely examined to determine (6) the argument's probable effect on a material finding. (7) Importantly, a reversal must come from an evaluation of the whole case, which begins with the voir dire and ends with the closing argument. The record may show that the cause is weak, strong, or very close. From all of these factors, the complainant must show that the probability that the improper argument caused harm is [835] greater than the probability that the verdict was grounded on the proper proceedings and evidence. Aultman v. Dallas Ry. & Term. Co., 152 Tex. 509, 260 S.W.2d 596 (1953). Rules 434, 503, Tex. R.Civ.P.

Texaco has failed to show how it was harmed by the complained-of argument. In all practicality, these few statements, buried within 4 ½ months of testimony, had little or no effect on the jury's verdict. We also disagree that the reference to charging Texaco with the knowledge of its agents confused the jury to such an extent that reversal is required.

Points of Error 36, 37, 38, and 39 are overruled.

In Points of Error 40-41, Texaco contends that Special Issue No. 3 and the accompanying instructions do not present the proper measure of damages. It contends that the proper measure was the stock price differential.

Special Issue No. 3 asks:

What sume of money, if any, do you find from a preponderance of the evidence would compensate Pennzoil for its actual damages, if any, suffered as a direct and natural result of Texaco's knowingly interfering with the agreement between Pennzoil and the Getty entities, if any?

Instruction No. 1 to Special Issue No. 3 states:

1. The measure of damages in this case is the amount necessary to put Pennzoil in as good a position as it would have had if its agreement with the Getty entities, if any, had been performed.

The instruction as given is a correct statement of the benefit of the bargain measure of damages for breach of contract under New York law. Dillon v. Magner, 29 A.D.2d 759, 760, 287 N.Y.S.2d 519, 521 (App.Div.1968); Hutchins v. Bethel Methodist Home, 370 F.Supp. 954, 964 (S.D.N.Y. 1974). Additionally, Texaco requested practically the same language in Requested Instruction J: "The measure of damages in this case is the amount necessary to put Pennzoil in as good a position as it would have had if its agreement, if any, with the Getty Oil Company, the Museum, and the Trust had been performed." Consequently, Texaco may not complain on appeal, when the instruction given is substantially the same as that requested. Dailey v. Wheat, 681 S.W.2d 747, 757 (Tex.App.— Houston [14th Dist.] 1984, writ ref'd n.r.e.). Nor may Texaco invite error by encouraging the court to submit an instruction and then complain on appeal. New Trends, Inc. v. Stafford-Lowdon Co., 537 S.W.2d 778, 783 (Tex.Civ.App.—Fort Worth 1976, writ ref'd n.r.e.).

Texaco next complains of the denial of the following Requested Instruction K:

The measure of damages in this case is the difference, if any, between the fair market value of 3/7 of the stock of Getty Oil Company, less $112.50 per share. Fair market value is the price a willing buyer would pay a willing seller.

An instruction is proper if it finds support in any evidence or inferences therefrom and if it would aid the jury in answering the special issues. Atlantic Mutual Insurance Co. v. Middleman, 661 S.W.2d 182, 187 (Tex.Civ.App.—San Antonio 1983, writ ref'd n.r.e.); Mejia v. Liberty Mutual Insurance Co., 544 S.W.2d 690, 691 (Tex.Civ.App.—Houston [14th Dist.] 1976, no writ). Texaco's requested instruction K contains the measure of damages for breach of contract to purchase stock, but it is an incorrect measure of damage in a tortious interference case.

Points of Error 40 and 41 are overruled.

In Points of Error 42-45, Texaco claims that Special Issue No. 4 and instructions to Special Issue Nos. 4 and 5 conflict with the standards for punitive damages under applicable law.

Special Issue Nos. 4 & 5, relating to punitive damages, ask:

No. 4

Do you find from a preponderance of the evidence that Texaco's actions, if any, [836] were intentional, willful and in wanton disregard of the rights of Pennzoil, if any?

If and only if you have answered Special Issue No. 4 "We do", then you are to answer Special issue No. 5.

No. 5

What sum of money, if any, is Pennzoil entitled to receive from Texaco as punitive damages?

The accompanying instruction states:

Punitive damages means an amount that you may in your discretion award as an example to others and as a penalty or by way of punishment, in addition to any amount you may have found as actual damages.

It is not necessary to show that Texaco was motivated by ill will or hatred of Pennzoil.

In assessing punitive damages, if any, you may take into account not merely the act or acts of Texaco itself. You may also take into account all the circumstances, including Texaco's motives and the extent of damages, if any, suffered by Pennzoil.

Pursuant to a jury request, the following definition of "wanton disregard" was given:

Wanton is used in its ordinary sense and synonymous with reckless or heedless disregard of the rights of others.

Texaco objected to Special Issue Nos. 4 and 5 and the accompanying instructions and requested the following:

You are instructed that you should find no punitive damages if you believe that Texaco acted on advice of counsel.

You are instructed that a party acts "maliciously" if its conduct was morally culpable, was motivated by evil and reprehensible motives, or was outrageous.

Texaco contends that Special Issue No. 4 is an incorrect statement of New York law, because under said law, before there can be an award of punitive damages, there must be a finding of actual malice or ill will, and moral culpability or reprehensible motives. For support of this assertion, Texaco relies upon Guard-Life Corp., 67 A.D.2d at 659, 412 N.Y.S.2d at 625. Pertinent here is the following language from the Appellate Division's decision in Guard-Life:

There is no evidence here of "actual malice or ill will" (Anthony v. George T. Bye, Inc., 243 App.Div. 390, 391, 217 N.Y.S. 222, 223), a wrong "morally culpable" or "actuated by evil and reprehensible motives" (Walker v. Sheldon, 10 NY2d 401, 404, 223 N.Y.S.2d 488, 490, 179 N.E.2d 497, 498) or a wrongful act "done willfully, wantonly or maliciously" (Huschle v. Battelle, 33 A.D.2d 1017, 308 N.Y.S.2d 235). To the contrary, the record shows that defendant's motive was to secure an advantageous business relationship for itself.

Texaco contends that in addition to finding a willful, wanton act, the jury must also find (1) actual malice or ill will and (2) a wrong, morally culpable or actuated by evil and reprehensible motives.

Texaco's interpretation of the Appellate Division's opinion in Guard-Life is erroneous. Guard-Life does not mandate a finding of each of the above. In Universal City Studios, Inc. v. Nintendo Co., 615 F.Supp. 838, 863 (D.C.N.Y.1985), the court upheld an award of punitive damages pursuant to a finding of tortious interference with a contract. The court wrote:

In New York:

exemplary damages are recoverable in all actions ex delicto based upon tortious acts which involve ingredients of malice, fraud, oppression, insult, wanton or reckless disregard of the plaintiff's rights, or other circumstances of aggravation, as a punishment of the defendant and admonition to others.

36 N.Y.Jur.2d sec. 176 (1984); Giblin v. Murphy, 97 A.D.2d 668, 469 N.Y.S.2d 211, (3d Dept.1983). See also Le Mistral, Inc. v. Columbia Broadcasting System, 61 A.D.2d 491, 402 N.Y.S.2d 815 [837] (1st Dept.1978). Punitive damages are awarded "not for the unintended result of an intentional act, but for the conscious disregard of the rights of others ..." Hartford Acc. v. Village of Hempstead, 48 N.Y.2d 218, 422 N.Y.S.2d 47, 53, 397 N.E.2d 737, 743 (Ct.App.1979).

The court later referred to the defendant's "reckless disregard" of plaintiff's rights and the "wantonness of the conduct involved." See also Hornstein v. Podwitz, 254 N.Y. 443, 173 N.E. 674.

It appears that there is no requisite "laundry list" of adjectives defining a defendant's behavior in a tortious interference action, but a jury finding that the defendant's conduct was intentional, willful, and in wanton disregard of appellee's rights is sufficient to support a punitive damages award.

Texaco next argues that the jury should have been instructed that no punitive damages are recoverable where a defendant acted on the advice of counsel. Under New York law, acting on the advice of counsel is only one factor to be considered "in the context of the totality of the circumstances." Universal City Studios, Inc., 615 F.Supp. at 862 (citing Central Soya Co. v. George A. Hormel & Co., 723 F.2d 1573, 1577 (Fed.Cir.1983)). Pennzoil asserts that Texaco failed to present evidence of its advice of counsel and punitive damages and that the court thus did not err in refusing the requested instruction. See Atlantic Mutual Insurance Co. v. Middleman, 661 S.W.2d 182. There was other evidence of Texaco's reliance on advice of counsel, but, in any event, the instruction was not required because it incorrectly stated New York law.

Points of Error 42 through 45 are overruled.

ALLEGED ERRORS IN THE COURT'S EVIDENTIARY RULINGS

Texaco's Points of Error 70 through 79 complain of the trial court's wrongful admission of evidence and of its wrongful exclusion of admissible evidence. To obtain reversal of a judgment based on error in the admission or exclusion of evidence, an appellant must show error that was calculated to cause and probably did cause rendition of an improper judgment. Tex.R. App.P. 81(b)(1). Reversible error does not usually occur in connection with rulings on questions of evidence unless the whole case turns on the particular evidence admitted or excluded. Atlantic Mutual Insurance Co. v. Middleman, 661 S.W.2d 182, 185 (Tex.App.—San Antonio 1983, writ ref'd n.r.e.).

Texaco's 70th point of error complains that Pennzoil's witness, Dr. Thomas D. Barrow, was allowed to give improper legal opinions. It specifically alleges that Dr. Barrow was allowed to testify that a binding agreement had been reached between the Getty entities and Pennzoil, as follows:

Based on the evidence that I have seen and only as an experienced executive who served on boards, I would come to the conclusion that the Getty board had reached an agreement with Pennzoil.

* * * * * *

It would appear to me that the intent of the parties was clearly evidenced by their agreement and that I've seen nothing in what I have read that would indicate anything to the contrary.

Before either of the above statements were made, Dr. Barrow testified that he had read the "Copley notes," the Memorandum of Agreement between Getty Oil, the Museum, the Trust, and Pennzoil, and the press release issued by Getty Oil on January 4. Dr. Barrow qualified his testimony by stating that "his opinions were given only as an experienced executive who served on boards," based on what he had read in the aforementioned documents.

Rule 702, Texas Rules of Evidence, concerning testimony by experts, provides:

Testimony by Experts

If scientific, technical, or other specialized knowledge will assist the trier of [838] fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise.

Under the rule, given the limitations the witness placed on his testimony, we find no reversible error.

Texaco's Point of Error 71 contends that Pennzoil's CEO, Liedtke, was allowed to testify, in a purely conclusory manner, that Pennzoil had reached a binding contract with Getty Oil, even though the bulk of his testimony was not based on personal knowledge.

Texaco argues that Liedtke's following testimony about the Copley notes was inadmissible: (1) that the words "accept the Pennzoil proposal provided that the amount being paid relating to ERC be $5 per share" meant acceptance of everything in the Memorandum of Agreement except the price term, and (2) provisions in the notes relating to executive compensation "means Getty Oil thought they had a deal with us."

Contrary to Texaco's contention, Liedtke did not testify that Getty Oil and Pennzoil had a binding contract, nor did he testify about events of which he had no knowledge. He testified to what certain parts of the Copley notes, which he had read, meant to him. In fact, many witnesses, both for Texaco and Pennzoil, gave their opinion of whether there was a binding agreement based on their interpretation of statements or events.

We find that the testimony complained of was admissible under rule 701, Tex.R. Evid.^[1]

In its 72nd point of error, Texaco complains of the exclusion of testimony relating to a January 5 conference between Getty Oil and Pennzoil lawyers. In its bill of exceptions, Getty's lawyer Winokur testified that at the meeting, Getty's lawyers told Pennzoil lawyers that Pennzoil "can't buy the Museum shares because of Rule 10b-13."^[2]

When Pennzoil's lawyer Cialone asked if rule 10b-13 applied, Winokur said that one of Getty Oil's lawyers responded:

Yes, because it applies not only to transactions which actually take place while there is a tender but to purchases that are arranged while a tender is in progress. And if you were to arrange now to buy the Museum shares that arrangement would have been made during the time the tender offer was outstanding.

Cialone asked if that was correct, and Pennzoil lawyer Hertz responded, "Yes, I think he's right. I think he's right as to what the rule says." He then asked Getty Oil attorney Katz what he would do; Katz answered that he would call his partner (a former SEC lawyer) to see what could be done. Cialone then asked him to call his partner.

Texaco also offered deposition testimony relating to this same discussion from Pennzoil attorney Hertz and Getty Oil attorney Katz.

Pennzoil attorney Hertz's testimony concerning the January 5 lawyers' meeting essentially consisted of the following questioning by Texaco lawyers:

Question: Did you volunteer information to any other representative of Pennzoil concerning the matter of Pennzoil offering to purchase shares of a stockholder during the existence of the tender offer but outside the tender offer?

[839] Answer: I did not volunteer it.

Question: Did you discuss that with any representatives of Pennzoil?

Answer: Yes.

Question: With whom?

Answer: I think it was Mr. Cialone.

Getty attorney Katz's testimony was somewhat more detailed. He related his memory of the January 5 conversation with Cialone as follows:

Answer: In addition to having substantive business objections to an acquisition of the Museum's shares by Pennzoil, I raised the question with Joe (Cialone) as to how Pennzoil could agree to acquire— Pennzoil or the Company acting basically at the request of Pennzoil—could agree to acquire the Museum shares as part of the overall transaction, which was what had been suggested by both Pennzoil, as well as the Museum and the Trust.

In view of the pending tender offer, I told Joe that in my view it was a clear violation of Rule 10(b)13 for Pennzoil or for the company acting at the behest of Pennzoil to agree to acquire the Museum shares during the pendency of this tender offer.

Question: What was Mr. Cialone's response?

Answer: At first, it didn't seem to worry him and we raised this concern, but he didn't seem troubled.

Later he came back and he asked me, `Are you really concerned about this?' And I said, `Literally, it would be doing exactly what the rule on its face prohibits,' and he said to me, `Well, what would you do?'

And I said, `I would call Harvey Pitt, who is my partner in the Washington office who is general counsel to the SEC and who is very familiar with this type of regulation, and I would get his advice, but I would not go ahead without consulting with more people in my firm and do a transaction which, to me, violated the rule.'

I said to Joe, `Do you want me to call Harvey? I will call him if you want me to,' and he said, `Fine.'

* * * * * *

Question: Did you say anything about going ahead with the transaction without some analysis of this problem?

Answer: I had previously communicated to Joe that, putting aside 10(b)13 concerns, that we did not believe that the board would authorize a transaction where the Museum would be treated differently than the other shareholders of the company, and that meant not only in terms of the consideration the Museum would receive, but when they would receive it.

Texaco contends that this evidence was offered to negate Pennzoil's intent to be bound, and was improperly excluded. It argues that the testimony was offered to prove that Pennzoil believed it had not yet entered and could not enter a binding agreement until its pending tender offer was withdrawn. The agreement and intent to be bound, if there was such an intent, had been formed two days previously.

The testimony does not support a conclusion that the Pennzoil lawyers by reason of the above after-the-fact conversations, did not consider Pennzoil to be bound by the agreement. The testimony only shows only that Pennzoil lawyers were alerted by Getty Oil lawyers to the possibility that while the tender offer was in effect, the purchase of the Museum stock by Pennzoil might violate an SEC rule. Rule 403, Tex. R.Evid., authorizes exclusion of testimony that is not, on balance, sufficiently probative to justify admissibility. The trial judge properly excluded the proffered evidence.

In Point of Error 73, Texaco complains of the exclusion of the complaint Pennzoil filed in the Delaware Chancery Court in which Pennzoil sought equitable relief. Texaco argues that paragraph 16 of the complaint explicitly recognizes that a Getty Oil board meeting would have had to be held on Friday, January 6, before a definitive merger agreement could have been executed.

Paragraph 16 of the complaint provides:

During the evening of January 3 and through the day of January 4, lawyers [840] for Pennzoil and the Trustee prepared a draft of an implementing agreement. Discussions concerning the draft implementing agreement were held between representatives of all parties throughout the day. On the evening of January 4, Pennzoil and the Trustee submitted their draft implementing agreement to the Museum and Getty. During the late afternoon and evening of January 5, lawyers for the Trustee, Getty and Pennzoil met and revised the draft implementing agreement. These efforts were concluded at 1:00 a.m. Friday, January 6. At no time did any of the lawyers or any of the parties suggest any modification of any of the substantive terms regarding the number of shares to be purchased, the price or the form of consideration agreed to by the Getty board on Tuesday, January 3. Thus, by 1:00 A.M., Friday, January 6, the implementing agreement was substantially complete, except for certain technical matters that Pennzoil's and Getty's representatives agreed could be resolved in time for board meetings and execution before the end of the day Friday.

Texaco's specific complaint concerns the last sentence in the paragraph. It contends that this sentence confirms Texaco's position that additional action by the Getty directors was necessary before the parties would be bound.

Pleadings in other actions that contain statements inconsistent with the party's present position are receivable as admissions. St. Paul Fire & Marine Insurance Co. v. Murphree, 357 S.W.2d 744, 747 (Tex. 1962). Rule 801(e)(2), Tex.R.Evid., provides that admissions by a party-opponent are not hearsay statements and thus are admissible.

The Pennzoil complaint filed in Delaware is not inconsistent with Pennzoil's position that a binding agreement was effected on January 3. A reasonable reading of the sentence suggests that work was being done on an "implementing agreement" and that the only matters left to be resolved prior to board meetings were "certain technical matters." Additionally, earlier in the paragraph, there is an express qualification: "At no time did any of the lawyers or any of the parties suggest any modifications of any of the substantive terms regarding the number of shares to be purchased, the price or the form or consideration agreed to by the Getty board on Tuesday, January 3." This is consistent with Pennzoil's position. Thus it is not an admission. The trial judge properly excluded the complaint.

Additionally, error, if any, would be harmless under rule 81(b)(1), Tex.R. App.P., because the same evidence contained in the petition, i.e., that the parties were doing additional work on an implementing contract with a view toward formally executing it on January 6, was presented to the jury throughout the trial.

In Texaco's 74th through 78th points of error, it claims that Pennzoil was allowed to introduce inadmissible hearsay to prove the existence of a contract.

First, it claims that the trial court improperly admitted affidavits of Martin Siegel, the Trust's investment banker, and Charles Cohler, a Trust lawyer, and the transcribed oral argument of Cohler, all from a California temporary injunction suit. We find no merit to this claim because both Cohler and Siegel testified at the trial of this case, and their trial testimony did not conflict with that previously given during the California hearing. Texaco correctly contends that the documents came within no exception to the hearsay rule and were thus inadmissible. But rather than prejudice Texaco, it appears to have reinforced its contention that there were other matters to attend to before the contract between Pennzoil and the Getty entities would become binding. There is no harmful error. Tex.R.App.P. 81(b)(1).

Texaco next claims that notes made by Getty Oil general counsel Ralph Copley of the January 3 Getty Oil board of [841] directors meeting were improperly admitted.

Pennzoil initially offered only that part of the notes pertaining to the 15-1 vote of the board on the Pennzoil proposal. Texaco properly objected to the notes being admitted into evidence, but after its objection was overruled, it offered the remaining portion of the notes into evidence. Thereafter, Texaco read the unoffered part of the notes to the jury, and had several of its officers testify about their impressions of the notes.

During voir dire, Texaco's counsel told the jury panel of the notes' existence, explained the significance of the notes, and promised the jury that they would be informed of the notes' contents. Finally, in his closing argument, Texaco's counsel vouched for the veracity and reliability of the notes.

A party to an appeal may not complain of improper evidence offered by the other side when it introduced the same or similar evidence. McInnes v. Yamaha Motor Corp. U.S.A., 673 S.W.2d 185, 188 (Tex.1984), cert. denied, 469 U.S. 1107, 105 S.Ct. 782, 83 L.Ed.2d 777 (1985). There is no error.

Texaco next complains of the admission into evidence of a handwritten note regarding the January 3 Getty board meeting made by C. Stedman Garber, Getty Oil treasurer. The note was allegedly made by Garber during or after a phone conversation with Copley or Bland (Getty vice-president). The note contains the Pennzoil proposal as approved by the Getty Board on January 3. This evidence is in the record from many different witnesses, and is particularly cumulative of part of the Copley notes. The Garber note does not say or indicate that the agreement was complete or binding, but merely that the board, with the exception of Chauncy Medberry, agreed that the "deal should be done." Any error was harmless. Id. at 188.

Texaco urges that the trial court erred in allowing Sidney Petersen, Getty Oil CEO, to testify that a Saudi Arabian businessman told him that "Gordon Getty told him (the Saudi) that it was a `done deal,'" implying that Pennzoil and the Getty entities had a binding agreement. Though Texaco claims that it lodged an objection that was overruled, we can find neither an objection nor a court ruling. In absence of an objection, the complaint is waived. Wilfin, Inc. v. Williams, 615 S.W.2d 242, 244 (Tex.Civ.App.—Dallas 1981, writ ref'd n.r.e.).

Texaco next urges that a Fortune magazine article written by reporter Peter Nulty was hearsay and that its admission into evidence was error. In the article, Nulty quotes Getty CEO Petersen as saying "[w]e thought there was a better deal out there, but it was a bird-in-the-handish situation. We approved the deal but we didn't favor it."

We agree with Texaco's contention that the magazine article was hearsay. However, such articles may become admissible if properly verified. In Sherrill v. Estate of Plumley, 514 S.W.2d 286 (Tex. Civ.App.—Houston [1st Dist.] 1974, writ ref'd n.r.e.), an authority relied on by Texaco, this Court held an obituary appearing in a newspaper to be hearsay and inadmissible under the business records act, Tex. Rev.Civ.Stat.Ann. art. 3737e (Vernon 1964), because it was not shown at trial that the author had personal knowledge of the matters contained in the article.

By contrast, in this case, the article's author testified that he interviewed Petersen and that even though he could not swear that the quote contained the exact words of Petersen, it was essentially correct. Petersen admitted that he may have said, "yes, we have an agreement in principle with Pennzoil but we thought there were better things around."

In Southern Savings & Loan Association v. Lewis, 536 S.W.2d 677 (Tex.Civ.App. —Waco 1976, writ ref'd n.r.e.), the court held that exhibits that were otherwise inadmissible as hearsay were properly admitted [842] after a witness who was familiar with the data contained in them had testified about the correctness of the information in the documents.

Rule 803(5), Tex.R.Evid., adopted September 1, 1983, changed the existing rule regarding past recollection recorded, by providing that a memorandum or record may be read into evidence, but may not be received as an exhibit unless offered by the adverse party. Apparently the rules committee felt that there was a danger that the jury would give undue weight or credence to the written document if it were admitted as an exhibit.

We are of the opinion that oral evidence of the Petersen statement was admissible to impeach Petersen and as a past recollection recorded, but that the court erroneously admitted the article itself into evidence. However, we perceive no error because the same evidence as the Petersen quote was admitted and used extensively in questioning other witnesses, without objection by Texaco. An objection to evidence is waived by permitting other witnesses to testify without objection to the same complained of evidence. City of Houston v. Riggins, 568 S.W.2d 188, 190 (Tex.Civ.App.—Tyler 1978, writ ref'd n.r. e.).

Texaco's final complaint of the evidentiary rulings claims that the court erred in excluding testimony of William Weitzel, Texaco's general counsel, that he and Morris Kramer, outside counsel to Texaco, advised the Texaco board and management before Texaco contracted with Getty Oil that there was no binding agreement between Pennzoil and the Getty entities. The record is replete with testimony of Texaco management (DeCrane, president; McKinley, CEO; Kinnear, vice-chairman of the board) that each, as well as the board of directors as a body, was advised, before they entered into the Getty merger, that Pennzoil had no binding contract with the Getty entities.

The exclusion of evidence is harmless where the evidence is merely cumulative of other evidence in the record. Reina v. General Accident Fire & Life Assurance Corp., 611 S.W.2d 415, 417 (Tex.1981).

If there was any error, it was harmless. Tex.R.App.P. 81(b)(1).

Texaco's Points of Error 70 through 79 are overruled.

ALLEGED DENIAL OF A FAIR TRIAL

In Points of Error 80 through 85, Texaco claims that it was denied due process and was denied a fair trial because of the posture or actions of the trial judges.

In its Point of Error 80, Texaco contends that:

The trial court and Judge Jordan erred in denying Texaco's motion to recuse or disqualify Judge Farris, letting stand an impermissible appearance of bias and depriving Texaco of its right to a fair trial.

On March 7, 1984, after the filing of the lawsuit, Pennzoil's lead counsel, Joseph Jamail, contributed $10,000 to presiding Judge Farris' campaign fund. On or about October 1, 1984, Texaco filed its motion for recusal or disqualification, asserting that such campaign contribution coupled with Jamail's services on Judge Farris' steering committee created an "appearance of impropriety." Judge Farris declined to recuse himself, and pursuant to rule 18a, Tex.R.Civ.P., the matter was assigned to Judge E.E. Jordan to determine whether Judge Farris should preside over the case. After conducting a hearing, Judge Jordan refused to recuse or disqualify Judge Farris. Texaco first argues that the failure to recuse Judge Farris was error under Texas law.

Under Texas law, the basis for the disqualification of a judge is contained in Article V, Section 11 of the Texas Constitution, which prohibits a judge from sitting in a case where he may be interested, or where he is related to a party by affinity or consanguinity in a degree prescribed by law, or where he was counsel in the case. In [843] the instant case, neither Texaco's trial motion nor its argument on appeal contains any of these constitutional grounds. Rather, it argues that the grounds for recusal rest in Canon 3C of the Code of Judicial Conduct (reprinted in Tex.Rev.Civ.Stat. Ann. Appendix B to Title 14 [Vernon Supp. 1987]), which provides:

(1) A judge should disqualify himself in a proceeding in which his impartiality might reasonably be questioned, including, but not limited to, instances where:

(a) he has a personal bias or prejudice concerning a party....

In support of this argument, Texaco relies upon McLeod v. Harris, 582 S.W.2d 772 (Tex.1979). This reliance is misplaced because McLeod dealt exclusively with the procedural method to be followed when a motion to recuse has been filed. The court held that in all instances where a motion to recuse has been filed in a suit, it is mandatory that the judge in whose court the motion is filed must request the administrative judge to assign another judge to hear the motion for recusal.

Texaco argues that, on McLeod's authority, at least two courts have held that Canon 3C provides the grounds for judicial disqualification: Robb v. Robb, 605 S.W.2d 390 (Tex.Civ.App.—El Paso 1980, no writ), and Manges v. Garcia, 616 S.W.2d 380 (Tex.Civ.App.—San Antonio 1981, no writ). Neither case supports Texaco's argument.

In Robb, the court was presented with a situation in which a trial judge refused to appoint another judge to hear a motion for recusal. The motion was based upon allegations of bias and prejudice due to campaign contributions by attorneys representing appellee. Without addressing the merits of the motion, the appellate court concluded that based upon McLeod, the trial judge erred procedurally in failing to obtain another judge to rule on the motion.

In Manges, the trial court judge had recused himself from all matters involving relator Manges. Manges asserted that the judge was under a duty to act in the case unless he was precluded from so doing because of one of the impediments enumerated in Article V, Section 11 of the Texas Constitution. The appellate court held that Canon 3C contemplates that a judge's refusal to sit may be based upon a reason not included in the constitution. To force a litigant before a judge who maintained a personal bias against the litigant would raise significant due process question.

However, the exact question presented here, whether campaign contributions constitute the "appearance of impropriety" such that recusal is warranted under Canon 3C, has been considered by the San Antonio Court of Appeals and the Texas Supreme Court.

In River Road Neighborhood Association v. South Texas Sports, Inc., 673 S.W.2d 952 (Tex.App.—San Antonio 1984, no writ), and Rocha v. Ahmad, 662 S.W.2d 77 (Tex.App.—San Antonio 1983, no writ), motions to recuse were filed against appellate justices because they had accepted campaign contributions from one of the litigant's attorneys. In River Road, the contributions amounted to 21.7% and 17.1% of the total campaign contributions received by the justices. Speaking from an en banc court in Rocha, Chief Justice Cadena stated:

It is not surprising that attorneys are the principal source of contributions in a judicial election. We judicially know that voter apathy is a continuing problem, especially in judicial races and particularly in contests for a seat on an appellate bench. A candidate for the bench who relies solely on contributions from nonlawyers must reconcile himself to staging a campaign on something less than a shoestring. If a judge cannot sit on a case in which a contributing lawyer is involved as counsel, judges who have been elected would have to recuse themselves in perhaps a majority of the cases filed in their courts. Perhaps the next step would be to require a judge to recuse himself in any case in which one of the lawyers had refused to contribute or, [844] worse still, had contributed to that judge's opponent.

Rocha, 662 S.W.2d at 78.

Additionally, both parties before this Court cite Manges v. Guerra, 673 S.W.2d 180 (Tex.1984), a case in which the appellee filed motions to recuse against three Texas Supreme Court justices. The opinion does not specify that the basis on which the recusal was sought was the receipt of political contributions. See Kilgarlin & Bruch, Disqualification and Recusal of Judges, 17 St. Mary's L.J. 599, 638 (1986); Calvert, Disqualification of Judges, 47 Tex.B.J. 1330, 1337-38 (1984). In denying the motions, the supreme court noted that the challenged justices were qualified under Article V, Section 11 of the Texas Constitution. Manges v. Guerra, 673 S.W.2d at 185. In interpreting the Manges opinion, former Chief Justice Calvert articulated at page 1337:

The opinion seems to the writer to leave not the slightest doubt that the only grounds for disqualification of a judge are those listed in art. 5, sec. 11, of the Constitution, and the grounds set out in Canon 3C(1) should not be considered in the future as grounds for disqualification.

Texaco's Canon 3C argument is overruled.

Texaco next argues that the failure to recuse Judge Farris was error under the Due Process Clause of the United States Constitution.

The United States Supreme Court has recognized that most matters relating to judicial disqualification do not rise to a constitutional level, and that only in extreme cases would disqualification on the basis of bias and prejudice be constitutionally required. Aetna Life Insurance Co. v. Lavoie, 475 U.S. 813, 106 S.Ct. 1580, 1585, 89 L.Ed.2d 823 (1986). Yet, Texaco argues that disallowing recusal of Judge Farris, because Article V, Section 11 of the Texas Constitution provides the sole basis for judicial disqualification in Texas, violated Texaco's due process rights.

The due process clause entitles a person to neutrality in adjudicative proceedings in both civil and criminal cases. Marshall v. Jerrico, Inc., 446 U.S. 238, 242, 100 S.Ct. 1610, 1613, 64 L.Ed.2d 182 (1980). This neutrality helps to guarantee "that life, liberty, or property will not be taken on the basis of an erroneous or distorted conception of the facts or the law" while preserving "both the appearance and reality of fairness." Id.

Fairness requires an absence of actual bias, and our legal system has always endeavored to prevent even the probability of unfairness. In re Murchison, 349 U.S. 133, 136, 75 S.Ct. 623, 625, 99 L.Ed. 942 (1955). As articulated by the Murchison court:

To this end no man can be a judge in his own case and no man is permitted to try cases where he has an interest in the outcome. That interest cannot be defined with precision. Circumstances and relationships must be considered. This Court has said, however, that "Every procedure which would offer a possible temptation to the average man as a judge ... not to hold the balance nice, clear, and true between the State and the accused denies the latter due process of law." Tumey v. State of Ohio, 273 U.S. 510, 532, 47 S.Ct. 437, 444, 71 L.Ed. 749. Such a stringent rule may sometimes bar trial by judges who have no actual bias and who would do their very best to weight the scales of justice equally between contending parties. But to perform its high function in the best way "justice must satisfy the appearance of justice." Offutt v. United States, 348 U.S. 11, 14, 75 S.Ct., 11, 13 [99 L.Ed. 11].

Id.

In the instant case, Texaco argues that Jamail's $10,000 campaign contribution presented the appearance of bias and prejudice; therefore, the refusal to recuse Judge Farris was a violation of Texaco's constitutional rights. In support of this argument, Texaco relies heavily upon Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145, 150, 89 S.Ct. 337, 340, 21 L.Ed.2d 301 (1968), asserting that the "refusal [845] to disqualify Judge Farris is in direct conflict with that Supreme Court authority." However, Commonwealth is distinguishable from the present case.

Commonwealth was an appeal from an arbitration award rendered by a three-member panel. One of the arbitrators had a "sporadic" business relationship with the prime contractor, which relationship went so far as to include the rendering of services on the very projects involved in the lawsuit. These facts were never revealed to the petitioner until after the award was made. 393 U.S. at 146, 89 S.Ct. at 338.

In holding that the award should be set aside, the Commonwealth court based its decision upon Tumey v. Ohio, 273 U.S. 510, 47 S.Ct. 437, 71 L.Ed. 749 (1927), a case also cited by Texaco. In Tumey, the court reversed convictions rendered by a mayor of a town because a small part of the mayor's income consisted of court fees and costs collected by him acting in a judicial capacity. The Tumey court held that the due process clause would not permit any "procedure which would offer a possible temptation to the average man as a judge to forget the burden of proof required to convict the defendant, or which might lead him not to hold the balance nice, clear and true between the state and the accused." Tumey, 273 U.S. at 532, 47 S.Ct. at 444. The Tumey court also noted that a decision should be set aside where there is "the slightest pecuniary interest" on the part of the judge. 273 U.S. at 524, 47 S.Ct. at 441.

Finally, the Commonwealth court noted:

It is true that arbitrators cannot sever all their ties with the business world, since they are not expected to get all their income from their work deciding cases, but we should, if anything, be ever more scrupulous to safeguard the impartiality of arbitrators than judges, since the former have completely free rein to decide the law as well as the facts and are not subject to appellate review.

393 U.S. at 148-149, 89 S.Ct. at 339.

The facts of the instant case do not parallel Commonwealth. Judge Farris neither participated with Pennzoil in the case' being tried nor enjoyed even "the slightest pecuniary interest" in the outcome of the trial as did the arbitrator in Commonwealth.

The instant case presents mere allegations of bias and prejudice. As in Aetna, these allegations "are insufficient to establish any constitutional violation." 106 S.Ct. at 1586. There is no evidence in the record that Judge Farris was either biased or prejudiced in any manner or that he was acting as judge in his own case or enjoyed any pecuniary interest in the outcome of the case. Texaco's Point of Error 80 is overruled.

In its Point of Error 81, Texaco alleges that:

[t]he trial court abused its discretion in denying Texaco's Motion for Mistrial and in allowing Texaco's Motion for New Trial to be overruled by operation of law because the substitution of Solomon Casseb, Jr., for Judge Farris denied Texaco its due process right to a fair trial.

Texaco first argues that the trial disruption caused by Judge Farris' ill health violated Texaco's right to a due and orderly trial under Article I, Section 15 of the Texas Constitution. This argument is not presented in a point of error; consequently, it is waived. Kirkman v. City of Amarillo, 508 S.W.2d 933 (Tex.Civ.App.—Amarillo 1974, writ ref'd n.r.e.).

Judge Farris presided over the trial from July 9 to October 22, 1985, at which time he was forced to step down because of ill health. Judge Casseb presided over the remainder of the trial proceedings. This included the preparation of the charge, attention to Texaco's motions for judgment and judgment n.o.v., and to its motion for new trial.

Texaco first argues that Judge Casseb's late substitution and his denial of Texaco's motion for mistrial constitute error under Texas law. It argues that because Judge Casseb was unfamiliar with the previous testimony given in the preceding three [846] months' worth of testimony, i.e., all of Pennzoil's evidence and a portion of Texaco's, his unfamiliarity with the evidence prejudiced the preparation of the charge and the post-trial motions.

Tex.R.Civ.P. 18 provides for the substitution of judges:

If the judge dies, resigns, or becomes unable to hold court during the session of court duly convened for the term, and the time provided by law for the holding of said court has not expired, such death, resignation, or inability on the part of the judge shall not operate to adjourn said court for the term, but such court shall be deemed to continue in session. If a successor to such judge shall qualify and assume office during the term, or if a judge be transferred to said district from some other judicial district, he may continue to hold said court for the terms provided, and all motions undisposed of shall be heard and determined by him, and statements of facts and bills of exception shall be approved by him. If the time for holding such court expires before a successor shall qualify, and before a judge can be transferred to said district from some other judicial district, then all motions pending, including those for new trial, shall stand as continued in force until such successor has qualified and assumed office, or a judge has been transferred to said district who can hold said court, and thereupon such judge shall have power to act thereon at the succeeding term, or on an earlier day in vacation, on notice to all parties to the motion, and such orders shall have the same effect as if rendered in term time. The time for allowing statement of facts and bills of exception from such orders shall date from the time the motion was decided.

Appellate courts in Texas have repeatedly approved the substitution of judges. In Bickham v. Herrin Transportation Co., 344 S.W.2d 953 (Tex.Civ.App.—Houston 1961, no writ), this Court approved a substitution and the resulting actions by the court's denial of appellant's motion for new trial. The first judge heard most of the evidence, and the second judge, over objection of the appellant, heard the balance of the evidence and presided over the preparation of the charge and argument of counsel. Then the first judge returned and accepted the verdict from the jury and ruled on the motion for new trial. This Court noted that the record failed to indicate (1) that appellant requested the first judge to read the testimony that he had not heard; (2) that he was presented with a transcript thereof; or (3) that he heard the testimony. This Court held that in the absence of such showing, "it will be presumed that he became sufficiently familiar with the testimony of witnesses whom he did not hear...." Furthermore, the appellant failed to show any abuse of discretion or harm because the court of appeals "is required to pass upon the same and has the same power as the trial judge to do so. Rule 434, T.R.C.P." Id. at 959.

In Weiser v. Hampton, 445 S.W.2d 224, 229 (Tex.Civ.App.—Houston [1st Dist.] 1969, writ ref'd n.r.e.), the appellant urged that it was error for the presiding judge, who did not sit at trial, to overrule appellant's motion to disregard jury findings. The court held "while it is obvious that the judge who heard the evidence would be in a better position to pass on the motion, it would not be unreasonable to suppose that another judge would be able to do so after hearing the arguments of counsel." Id.

Although appellate courts have repeatedly approved of the substitution of judges, Texaco argues that the case of Rutherford v. Rutherford, 554 S.W.2d 829 (Tex.Civ. App.—Amarillo, no writ), is supportive of its contention that a substitution here was error. Rutherford involved a bench trial in which the first judge heard part of the evidence and made known the judgment he would render. The second judge, as finder of fact, heard part of the evidence and rendered judgment based thereon. The court held that it was reversible error to render a final judgment "without a consideration [847] of all of the evidence adduced on the matter." Id. at 832.

In the instant case, the jury was the finder of facts, not Judge Casseb. Judge Casseb heard much of Texaco's evidence, and although he admitted at the charge conference that he "did not read the full parts of this evidence," he did have available to him a transcription of all the evidence adduced prior to his appointment to which he could refer for confirmation of relevant and material matters upon which the parties disagreed. Judge Casseb heard extensive preliminary argument by both parties of the evidence taken prior to his assignment. He presided over the preparation of the charge, and the charge does properly present the applicable law and is supported in the evidence.

Texaco has failed to show any abuse of discretion or harm caused by Judge Casseb's substitution. Texaco's argument, that the substitution and denial of the mistrial were error under Texas law, is without merit.

Texaco next argues that if the Texas Rules of Civil Procedure allow for this substitution, then the rules are unconstitutional under the due process clause.

For support, Texaco relies upon Mathews v. Eldridge, 424 U.S. 319, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976), in which the Supreme Court identified three factors that must be weighed in determining whether a state procedural rule, in this case rule 18, comports with the requirement of due process:

First, the private interest that will be affected by the official action; second, the risk of an erroneous deprivation of such interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards; and finally, the Government's interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail.

424 U.S. at 335, 96 S.Ct. at 903.

Texaco argues (1) that its private property interest at stake here is its very right to exist; (2) that Judge Casseb's substitution created a risk of deprivation because of his unfamiliarity with large portions of the testimony, and (3) that a new trial in this case is the only "additional procedural safeguard" that would eliminate the risk of deprivation created by the late substitution.

Texaco's due process argument centers on the court's denial of its new trial motion, asserted in its Points of Error 82-84. Such a motion is addressed to the sound discretion of the court, and the court's action thereon will not be disturbed absent a showing of abuse. Alkas v. United Savings Association, 672 S.W.2d 852 (Tex. App.—Corpus Christi 1984, no writ); Neunhoffer v. State, 440 S.W.2d 395 (Tex.Civ. App.—San Antonio 1969, writ ref'd n.r.e.).

In Bickham, this Court held that appellant failed to show harm as a result of a substituted judge's passing on the sufficiency of the evidence because this Court "is required to pass upon the same and has the same power as the trial judge...." 344 S.W.2d at 959. In the instant case, there is no harm because Texaco's allegations of error in its new trial motion are now under review by this Court. We find no denial of due process. Texaco's Point of Error 81 is overruled.

In its next three points of error, Texaco asserts that:

The trial court erred in refusing to hear Texaco's motion for new trial unless Texaco waived its rights to a qualified judge because that condition violates the Due Process Clause of the United States Constitution, amend. V (applicable to Texas through Amend. XIV, § 1), and the Texas Constitution, Art. I, § 19.

The trial court erred in allowing Texaco's motion for new trial to be overruled by operation of law because that action violated the Due Process and Equal Protection Clauses of the United States Constitution.

The trial court erred in denying Texaco a hearing on the motion for new trial with regard to Texaco's complaints of newly discovered evidence and jury misconduct.

[848] On January 9, 1986, Texaco filed its motion for new trial alleging, in part, that Judge Casseb's qualifications as a retired judge were in question. On February 13, Texaco applied for a hearing on the motion for new trial, and additionally alleged jury misconduct. The hearing was set for February 20, at which time the following occurred:

THE BAILIFF: All rise. The 151st District Court is now in session, the Honorable Solomon Casseb, Jr., presiding.

THE COURT: Good morning, ladies and gentlemen.

ALL COUNSEL: Good morning, Your Honor.

THE COURT: You may be seated.

In Cause No. 85-05905, Pennzoil Company versus Texaco, Inc. in the 151st Judicial District Court of Harris County, Texas, this Court would like to ascertain at this time and would like a reply from each of the respective firms of record representing Texaco, Incorporated if they still at this time question and challenge the right and authority of Solomon Casseb, Jr. to preside over—as a Judge to preside over any hearings at this time in this cause.

MR. McMAINS: Your Honor, I'm Russell McMains with the firm of Edwards, McMains, Constant and Terry.

We have not intended by setting or requesting the setting of this motion for hearing or by any of the other papers that we filed with the Court to waive our challenge on the disqualification issue which, in point and in fact, is part of the Newly Discovered Evidence Complaint that is contained in our Motion for New Trial and supported by the affidavits for which we requested an evidentiary hearing today.

THE COURT: And you're taking the position—

MR. McMAINS: The answer to your question is yes.

THE COURT: All right. Any other firms?

MR. BOIES: Your Honor, David Boies from Cravath, Swaine and Moore. We likewise continue our challenge.

MR. SALES: Jim Sales of Fulbright and Jaworski. We do continue the challenge.

THE COURT: Any others?

MR. PETERSEN: Your Honor, Michael Petersen for Miller-Keeton. Mr. Miller and Mr. Keeton are on their way and should be here shortly. We join in the motion of our co-counsel and continue the challenge.

MR. JAMAIL: We have no challenge to the qualifications of this Judge.

THE COURT: As I understand, you still challenge the qualifications of Solomon Casseb as a Judge or otherwise to preside over this cause and to hear all motions on file in this cause at this time?

MR. McMAINS: That is our position, but we have been repudiated at this point.

THE COURT: I understand that.

That still being your position, this Court then is going to let the law take its course and y'all are excused.

On February 24, four days later, Texaco's motion for new trial was overruled by operation of law.

Texaco argues that Judge Casseb's refusal to conduct a hearing on the new trial motion contravened Texas case law and the due process and equal protection clauses of the U.S. Constitution. Texaco therefore requests that this Court remand for a hearing on the motion for new trial.

In its Point of Error 84, Texaco first argues that the trial court erred in not conducting an evidentiary hearing and in denying its new trial motion when juror misconduct was alleged and supported by affidavit. Specifically, Texaco urges that the following statements by juror Shannon shows that juror Shannon conducted an independent investigation into issues not in evidence and that the trial court considered an annual report that was not in evidence:

Well, in point of fact, Texaco never made this argument [that the damages was claim [849] was exorbitant] until the very end of the trial in final arguments because it could be easily rebutted by their own annual report. Texaco's worth, when you subtract liabilities from assets, is still in excess of twenty-three billion dollars. This figure they're getting that the verdict is more than the company's worth is when you take the number of shares of stock and multiply it times the current stock price and that is somewhat less than ten billion but they have assets over liabilities [of] twenty-three billion dollars. Their own annual reports give these figures and if that would have been brought into court it could have been easily proven. (Emphasis added.)

The sole accompanying affidavit of Richard E. Miller, counsel for Texaco, states in pertinent part:

Neither Texaco's annual report nor Shannon's net worth calculation, as expressed by him in this interview, was in evidence. Shannon has stated to me that he did not consult any source outside the evidence.

10. During the deliberations on the afternoon of November 18, 1985, the jury asked the following question: "Was the Texaco annual report put into evidence, and if so, can we have a copy?" The parties then agreed that the annual report was not in evidence. This question, coupled with Shannon's statement quoted in Paragraph 9 above, indicates that the jury considered the annual report or information from the annual report even though it was not in evidence.

11. I have attempted to interview the jury members with regard to whether the Texaco annual report or information from that report was considered by the jury in its deliberations. I have not been able to reach all jurors; several have refused to speak to me or my partners about anything relating to the trial; those to whom I have spoken deny that information from the annual report was discussed during the deliberation of the jury.

It is within the discretion of the trial court to conduct a hearing on a new trial motion when the motion presents solely questions of law. Moore v. Mauldin, 428 S.W.2d 808 (Tex.1968); University of Texas v. Morris, 163 Tex. 130, 352 S.W.2d 947 (1962), cert. denied, 371 U.S. 953, 83 S.Ct. 511, 9 L.Ed.2d 503 (1963). However, Texaco asserts that the following are questions of fact requiring an evidentiary hearing: (1) Judge Casseb was not qualified as a retired judge, and (2) there was jury misconduct during voir dire and in deliberation.

The argument regarding Judge Casseb's qualifications is addressed under Point of Error 85.

JURY MISCONDUCT

Texaco's allegations do not constitute jury misconduct as a matter of law, pursuant to the 1983 amendment to Tex.R.Civ.P. 327 and Tex.R.Evid. 606(b). Prior to the adoption of the new rules of evidence in Texas and specifically amended rule 327(b), a party complaining of jury misconduct had to show (1) that the misconduct occurred; (2) that it was material; and, (3) that based on the record as a whole, the misconduct probably resulted in harm to the complaining party. See Redinger v. Living, Inc., 689 S.W.2d 415, 419 (Tex.1985). Only overt acts of the jury were considered, and any testimony concerning the jury's mental processes was disregarded. Strange v. Treasure City, 608 S.W.2d 604, 606 (Tex.1980). However, the new rule 327(b), and Tex.R. Evid. 606(b), prohibit jurors from testifying as to matters or statements that occurred during jury deliberations.

Tex.R.Evid. 606(b) states:

Upon an inquiry into the validity of a verdict or indictment, a juror may not testify as to any matters or statement occurring during the course of the jury's deliberations or to the effect of anything upon his or any other juror's mind or emotions as influencing him to assent to or dissent from the verdict or indictment or concerning his mental processes in connection therewith, except that a juror [850] may testify whether any outside influence was improperly brought to bear upon any juror. Nor may his affidavit or evidence of any statement by him concerning a matter about which he would be precluded from testifying be received for these purposes. (Emphasis added.)

Likewise, Tex.R.Civ.P. 327(b) provides:

A juror may not testify as to any matter or statement occurring during the course of the jury's deliberations or to the effect of anything upon his or any other juror's mind or emotions as influencing him to assent to or dissent from the verdict concerning his mental processes in connection therewith, except that a juror may testify whether any outside influence was improperly brought to bear upon any juror. Nor may his affidavit or evidence of any statement by him concerning a matter about which he would be precluded from testifying be received for these purposes.

(Emphasis added.)

Under both rules, all testimony is now excluded when juror misconduct is alleged, unless it can be shown that an "outside influence" was brought to bear. Robinson Electric Supply v. Cadillac Cable Corp., 706 S.W.2d 130 (Tex.App.—Houston [14th Dist.] 1986, writ ref'd n.r.e.).

The "outside influence" requirement is so new that there is very little Texas case law interpreting it. In Robinson, the Texas Fourteenth Court of Appeals declined to hold the jury's consideration of matters not in evidence, the calculation of prejudgment interest during deliberations, to be "outside influence." In Clancy v. Zale Corp., 705 S.W.2d 820, 828 (Tex.App.—Dallas 1986, no writ), the court declined to hold certain statements made by jurors during deliberations to be "outside influence." The Clancy court noted several instances in which "outside influence" had been found pursuant to rule 606(b), Fed.R.Evid.; for example, tampering with evidence, conversation between the judge and a juror, and a threat to a juror. Id. at 829. The Clancy court held that by its wording, Tex.R.Evid. 606(b) mandates that an "outside influence" "must emanate from outside the jury and its deliberations." See Clancy, 705 S.W.2d at 829.

In the instant case, Texaco fails to allege such "outside influence" in its new trial motion or on appeal. Rather, Texaco relies upon the 1979 Texas Supreme Court case of Hensley v. Salinas, 583 S.W.2d 617 (Tex.1979), in which the court held that it was error for the trial court to deny a hearing where questions of fact were alleged in a motion for new trial, which questions, if true, would entitle the movant to a new trial. The question of fact alleged in Hensley was not juror misconduct but whether the new trial movant had actually "completely rejected" an agreed judgment. Hensley is not on point.

The new trial motion here fails as a matter of law to demonstrate any "outside influence." The sole supporting affidavit of Texaco's trial counsel concedes that the jurors that were contacted denied that the annual report was ever considered during deliberations. This presents no evidence of juror misconduct during deliberations. Consequently, the trial court was under no duty to conduct a hearing. See Caterpillar Tractor Co. v. Boyett, 674 S.W.2d 782, 793 (Tex.App.—Corpus Christi 1984, no writ).

Furthermore, the affidavit in support of Texaco's allegation of juror misconduct during deliberation is insufficient as a matter of law. Tex.R.Civ.P. 327(a) provides:

When the ground of a motion for new trial, supported by affidavit, is misconduct of the jury or of the officer in charge of them, or because of any communication made to the jury, or that a juror gave an erroneous or incorrect answer on voir dire examination, the court shall hear evidence thereof from the jury or others in open court, and may grant a new trial if such misconduct proved, or [851] the communication made, or the erroneous or incorrect answer on voir dire examination, be material, and if it reasonably appears from the evidence both on the hearing of the motion and the trial of the case and from the record as a whole that injury probably resulted to the complaining party.

Rule 327(a) mandates that the court hear evidence of juror misconduct if it is properly presented. In the instant case, the sole affidavit in support of juror misconduct during deliberations was provided by Texaco's counsel. This affidavit was insufficient under rule 327(a). "An affidavit by a non-juror is insufficient to establish material jury misconduct because the affidavit is based upon hearsay." Clancy, 705 S.W.2d at 828.

Likewise, Texaco's allegation of juror misconduct during voir dire is without merit. Texaco first asserts juror misconduct in juror Shannon's failure to respond to Texaco's question "If you have any reason to believe, whether its [sic] philosophical or whether its [sic] political, whether it's religious, for whatever reason whether I've asked the question or not, any reason to believe that you could not sit in this important case and sit as a fair juror ... then you need to let us know." Juror Shannon failed to inform the court that his wife had lost her job as a result of a corporate takeover; Texaco asserts this is juror misconduct.

For erroneous or false answers given on voir dire to entitle a party to a new trial, there must be a concealment by the juror. Dunn v. Sears Roebuck & Co., 371 S.W.2d 731, 735 (Tex.Civ.App.— Houston 1963, writ ref'd n.r.e.). Before there can be concealment, the questions asked must call for disclosure; the questions asked must be direct and specific. Id.; Roy L. Jones Truck Line v. Johnson, 225 S.W.2d 888, 896 (Tex.Civ.App.—Galveston 1949, writ ref'd n.r.e.). A catch-all question asking "was there anything in" the juror's experience "that would cause [them] to lean one way or the other in this type of case" does not meet the requirement of specificity. 4 R. McDonald, Texas Civil Practice in District & County Courts § 11.10.3 (1983); see also Roy L. Jones Truck Line, 225 S.W.2d at 896.

In the instant case, the question asked was not so direct or specific as to require juror Shannon to reveal the fact that his wife had lost her job in a corporate takeover. Although harm is suggested, no harm has been shown. In addition, as a matter of law, the question was insufficient to elicit the information Texaco complains it should have received. Id.

Texaco next alleges juror misconduct in juror Lawler's failure to answer the following questions: "Is anybody here on the panel that's left or any member of your family that's ever had any business dealings with Texaco? ... Any business relationship with Texaco? You or your employers or members of your family?" Texaco asserts that juror misconduct occurred because juror Lawler failed to inform the court that his father-in-law was a Texaco employee.

The affidavit in support of Texaco's new trial motion states:

6. After the jury's verdict was returned, Texaco learned for the first time that the jury's presiding juror, Richard Lawler, was related by marriage to a long-time Texaco employee, Jimmie R. Paull. I interviewed Mr. Paull on December 9, 1985, and learned for the first time that he is the father of Cheryl Paull, Mr. Lawler's wife, that he and his daughter are estranged, and that he has not seen his daughter since 1977, when Mr. Lawler and his daughter were married. He has neither seen nor spoken to his son-in-law during this period and he has never seen or spoken to his two grandchildren. Attached hereto in support of these points is the affidavit of Jimmie R. Paull.

7. Juror Lawler should have divulged this information in the voir dire examination of the jury panel in response to the following question from Mr. Jamail:

[852] Is anybody here on the panel that's left or any member of your family that's ever had any business dealings with Texaco?... any business relationship with Texaco? You or your employers or members of your family?

8. Lawler responded but only that his employer had a "lot of business with Texaco." He did not mention his father-in-law's long-time employment. When I interviewed Mr. Lawler after the verdict and asked him about his father-in-law, he told me he did not learn his father-in-law was a Texaco employee until two months into the trial or later, and that this was the reason he did not disclose his relationship with Texaco. This relationship between Lawler and his father-in-law was relevant to Texaco's consideration of whether Juror Lawler was qualified to serve on the jury. Had Texaco been aware of this information, which would have a tendency to bias Lawler against Texaco, it would have moved to excuse Lawler for cause. Had that motion not been granted, Texaco would have used one of its preemptory [sic] challenges to excuse Lawler.

The affidavit fails as a matter of law to establish concealment. By its own wording, the affidavit establishes that juror Lawler did not know the work relationship between his father-in-law and Texaco until the trial was two months old. Failure to disclose information about which a juror had no knowledge or had forgotten at the time of voir dire does not constitute concealment. McDonough Brothers v. Lewis, 464 S.W.2d 457, 466 (Tex.Civ.App.— San Antonio 1971, writ ref'd n.r.e.).; see also Childers v. Texas Employers Insurance Association, 154 Tex. 88, 273 S.W.2d 587, 588 (1954).

Texaco's Point of Error 84 is overruled.

In its Points of Error 82 and 83, Texaco argues that Judge Casseb violated Texaco's constitutional rights of due process and equal protection in failing to hold a hearing on its new trial motion and by announcing his intention to allow Texaco's motion to be overruled by operation of law.

The United States Supreme Court has consistently held that the fundamental requirement of due process is the opportunity to be heard "at a meaningful time and in a meaningful manner." Mathews v. Eldridge, 424 U.S. 319, 333, 96 S.Ct. 893, 902, 47 L.Ed.2d 18 (1976). However, due process is flexible and calls for procedural protections as a particular situation demands. Id. at 334, 96 S.Ct. at 902.

Tex.R.Civ.P. 329b(c) provides:

In the event an original or amended motion for new trial or a motion to modify, correct or reform a judgment is not determined by written order signed within seventy-five days after the judgment was signed, it shall be considered overruled by operation of law on expiration of that period.

Pursuant to this rule, Texaco's right to be heard at "a meaningful time and in a meaningful manner" is not obviated. Rather, by its time constraints, rule 329(b) in fact "expedites" Texaco's right to be heard on appeal by automatically overruling a new trial motion on which there has been no ruling made. By this procedural method, Texaco's rights have been preserved and transferred to this Court for consideration. See James v. Appel, 192 U.S. 129, 24 S.Ct. 222, 48 L.Ed. 377 (1904). Texaco's Points of Error 82 and 83 are overruled.

In its Point of Error 85, Texaco asserts that:

The presiding judge erred in denying Texaco an evidentiary hearing on its motion to disqualify Solomon Casseb Jr., denying Texaco its constitutional and statutory rights to a qualified judge.

Texaco contends that in derogation of rule 18a, it was not afforded a hearing on its motion to disqualify Judge Casseb, which motion alleged that Judge Casseb was not properly qualified to preside as judge in this action and that he had not taken the oath of office. To understand [853] Texaco's contention, we briefly review the procedural history of this area of the case.

When Judge Farris became ill, Judge Stovall, Presiding Judge of the Second Administrative Judicial District, assigned Judge Casseb to preside over the remainder of the trial, which ended with a judgment on December 10, 1985. On January 9, 1986, Texaco filed its motion to disqualify based upon a New York Times article quoting Judge Casseb's son, who allegedly stated that Judge Casseb had not met the judicial service time requirement to be eligible for retirement in Texas before he was assigned this case.

When the motion to recuse was filed, Judge Casseb refused to voluntarily recuse himself, but forwarded the motion to Judge Stovall, as mandated by rule 18a of the Texas Rules of Procedure. Texaco requested Judge Stovall to hear the motion himself or assign another judge and to authorize discovery of documents relevant to the motion. On January 21, 1986, the matter was presented to Judge Stovall at a status conference, at which time copies of Chief Justice Hill's certification of Judge Casseb were presented. This documentation established that Judge Casseb had completed the necessary 12 years of credited service and was entitled to retire and receive pension. This certificate was dated May 20, 1985, several months before Judge Casseb's assignment to the case.

Texaco proceeded to seek discovery of the supporting documentation leading up to Judge Casseb's certification. Pennzoil opposed the discovery, contending that it exceeded the bounds of rule 18a. Pennzoil asserted then and asserts on appeal that the attack on Judge Casseb's qualifications to serve on this case on the grounds that he had not met the certification requirements (12 years of service) could only be brought in a quo warranto proceeding in which the State would be a party.

On January 27, Judge Stovall denied the recusal motion, noting that Judge Casseb was assigned as a "retired judge on October 22, 1985. The grounds for disqualification asserted only the question of his qualification as a retired judge. Because the date of his certification as a retired judge was May 1985, no further hearing is necessary or appropriate." Texaco then sought leave to file a writ of mandamus with the Texas Fourteenth Court of Appeals and the Texas Supreme Court, requesting the courts to require Judge Stovall to hold another hearing on the recusal motion. Both courts denied Texaco's motions.

Under Texas law, because Judge Casseb was not holding judicial office at the time of his retirement in May 1985, he could qualify as a retired judge only if he had accrued 12 years service time. Tex.Rev. Civ.Stat.Ann. Title 110B § 44.101(a)(2) (Vernon 1987). This service credit could come from two sources: (1) "membership service"; and (2) "military service." §§ 41.001(6) and 43.001.

Judge Casseb served as judge of the 57th District Court for eight years and three months in the 1960's; he served in the military during World War II. Texaco asserts that based upon his son's comments in the New York Times, the addition of these two "credits" will not equal 12 years, despite the certification by Chief Justice Hill.

Texaco argues that this is a situation authorizing a collateral attack on Judge Casseb because: (1) quo warranto is not an exclusive remedy; (2) rule 18a provides for recusal based upon "any disability"; and (3) the de facto officer doctrine, related to Pennzoil's quo warranto assertion, is not applicable because Judge Casseb was not holding "an office."

Tex.Government Code §§ 74.031 and 74.032 (Vernon 1987) (formerly Tex.Rev.Civ. Stat.Ann. art. 200a, §§ 5 and 5a) provide for the assignment of a retired judge to fill a district court:

§ 74.031. Assignment of Judges

Judges may be assigned in the manner provided by this Chapter to hold district court when:

[854] (1) the regular judge of the district court is absent or is disabled or disqualified for any cause;

(2) the regular judge of the district court is present or is trying cases as authorized by the constitution and laws of this State, or

(3) the office of district judge is vacant.

§ 74.032. Judges Subject to Assignment

The following judges may be assigned as provided by this chapter by the presiding judge of the administrative district in which the assigned judge resides:

(1) a regular district judge in this state;

(2) a district judge who is a retiree under Subtitle E, Title 110B, Revised Statutes, and who has consented to be subject to assignment; and

(3) a former district judge who:

(A) is not more than 70 years of age;

(B) was elected at a general election or appointed by the governor, and has not been defeated for reelection or removed from office by impeachment, the supreme court, the governor on address of the legislature, the State Commission on Judicial Conduct, or the abolishment of the judge's court by the legislature; and

(C) certifies to the presiding judge a willingness to serve and to comply with the prohibitions relating to the practice of law imposed on a retired judge by Section 44.005, Title 110B, Revised Statutes.

Furthermore, Tex.Rev.Civ.Stat.Ann. Title 110B § 41.001(4) (Vernon Supp.1987) defines a "retiree" as "one who receives an annuity based on service that was credited to the persons."

Texaco first argues that a quo warranto proceeding would not be a proper vehicle here because pursuant to Tex.R.Civ.P. 782, quo warranto is not exclusive and is to be cumulative of any existing remedy, i.e., a rule 18a recusal proceeding. However, Texaco cites no authority allowing for such a collateral attack where the qualifications of the judge to function as a judge, i.e., a retired judge, are challenged in a rule 18a proceeding.

In Texas, it has been held consistently that a collateral attack upon the qualifications of a district judge cannot be sustained. When a judge is holding office under color of title by appointment and discharging the duties of the office, his "acts are conclusive as to all persons interested and cannot be attacked in a collateral proceeding, even though the person acting as judge lacks the necessary qualifications and is incapable of legally holding the office." Tart v. State, 642 S.W.2d 244, 246 (Tex.App.—Houston [14th Dist.] 1982, no pet.) (citing Ex parte Lefors, 171 Tex.Crim. 229, 347 S.W.2d 254 (1961). "If the appellant desires to challenge such authority, he must bring a direct action through a quo warranto proceeding." Id., 642 S.W.2d at 246; see also Keen v. State, 626 S.W.2d 309 (Tex.Crim.App.1981); Archer v. State, 607 S.W.2d 539 (Tex.Crim.App.1980), cert. denied, 452 U.S. 908, 101 S.Ct. 3037, 69 L.Ed.2d 410 (1981). The State is an indispensable party in a quo warranto proceeding, which must be brought in the State's name. Lewis v. Drake, 641 S.W.2d 392 (Tex.App.—Dallas 1982, no writ). The basis for this rule of law is a matter of public policy.

Public officers should be free to perform their duties without their authority questioned incidentally in litigation between other parties. They should not be called on to defend their authority unless a proper legal officer of the State has determined that the question raised is serious and deserves judicial consideration....

Id., at 395.

In the instant case, the certification by Chief Justice Hill establishes Judge Casseb's retirement status. An attack on this certification is an attack on Judge Casseb's authority to function as a retired [855] judge. Consequently, such authority can only be challenged by a quo warranto proceeding, which is beyond the capacity of a rule 18a proceeding.

Texaco also argues that Judge Casseb is not protected from collateral attack because he did not hold an office. As such, the de facto officer doctrine related to the quo warranto theory is not applicable. Furthermore, Texaco argues that where there is a de jure officeholder (Judge Farris), there can be no de facto officeholder. Finally, Texaco contends that the record fails to establish that Judge Casseb ever took the oath of office upon resumption of his duties as a retired judge.

Texaco cites no applicable authority for any of the preceding assertions. First of all, Texaco's entire de facto argument is refuted in the case of Tart v. State, 642 S.W.2d at 244, which involved a retired judge. In Tart, the appellant challenged the validity of the authority of the retired judge, who presided at the trial, on the basis that he had been assigned to another district court and therefore, had no authority to hold a hearing or enter an order in the court of record. In relying upon Ex parte Lefors and the cases cited therein, the Texas Fourteenth Court of Appeals held that such attack could only be brought through a quo warranto hearing. The Fourteenth Court of Appeals declined to make a distinction between retired judges and duly-elected judges, noting that the assignment of the retired judge to the district court gave him "all the powers of a judge thereof."

Furthermore, Texaco's oath of office claims are without merit. The cases cited by Texaco concern the appointment of "special judges" who are required to take the oath of office before assignment. "A retired district judge who elects to continue in his judicial capacity is not a `special judge,' but is still a district judge." Olivares v. State, 693 S.W.2d 486, 489 (Tex.Civ.App.—San Antonio 1985, writ dism'd); Tart, 642 S.W.2d at 246; Tex. Gov't Code § 74.032 (Vernon 1987). Absent some showing to the contrary, it will be presumed that the assignment was properly made pursuant to all statutory requirements. Buchanan v. State, 471 S.W.2d 401 (Tex.Crim.App.), cert. denied, 405 U.S. 930, 92 S.Ct. 984, 30 L.Ed.2d 804 (1972).

We hold that the proper method to attack the judicial qualifications of a retired judge is through a quo warranto proceeding, not a collateral attack under rule 18a that provides for a recusal procedure.

The remaining question is whether Judge Stovall erred in failing to conduct a hearing on the recusal motion.

Judge Stovall held a "status conference" with all counsel on January 21, 1986. Judge Casseb's certification was presented to Judge Stovall, who ultimately determined that no additional hearing was merited.

Texaco argues that in addition to the January 21 status conference, Judge Stovall should have conducted a further hearing, pursuant to rule 18a, citing McLeod v. Harris, 582 S.W.2d 772 (Tex. 1979). In McLeod, the supreme court held that pursuant to the following language from Tex.Rev.Civ.Stat.Ann. art. 200a, § 6 (Vernon 1977), the trial court has a mandatory duty to request that the presiding judge assign another judge to hear the motion to recuse:

A district judge shall request the Presiding Judge to assign a judge of the Administrative District to hear any motions to recuse such district judge from a case pending in his court.

While rule 18a does mandate a hearing on a motion to recuse, such requirement is not triggered unless the recusal motion states valid grounds for disqualification. In Gaines v. Gaines, 677 S.W.2d 727, 731 (Tex.App.—Corpus Christi 1984, no writ), the court held that the contentions raised were without merit because "[o]n his motion to disqualify, appellant does not establish enough information to warrant referral of the motion to the presiding judge," citing [856] McClenan v. State, 661 S.W.2d 108 (Tex.Crim.App.1983).

In the instant case, the challenge to Judge Casseb's qualification as judge on this case was a challenge to his qualification to serve as a retired judge on any case; the only proper proceeding for review of such was a quo warranto proceeding. Consequently, Texaco's rule 18a motion was inadequate. Therefore, no additional hearing was mandated.

Furthermore, no due process violation is evidenced. Texaco has been afforded a hearing on its allegations by Judge Stovall, the Texas Fourteenth Court of Appeals, the Texas Supreme Court, and this Court. The procedure chosen by appellant was not the proper proceeding; Texas law does not permit such a collateral attack on a judge's qualifications.

Texaco's Point of Error 85 is overruled.

ALLEGED CONSTITUTIONAL ERRORS

In Points of Error 86 through 90, Texaco claims that it was denied certain rights under the supremacy clause, the commerce clause, the full faith and credit clause, and the due process clause of the United States Constitution.

Texaco's points of error that the judgment violates the supremacy, commerce, full faith and credit, and due process clauses of the United States Constitution were not raised until its motion for judgment n.o.v. Pennzoil asserted in its reply to the motion for judgment n.o.v. and asserts on appeal that appellant has waived these defenses because they were not timely pled. Texaco responds that because Pennzoil's claim was based in tort and not on a statute, there was no pleading requirement to raise a constitutional issue. We note that Texaco's sole authority for such proposition, Pennington v. Singleton, 606 S.W.2d 682 (Tex.1980), is distinguishable from our case.

In Pennington, plaintiff brought suit alleging common law fraud. The trial court held that although plaintiff failed to prove common law fraud, he did prove a cause of action under the Texas Deceptive Trade Practices Act. On appeal, the court of appeals initially affirmed the judgment. However, in his motion for rehearing, defendant alleged that the treble damages provision of the DTPA could not be constitutionally applied because it had not been pled. The court of appeals agreed and reversed the judgment and rendered judgment that plaintiff take nothing.

On appeal to the Texas Supreme Court, petitioner Pennington alleged that Singleton should not be entitled to challenge the constitutionality of the DTPA because he did not raise the argument until his motion for rehearing, citing cases that hold that the unconstitutionality of a statute is an affirmative defense that is waived if not pled at trial. The supreme court noted that "because Pennington's petition alleged common law fraud and did not mention the DTPA, the applicability of these cases is questionable." Id. at 688.

Texaco asserts that such holding means that "when a plaintiff's claim is not based on a statute, there is no pleading requirement to raise a constitutional issue"; consequently, it argues that it has not waived its complaint.

The constitutionality of a statute is an affirmative defense that must be timely pled; otherwise, it is waived. State v. Scott, 460 S.W.2d 103, 107 (Tex.1970), cert. denied, 402 U.S. 1012, 91 S.Ct. 2188, 29 L.Ed.2d 435 (1971). The instant case does not involve constitutional objections to a statute, it involves constitutional objections to the judgment rendered. The initial question to be answered is whether the Texaco timely asserted its constitutional objections.

Constitutional objections may be waived by a failure to raise them at a proper time. Curtis Publishing Co. v. Butts, 388 U.S. 130, 144, 87 S.Ct. 1975, 1985, 18 L.Ed.2d 1094 (1967). In Michel v. State, 350 U.S. 91, 99, 76 S.Ct. 158, 163, 100 [857] L.Ed. 83 (1955), the Supreme Court held that the test for making a claim to a constitutional right is whether the defendant has had a reasonable opportunity to have the issue heard and determined by the court. "No procedural principle is more familiar to this Court than that a constitutional right may be forfeited in criminal as well as civil cases by the failure to make timely assertion of that right." Michel v. State, 350 U.S. at 99, 76 S.Ct. at 163 (quoting Yakus v. United States, 321 U.S. 414, 444, 64 S.Ct. 660, 677, 88 L.Ed. 834 (1944)).

However, in some instances, "the mere failure to interpose such a defense prior to the announcement of a decision that might support it cannot prevent a litigant from later invoking such a ground." Curtis Publishing Co., 388 U.S. at 143, 87 S.Ct. at 1985 (1967). An effective waiver must be one of a known right or privilege. Almost without exception, this requirement of a knowing and intelligent waiver has been applied only to those rights that the constitution guarantees to a criminal defendant in order to preserve a fair trial. Schneckloth v. Bustamonte, 412 U.S. 218, 236-237, 93 S.Ct. 2041, 2052, 36 L.Ed.2d 854 (1973). However, in Curtis, the United States Supreme Court applied this standard in a civil action.

Curtis involved the defamation of a public figure. The defendant-petitioner had asserted no constitutional defenses prior to the verdict. However, after the plaintiff obtained a verdict, the Supreme Court announced its decision in New York Times Co. v. Sullivan, 376 U.S. 254, 84 S.Ct. 710, 11 L.Ed.2d 686 (1964), which for the first time held that the first amendment requires proof of actual malice before a public official is entitled to recover damages for a defamatory falsehood. Consequently, the defendant presented this constitutional defense to the trial court, which rejected the claim as did the court of appeals.

Plaintiff-respondent made two arguments before the United States Supreme Court in support of his contention that petitioner-defendant's failure to raise the constitutional defense, articulated in New York Times, amounted to a knowing waiver: (1) the general state of the law at the time of the Curtis trial was such that the defendant should have seen "the handwriting on the wall," i.e., that New York Times merely drew from earlier precedents in state law and that there were intimations in an earlier opinion that some applications of libel law might be in conflict with the first amendment; and (2) some of defendant's lawyers were involved in the New York Times litigation and should have been alerted to the constitutional contentions.

In rejecting these arguments, the Supreme Court noted several factors that pointed to the justice of its decision. Primary to this consideration was the fact that the constitutional objection raised was a previously unrecognized constitutional right. Furthermore, the constitutional objection was raised early enough so that the United States Supreme Court was given an opportunity to observe the attitude of the courts below regarding these issues, noting that although the New York Times decision was before the trial judge, he found it inapplicable, and that "[i]t was almost certain that he would have rebuffed any effort to interpose general constitutional defenses at the time of trial." 388 U.S. at 145, fn. 10, 87 S.Ct. at 1986, fn. 10. Finally, the Supreme Court noted that the constitutional protection that was allegedly waived,

safeguards a freedom which is the `matrix, the indispensable condition, of nearly every other form of freedom.'

Where the ultimate effect of sustaining a claim of waiver might be an imposition on that valued freedom [of speech], we are unwilling to find waiver in circumstances which fall short of being clear and compelling.

Id. at 145, 87 S.Ct. at 1986.

The present case is distinguishable from the Curtis case. Texaco has alleged no previously unrecognized constitutional objection and there is no first amendment objection lodged. Rather, the arguments presented are as follows: (1) [858] Supremacy Clause: the agreement violated SEC Rule 10b-13; such a void agreement will not support a cause of action for tortious interference; the judgment redefines New York law, bringing it into conflict with the federal regulatory scheme under the Williams Act; (2) Commerce Clause: the judgment will "chill" interstate tender offers and therefore restrain interstate commerce; (3) Full Faith and Credit Clause: Texas failed to respect the basic policy decisions of New York whose substantive law was applicable here; and (4) Due Process Clause: the judgment amounts to an "arbitrary assertion of power."

Many of these assertions encompass previously made arguments on appeal but now are couched in constitutional terms. Texaco's supremacy clause, commerce clause, and due process clause arguments are waived because these assertions could have been pled timely. However, we consider Texaco's full faith and credit clause argument because it could not have been addressed until judgment was entered.

The full faith and credit clause, article IV, § 1 of the United States Constitution, requires each state to give effect to the official acts of the other states. Nevada v. Hall, 440 U.S. 410, 421, 99 S.Ct. 1182, 1188, 59 L.Ed.2d 416 (1979). A judgment that is entered in one state must be respected in another, provided that the first state had subject matter jurisdiction and jurisdiction over the parties. In certain limited situations, the courts of one state must apply the statutory laws of another state, subject to the forum's own interest in furthering its public policy. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 105 S.Ct. 2965, 2979, 86 L.Ed.2d 628 (1985).

In the instant case, there is no dispute that the governing substantive law was New York law. The sole objection here is that the court erroneously applied and often misstated the governing law. This argument is simply a re-urging of Texaco's previous assertions that are now couched in constitutional terms. Since we have determined that the trial court properly applied New York law, Texaco's argument is without merit.

Finally, Texaco argues that the judgment rendered undermines federal interests by deterring the initiation of contests for corporate control across the country. Texaco argues that such resulting restraint on interstate commerce is in derogation of the commerce clause.

Texaco relies solely upon Edgar v. MITE Corp., 457 U.S. 624, 102 S.Ct. 2629, 73 L.Ed.2d 269 (1982), which is not on point. In MITE, the United States Supreme Court struck down an Illinois statute that required a tender offeror to notify the secretary of state and the target company of its intent to make a tender offer and the material terms of the offer 20 business days before the offer expired. Id. at 636, 102 S.Ct. at 2637. During that 20-day period, the offeror could not communicate its offer to the shareholders, but the target company could disseminate information to its shareholders, many of whom lived out of state, regarding the pending offer.

The court held that for several reasons, the statute was unconstitutional under the commerce clause. The court noted that because only 27% of the target company shareholders lived in the state, any transaction regarding communication of the offer to its shareholders would be interstate commerce; thus, the statute sought to prevent MITE from making its offer and concluding interstate transactions not only with the Illinois shareholders, but also with those out of state. If Illinois could impose such regulations on interstate commerce, so might other states, which would "thoroughly stifl[e]" interstate commerce in securities transactions generated by tender offers. Id. at 642, 102 S.Ct. at 2640.

The court determined also that on its face, the Illinois statute applied even if not one of the target company's shareholders lived in Illinois; the commerce clause precludes the application of a state statute to commence wholly outside the state's borders. Finally, the court held the Illinois [859] statute imposed an excessive burden on commerce in relation to the local interests served by the statute. The court noted:

The effects of allowing the Illinois Secretary of State to block a nationwide tender offer are substantial. Shareholders are deprived of the opportunity to sell their shares at a premium. The reallocation of economic resources to their highest valued use, a process which can improve efficiency and competition, is hindered. The incentive the tender offer mechanism provides incumbent management to perform well so that stock prices remain high is reduced.

Id. at 643, 102 S.Ct. at 2641.

The instant case does not involve a statute by which the State attempts to regulate tender offers. This cause of action is for tortious interference with a contract. Judgment was not rendered because Texaco won in a competitive tender offer situation. Rather, it was rendered pursuant to the jury's finding that Texaco had tortiously interfered with a binding agreement. A judgment based upon such a finding will not deter the "invitation of contests for corporate control throughout the country"; however, it should deter tortious interference with a binding agreement between parties.

Additionally, Texaco's commerce clause argument is one that could have been pled prior to judgment. Texaco had full knowledge of the cause of action filed against it. Its position throughout trial and this appeal has been that the facts prove a competitive tender offer situation only, and any judgment rendered against Texaco would "chill" corporate tender offers. The fact that the jury accepted Pennzoil's position rather than Texaco's does not afford Texaco an opportunity to belatedly assert new defenses. Because Texaco waited until after judgment to urge this argument, it is waived.

Points of Error 86, 87, 88, 89, and 90 are overruled.

DAMAGES

In its 57th through 69th points of error, Texaco claims that the evidence was legally and factually insufficient to support the jury's compensatory and punitive damage awards.

Texaco attacks Pennzoil's use of a replacement cost model to prove its compensatory damages. It urges that: (1) the court should have instructed the jury that the correct measure of Pennzoil's compensatory damages was the difference between the market price and contract price of Getty stock at the time of the breach; (2) the punitive damages award is contrary to New York law and public policy; (3) the punitive and compensatory damages are excessive; (4) and prejudgment interest should not have been allowed.

In a cause involving a tortious interference with an existing contract, New York courts allow a plaintiff to recover the full pecuniary loss of the benefits it would have been entitled to under the contract. Guard-Life Corp. v. S. Parker Hardware Manufacturing Corp., 50 N.Y.2d 183, 428 N.Y.S.2d 628, 406 N.E.2d 445 (1980). The plaintiff is not limited to the damages recoverable in a contract action, but instead is entitled to the damages allowable under the more liberal rules recognized in tort actions. Id.

New York courts have cited and relied extensively on the Restatement (Second) of Torts in deciding damages issues, compensatory as well as punitive.

Section 774A of the Restatement (Second) of Torts (1977), reads in pertinent part:

(1) One who is liable to another for interference with a contract ... is liable for damages for

(a) the pecuniary loss of the benefits of the contract ...; [and]

(b) consequential losses for which the interference is a legal cause....

Comment (a) under the above section provides that since the tort is an intentional one, punitive damages are recoverable in these actions under appropriate circumstances. Although section 908 of the Restatement (Second) of Torts provides general [860] guidelines, the particular circumstances under which a plaintiff is entitled to punitive damages are not clearly defined under New York law; there seem to be different tests, depending on the tort. A frequently cited New York Court of Appeals opinion, Walker v. Sheldon, 10 N.Y.2d 401, 223 N.Y.S.2d 488, 179 N.E.2d 497 (1961), sets forth the theory for favoring the awarding of punitive damages and lists many examples of actions in which New York courts have allowed punitive damages. We will discuss those standards under our punitive damages section.

Pennzoil relied on two witnesses to prove the amount of its damages: Dr. Thomas Barrow and Dr. Ronald Lewis. Dr. Barrow holds a Ph.D. in petroleum engineering from Stanford University, and a bachelor's and master's degree from the University of Texas in geology and petroleum engineering. He has been president of Humble Oil & Refining Company, a senior vice-president of Exxon Corporation, chairman and chief executive officer of Kennecott Corporation, and president of Standard Oil of Ohio. He sits on the board of directors of many major corporations and charitable institutions.

Dr. Lewis is employed by Pennzoil as a vice-president in charge of offshore operations. He holds a bachelor of science degree and a master of science degree in petroleum engineering from Colorado School of Mines, and a Ph.D. with emphasis on petroleum engineering from the University of Texas. He has held responsible positions with the government, Mobil Oil Company, and Pennzoil, and taught petroleum engineering for seven years.

Texaco presented no witnesses to refute the testimony of Dr. Barrow or Dr. Lewis.

Dr. Barrow prepared three damages models, as follows:

(1) a replacement cost model,

(2) a discounted cash flow model, and

(3) a cost acquisition model.

Because the jury based its award of damages on the replacement cost model, the other two models will not be discussed. By Dr. Barrow's testimony, Pennzoil showed that because of Texaco's interference with its Getty contract, it was deprived of its right to acquire 3/7th's of Getty's proven reserves, amounting to 1.008 billion barrels of oil equivalent (B.O.E.), at a cost of $3.40 a barrel. Pennzoil's evidence further showed that its cost to find equivalent reserves (based on its last five years of exploration costs) was $10.87 per barrel. Therefore, Pennzoil contended that it suffered damages equal to 1.008 billion B.O.E. times $7.47 (the difference between $10.87, the cost of finding equivalent reserves, and $3.40, the cost of acquiring Getty's reserves) or $7.53 billion. The jury agreed.

Texaco first alleges that the trial judge should have instructed the jury that the measure of Pennzoil's damages was the difference between the market value of Getty Oil stock and its contract price at the time of the breach. We reject this contention. The Getty/Pennzoil agreement contemplated something more than a simple buy-sell stock transaction. Pennzoil's cause of action against Texaco was in tort, not in contract, and Pennzoil's measure of damages was the pecuniary loss of the benefits it would have been entitled to under the contract. Guard-Life Corporation, 50 N.Y.2d 183, 428 N.Y.S.2d 628, 406 N.E.2d 445. There was ample evidence that the reason Pennzoil (and later, Texaco) wanted to buy Getty was to acquire control of Getty Oil's reserves, and not for any anticipated profit from the later sale of Getty stock. There was evidence that such fluctuations in market price are primarily of interest to holders of small, minority share positions.

The court in Special Issue No. 3 correctly instructed the jury that the measure of damages was the amount necessary to put Pennzoil in as good a position as it would have been in if its agreement, if any, with the Getty entities had been performed. If the measure of damages suggested by Texaco was correct, then there would have been no necessity to submit an issue at all, [861] because no issue of fact would have existed, there being no dispute about the market value of the stock or the contract price of the stock at the time of the breach.

Texaco next contends that the replacement cost theory is based on the speculative and remote contention that Pennzoil would have gained direct access to Getty's assets. Texaco strongly urges that Pennzoil had a "good faith" obligation under its alleged contract to attempt to reorganize and restructure Getty Oil rather than to divide its assets. We agree. Under New York law, a duty of fair dealing and good faith is implied in every contract. Teachers Insurance & Annuity Association of America v. Butler, 626 F.Supp. 1229, 1231-32 (S.D.N.Y.1986) (citing Rowe v. Great Atlantic & Pacific Tea Co., 46 N.Y.2d 62, 412 N.Y.S.2d 827, 385 N.E.2d 566 (1978)). But a duty of good faith and fair dealing does not require that Pennzoil completely subordinate its financial well-being to the proposition of reorganization or restructuring.

The directors of Pennzoil would have had a duty to the company's shareholders to obtain the greatest benefit from the merger assets, by either restructuring, reorganizing, or taking the assets in kind. If taking the assets in kind would be the most advantageous to Pennzoil, its directors would, in the absence of a great detriment to Getty, have a duty to take in kind. So the acquisition of a pro rata share of Getty Oil's reserves would be more than a mere possibility, unless the restructuring or reorganization of Getty would be just as profitable to Pennzoil as taking the assets in kind.

Next, Texaco urges that the jury's use of the replacement cost model resulted in a gross overstatement of Pennzoil's loss because:

(a) Pennzoil sought to replace Getty's low value reserves with reserves of a much higher value;

(b) Pennzoil based its replacement cost on its costs to find oil only during the period from 1980 to 1984, rather than over a longer period;

(c) Pennzoil improperly included future development costs in its exploration costs;

(d) Pennzoil used pre-tax rather than post-tax figures; and

(e) Pennzoil failed to make a present value adjustment of its claim for future expenses.

Our problem in reviewing the validity of these Texaco claims is that Pennzoil necessarily used expert testimony to prove its losses by using three damages models. In the highly specialized field of oil and gas, expert testimony that is free of conjecture and speculation is proper and necessary to determine and estimate damages. Amoco Production Co. v. Alexander, 594 S.W.2d 467, 477 (Tex.Civ.App.— Houston [1st Dist.] 1979), modified on other grounds, 622 S.W.2d 563 (Tex.1981). Texaco presented no expert testimony to refute the claims but relied on its cross-examination of Pennzoil's experts to attempt to show that the damages model used by the jury was flawed. Dr. Barrow testified that each of his three models would constitute an accepted method of proving Pennzoil's damages. It is inevitable that there will be some degree of inexactness when an expert is attempting to make an educated estimate of the damages in a case such as this one. Prices and costs vary, depending on the locale, and the type of crude found. The law recognizes that a plaintiff may not be able to prove its damages to a certainty. But this uncertainty is tolerated when the difficulty in calculating damages is attributable to the defendant's conduct. Whitney v. Citibank, N.A., 782 F.2d 1106 (2d Cir.1986).

In his replacement cost model, Dr. Barrow estimated the cost to replace 1.008 billion barrels of oil equivalent that Pennzoil had lost. Dr. Barrow admitted that some of Getty's reserves consisted of heavy crude, which was less valuable than lighter crude, and that he had made no [862] attempt to determine whether there was an equivalency between the lost Getty barrels and the barrels used to calculate Pennzoil's exploration costs. Dr. Barrow also testified that there was no way to determine what grade of reserves Pennzoil would find in its future exploration; they could be better or worse than the Getty reserves. Finally Dr. Barrow testified that in spite of his not determining the value equivalency, the replacement cost model was an accepted method of figuring Pennzoil's loss. Dr. Lewis testified that with improved refining technology, the difference in value between light and heavy crude was becoming less significant.

Texaco next urges that Pennzoil should have calculated replacement cost by using a longer time period and industry wide figures rather than using only its own exploration costs, over a five year period. Dr. Lewis admitted that it might have been more accurate to use a longer period of time to estimate exploration costs, but he and Dr. Barrow both testified that exploration costs had been consistently rising each year and that the development cost estimates were conservative. Dr. Barrow testified that in his opinion, Pennzoil would, in the future, have to spend a great deal more than $10.87 a barrel to find crude. Dr. Lewis testified that industry wide exploration costs were higher than Pennzoil's, and those figures would result in a higher cost estimate than the $10.87 per barrel used by Pennzoil.

Next, Texaco claims that Pennzoil inflated its exploration costs by $1.86 per barrel by including "future development cost" in its historical exploration costs. Both Dr. Lewis' and Dr. Barrow's testimony refuted that contention. Texaco neither offered evidence to refute their testimony, nor did its cross-examination reveal that this was an unwarranted cost.

Texaco also claims that Pennzoil should have used post-tax rather than pre-tax figures in figuring its loss calculations. First, it contends that there are large tax incentives for exploration and development that are not applicable to acquisition of reserves. Second, it contends that there was a $2 billion tax penalty attached to the Pennzoil/Getty agreement, and Pennzoil's $900 million share of that penalty would have increased its $3.40 pre-tax acquisition cost by nearly a dollar.

Dr. Barrow testified that the fact that Pennzoil included $997 million as recapture tax in its costs of acquiring the Getty reserves, made the pre-tax comparison between the $3.40 per barrel to acquire Getty reserves and the $10.87 per barrel for Pennzoil to find new oil, "apples and apples"; in other words, the $997 million tax adjustment compensated for the tax benefits reaped when discovering, as compared with purchasing, reserves. Further, there was no conclusive proof that the Internal Revenue Service would have assessed a $2 billion penalty to Getty's purchase of the Museum's shares under the Pennzoil/Getty agreement, as alleged by Texaco. Several witnesses, familiar with tax law, testified that it was unlikely that such a tax would be imposed; therefore it was for the jury to decide when assessing damages, whether Pennzoil's pro rata share of the speculative tax penalty should reduce the amount of its damages.

Texaco's contention that Pennzoil's cost replacement model should be discounted to present value ignores the fact that Pennzoil's suit is not for future damages but for those already sustained. Pennzoil would have had an interest in the Getty reserves immediately if the agreement had been consummated, and it did not seek damages for reserves to be recovered in the future. The cases cited by Texaco are inapposite here because all involve damages that the plaintiff would incur in the future, such as lost wages or future yearly payments. Also, Texaco requested no jury instruction on a discount or a discount rate; therefore, any complaint of the court's failure to submit the issue or instruction is waived. See Tex.R.Civ.P. 279. Nor was Texaco entitled to an omitted finding by the court under rule 279, because [863] the omitted discount and discount rate were not issues "necessarily referable" to the damages issue. Id.

Texaco's Points of Error 57 through 60 are overruled.

In its 69th point of error, Texaco claims that the court erroneously applied New York Law when it allowed prejudgment interest, because most of the damages are to compensate for expenses to be incurred over the next 25 years. We have previously considered and rejected Texaco's contention that Pennzoil's recovery, or any part thereof, was for future damages.

Under New York law, a plaintiff in an action for inducing a breach of contract is entitled as a matter of right to interest on the amount of recovery, measured from the date of the accrual of the cause of action. De Long Corp. v. Morrison-Knudsen Co., 14 N.Y.2d 346, 251 N.Y.S.2d 657, 200 N.E.2d 557 (1964).

Point of Error 69 is overruled.

PUNITIVE DAMAGES

Texaco alleges five legal reasons why punitive damages were not available to Pennzoil in this case.

First, Texaco incorrectly claims that punitive damages are not available to a plaintiff in an inducement of breach of contract cause, where the alleged tortfeasor acted for its own economic benefit rather than gratuitously to injure the defendant, citing Guard-Life Corp., 67 A.D.2d 658, 412 N.Y.S.2d 623 (App.Div. 1979), modified on other grounds, 50 N.Y.2d 183, 428 N.Y.S.2d 628, 406 N.E.2d 445. The Guard-Life Corp. court disallowed punitive damages because there was no evidence of malice, ill will, or a wrongful act done willfully or maliciously. The court there noted that the defendant's motive was to secure an economic advantage and merely contrasted that fact with the absence of evidence of malice or ill will. On appeal, New York's highest court stated that the defendant's status as a competitor would not protect it from the consequences of interfering with an existing contract, though it might excuse him from interfering with a prospective contract or a contract terminable at will.

Second, Texaco says that New York law prohibits punitive damages where the defendant was acting pursuant to the advice of counsel and believed its actions were proper. Texaco incorrectly, for the purposes of this argument, states that the court wrongfully excluded evidence proffered by Texaco concerning the legal advice it was given and its consequent belief that its conduct was proper. The court specifically informed Texaco that it could offer this testimony for the limited purpose of disproving that Pennzoil was entitled to punitive damages, but Texaco refused to make the limited offer. Further, there is much testimony in the record that Texaco's attorneys advised it that there was no binding contract between the Getty entities and Pennzoil, and that Texaco's management acted pursuant to that advice. The jury could have considered that testimony together with the other evidence when determining whether to assess punitive damages.

We agree that a good faith reliance on the advice of counsel is an important factor in determining whether a defendant's conduct is willful, wanton, or reckless, but we are of the opinion that such reliance would not necessarily preclude an award of punitive damages under New York law. Texaco cites Russian Church of Our Lady of Kazan v. Dunkel, 67 Misc.2d 1032, 326 N.Y.S.2d 727 (Sup.Ct.1971), modified on other grounds, 41 A.D.2d 746, 341 N.Y. S.2d 148 (App.Div.1973), aff'd, 33 N.Y.2d 456, 354 N.Y.S.2d 631, 310 N.E.2d 307 (1974), in support of its contention, but in that case, the court held that plaintiff's proof of punitive damages was deficient because the evidence failed to show that the defendants' conduct was wanton, willful, or reckless. The court then commented that the defendants had been acting pursuant to the advice of counsel, and [864] that such conduct was not tantamount to criminality justifying punitive damages. We do not consider this language to announce a general rule that acting pursuant to the advice of counsel precludes punitive damages, any more than we consider that a showing of criminal conduct is necessary to such an award.

Third, Texaco claims that New York law precludes an award of punitive damages absent a showing that Texaco's conduct constituted morally culpable conduct aimed at the public. Where the conduct of a party is of such a nature that similar behavior should be discouraged, the court can award punitive damages. 14 N.Y.Jur., Damages, § 176 et seq. We are of the opinion that Borkowski v. Borkowski, 39 N.Y.2d 982, 387 N.Y.S.2d 233, 355 N.E.2d 287 (1976), and Whitney v. Citibank, N.A., 782 F.2d at 1118, both refute Texaco's contention that a showing of conduct aimed at the public generally is necessary to support a punitive damage award. Even if there were such a requirement, Texaco's conduct, as found by the jury, could be considered conduct aimed at the public that punitive damages are designed to deter.

Fourth, Texaco claims that the culpable conduct that the jury had in mind in awarding punitive damages was not even attributable to Texaco, but instead was the conduct of the Getty entities. Texaco contends that the argument of counsel and the court's instruction in Special Issue No. 2 allowed the jury to punish Texaco for the acts of the Getty's entities. There is no testimony to support this allegation. We have no way, other than speculation, of knowing what specific acts the jury considered when assessing punitive damages.

Texaco's fifth contention is that the amount of punitive damages awarded is unreasonable. This contention will be discussed with the following points of error wherein Texaco requests a remittitur.

REMITTITUR

In its 65th through 68th points of error, Texaco claims that the jury's award of both compensatory and punitive damages are grossly excessive and prays that we remand on that basis or grant a remittitur. Though the size of the award was indeed large, so were the stakes.

Although the verdict is large and the trial court, in the exercise of its sound discretion, could have set it aside, an appellate court will not disturb the verdict in the absence of circumstances tending to show that it was the result of passion, prejudice, or other improper motive; or that the amount fixed was not the result of a deliberate and conscientious conviction in the minds of the jury and the court; or that the amount was so excessive as to shock a sense of justice of the appellate court.

Under former rule 440, Texas Rules of Civil Procedure, the appellate court could suggest a remittitur if it was of the opinion that the verdict was excessive. If the remittitur was not filed, the court could reverse the judgment. Effective September 1, 1986, Tex.R.Civ.P. 440 was repealed and replaced by rule 85, Texas Rules of Appellate Procedure. The successor rule reads in pertinent part:

[I]f such court [Court of Appeals] is of the opinion that the trial court abused its discretion in refusing to suggest a remittitur and that said cause should be reversed for that reason only, then said appellate court shall indicate to such party, or his attorney, within what time he may file a remittitur of such excess.

Because appellate review occurs after September 1, 1986, we are of the opinion that we are required to apply the "abuse of discretion" test set forth in rule 85, Tex.R. App.P. But we are also of the opinion that the result on the question of remittitur in this case would be the same under either rule.

Under the new rule, we may order a remittitur only if we find that the trial judge abused his discretion in refusing to suggest a remittitur. In reviewing remittitur points to determine whether the amount of damages awarded is excessive, [865] we consider only the evidence that is favorable to the award. Wharf Cat, Inc. v. Cole, 567 S.W.2d 228 (Tex.Civ.App.—Corpus Christi 1978, writ ref'd n.r.e.).

Though the compensatory damages are large, they are supported by the evidence, and were not the result of mere passion, prejudice, or improper motive. We have received many amicus curae briefs suggesting that the verdict should be greatly reduced or overturned because of the adverse economic impact it would have, if allowed to stand, on certain states and industries, and on Texaco's many shareholders. Though we are mindful of the economic effect the judgment might have on some individuals and institutions, and we are sympathetic with those who might be affected by the verdict through no fault of their own, we are not authorized by law to substitute our judgment for that of the jury, and to make redress as we deem appropriate. Because we are of the opinion that the evidence supports the jury's award of compensatory damages, we do not consider a remittitur of those damages appropriate.

In New York, punitive damages have been allowed in cases where the wrong complained of is morally culpable, or is actuated by evil and reprehensible motives, not only to punish the defendant but to deter him as well as others from indulging in similar conduct in the future. Walker v. Sheldon, 10 N.Y.2d 401, 223 N.Y.S.2d 488, 179 N.E.2d 497. It is not the form of the action that gives the right to punitive damages, but the moral culpability of the defendant. Id. Punitive damages are recoverable in tort actions where there exist ingredients of malice, fraud, oppression, insult, wanton or reckless disregard of plaintiff's rights, or other circumstances of aggravation. Such damages are also recoverable for intentional torts committed wantonly or maliciously. Rupert v. Sellers, 65 A.D.2d 473, 411 N.Y.S.2d 75 (App.Div.1978) (J. Cardamone concurring), aff'd, 50 N.Y.2d 881, 430 N.Y.S.2d 263, 408 N.E.2d 671, cert. denied, 449 U.S. 901, 101 S.Ct. 272, 66 L.Ed.2d 132 (1980); Oehlhof v. Solomon, 73 A.D. 329, 76 N.Y.S. 716 (App.Div.1902). In Rupert, the court upheld an award of punitive damages in an action for tortious interference with a contractual relationship, and impliedly held that the interference by an insurance broker with a group insurance contract between a medical society and a competing broker constituted a tort aimed at the public. In Russian Church of Our Lady of Kazan, 67 Misc. 1032, 326 N.Y.S.2d 727, the court stated that "[w]here the conduct of a party is of such a nature that similar behavior should be discouraged, the court can award punitive or exemplary damages. However, the court or the jury must be satisfied that such conduct was wanton, willful or malicious." Id., 326 N.Y.S.2d at 757.

The jury in our case found that Texaco's actions were intentional, willful, and in wanton disregard of the rights of Pennzoil. We consider this a sufficient finding under New York law to support an award of punitive damages in a tortious inducement of a breach of contract cause of action.

The amount of exemplary or punitive damages to be awarded depends on the facts of the case and rests largely within the sound discretion of the jury. Carr v. Galvan, 650 S.W.2d 864 (Tex.App.—San Antonio 1983, writ ref'd n.r.e.); Toomey v. Farley, 2 N.Y.2d 71, 156 N.Y.S.2d 840, 138 N.E.2d 221 (1956). Under Texas law, exemplary damages must be reasonably proportioned to actual damages. Alamo National Bank v. Kraus, 616 S.W.2d 908 (Tex.1981). Factors to be considered in determining whether an award of exemplary damages is reasonable include: (1) the nature of the wrong, (2) the character of the conduct involved, (3) the degree of culpability of the wrongdoer, (4) the situation and sensibilities of the parties concerned, and (5) the extent to which such conduct offends a public sense of justice and propriety. Id. at 910.

The proportion of punitive damages to actual damages presents no problem. [866] The punitive damages awarded only amount to approximately 40% of actual damages, which in itself is not excessive. Under New York law, punitive damages need bear no ratio to compensatory damages. Hartford Accident & Indemnity Co. v. Village of Hempstead, 48 N.Y.2d 218, 422 N.Y.S.2d 47, 397 N.E.2d 737 (1979).

But when considering the other factors listed above, our task is more difficult. From the evidence, the jury could have concluded that Texaco deliberately seized upon an opportunity to wrest an immensely valuable contract from a less affluent competitor, by using its vast wealth to induce the Museum, Gordon Getty, and Getty Oil to breach an existing contract. The evidence shows that the wrongful conduct came not from servants or mid-level employees but from top level management. Apparently the jury believed that the conduct of Texaco's top level management was less than the public was entitled to expect from persons of such stature. There is no evidence that Texaco interfered with the contract to injure Pennzoil, but the jury could reasonably conclude from the evidence at trial that Texaco cared little if such injury resulted from its interference. Points of Error 61 through 66 and Point 68 are overruled.

Considering the type of action, the conduct involved, and the need for deterrence, we are of the opinion that the punitive damages are excessive and that the trial court abused its discretion in not suggesting a remittitur. Though our Texas guidelines are similar to those of New York, New York courts have adopted a more conservative stance on punitive damages. There is a point where punitive damages may overstate their purpose and serve to confiscate rather than to deter or punish. In this case, punitive damages of one billion dollars are sufficient to satisfy any reason for their being awarded, whether it be punishment, deterrence, or encouragement of the victim to bring legal action. We conclude that the award of punitive damages is excessive by two billion dollars. Point of Error 67 is sustained.

If within 30 days from the date of this opinion, Pennzoil files in this Court a remittitur of two billion dollars, the judgment of the trial court will be reformed, and the award of one billion dollars punitive damages will be affirmed; otherwise, the cause will be reversed and remanded.

Finally, we respectfully refuse to certify to the Texas Supreme Court the question of the judgment's propriety under New York law. We are of the opinion that this question is not an appropriate one for certification.

Texaco's Points of Error 1 through 66, and 68 through 90 are overruled. Point of Error 67 is sustained.

If within thirty days from the date of this judgment, Pennzoil files in this Court a remittitur of two billion dollars, as suggested above, the judgment will be reformed and affirmed as to the award of $7.53 billion in compensatory damages and $1 billion in exemplary damages; otherwise the judgment will be reversed and remanded.

[1] Rule 701 provides: "If the witness is not testifying as an expert, his testimony in the form of opinions or inferences is limited to those opinions or inferences which are (a) rationally based on the perception of the witness and (b) helpful to a clear understanding of his testimony or the determination of a fact in issue."

[2] SEC Rule 10b-13 provides that once a party has publicly announced a tender offer, the tender offeror is prohibited from directly or indirectly purchasing or arranging to purchase securities of the target company, other than through the tender offer, so long as the tender offer remains open. 17 C.F.R. § 240.10b-13 (1985).

Vendor and Purchaser—Contract—Specific Performance—Offer to sell—Withdrawal before Acceptance—Sale to another Person—Notice.

An offer to sell property may be withdrawn before acceptance without any formal notice to the person to whom the offer is made. It is sufficient if that person has actual knowledge that the person who made the offer has done some act inconsistent with the continuance of the offer, such as selling the property to a third person.

Semble, that the sale of the property to a third person would of itself amount to a withdrawal of the offer, even although the person to whom the offer was first made had no knowledge of the sale.

Semble, that the acceptance of an offer to sell constitutes a contract for sale only as from the time of the acceptance. The contract does not relate back to the time when the offer was made.

The owner of property signed a document which purported to be an agreement to sell it at a price fixed. But a post script was added, which he also signed—"This offer to be left over until Friday 9 A.M.":—

Held, that the document amounted only to an offer, which might be withdrawn at any time before acceptance, and that a sale to a third person which came to the knowledge of the person to whom the offer was made was an effectual withdrawal of the offer.

Decision of Bacon, V.C., reversed.

On Wednesday, the 10th of June, 1874, the Defendant John Dodds signed and delivered to the Plaintiff, George Dickinson, a memorandum, of which the material part was as follows:—

[464] I hereby agree to sell to Mr. George Dickinson the whole of the dwelling-houses, garden ground, stabling, and outbuildings thereto belonging, situate at Croft, belonging to me, for the sum of £800. As witness my hand this tenth day of June, 1874.

£800. (Signed) John Dodds.

P .S.—This offer to be left over until Friday, 9 o'clock, A.M. J. D. (the twelfth), 12th June, 1874.

(Signed) J. Dodds.

The bill alleged that Dodds understood and intended that the Plaintiff should have until Friday 9 A.M within which to determine whether he would or would not purchase, and that he should absolutely have until that time the refusal of the property at the price of £800, and that the Plaintiff in fact determined to accept the offer on the morning of Thursday, the 11th of June, but did not at once signify his acceptance to Dodds, believing that he had the power to accept it until 9 A.M. on the Friday.

In the afternoon of the Thursday the Plaintiff was informed by a Mr. Berry that Dodds had been offering or agreeing to sell the property to Thomas Allan, the other Defendant. Thereupon the Plaintiff, at about half-past seven in the evening, went to the house of Mrs. Burgess, the mother-in-law of Dodds, where he was then staying, and left with her a formal acceptance in writing of the offer to sell the property. According to the evidence of Mrs. Burgess this document never in fact reached Dodds, she having forgotten to give it to him.

On the following (Friday) morning, at about seven o'clock, Berry, who was acting as agent for Dickinson, found Dodds at the Darlington railway station, and handed to him a duplicate of the acceptance by Dickinson, and explained to Dodds its purport. He replied that it was too late, as he had sold the property. A few minutes later Dickinson himself found Dodds entering a railway carriage, and handed him another duplicate of the notice of acceptance, but Dodds declined to receive it, saying, "You are too late. I have sold the property."

It appeared that on the day before, Thursday, the 11th of June, Dodds had signed a formal contract for the sale of the property to the Defendant Allan for £800, and had received from him a deposit of £40.

[465] The bill in this suit prayed that 'the Defendant Dodds might be decreed specifically to perform the contract of the 10th of June, 1874; that he might be restrained from conveying the property to Allan; that Allan might be restrained from taking any such conveyance; that, if any such conveyance had been or should be made, Allan might be declared a trustee of the property for, and might be directed to convey the property to, the Plaintiff; and for damages.

The cause came on for hearing before Vice-Chancellor Bacon on the 25th of January, 1876.

Kay, Q.C., and Caldecott, for the Plaintiff:—

The memorandum of the 10th of June, 1874, being in writing, satisfies the Statute of Frauds. Though signed by the vendor only, it is effectual as an agreement to sell the property.

Supposing it to have been an offer only, an offer, if accepted before it is withdrawn, becomes, upon acceptance, a binding agreement. Even if signed by the person only who is sought to be charged, a proposal, if accepted by the other party, is within the statute: Reuss v. Picksley^[1], following Warner v. Willington^[2].

In Kennedy V. Lee^[3] Lord Eldon states the law to be, that "if a person communicates his acceptance of an offer within a reasonable time after the offer being made, and if, within a reasonable time of the acceptance being communicated, no variation has been made by either party in the terms of the offer so made and accepted, the acceptance must be taken as simultaneous with the offer, and both together as constituting such an agreement as the Court will execute." So that, not only is a parol acceptance sufficient, but such an acceptance relates back to the date of the offer. This is further shewn by Adams v. Lindsell^[4], where an offer of sale was made by letter to the Plaintiffs" on receiving their answer in course of post." The letter was misdirected, and did not reach the Plaintiffs until two days after it ought to have reached them. The Plaintiffs, immediately on receiving the letter, wrote an answer accepting; and it was held that they were entitled to the benefit of the contract.

[466] The ruling in Adams v. Lindsell^[5] was approved by the House of Lords in Dunlop v. Higgins^[6], as appears from the judgment of Sir G. Mellish, L.J., in Harris' Case^[7]; and it is now settled that a contract which can be accepted by letter is complete when a letter containing such acceptance has been posted. The leaving by the Plaintiff of the notice at Dodds' residence was equivalent to the delivery of a letter by a postman.

That Allan is a necessary party appears from Potter v. Sanders^[8]; and if Allan has had a conveyance of the legal estate, the Court will decree specific performance against him.

Swanston, Q.C., and Crossley, for the Defendant Dodds:—

The bill puts the case no higher than that of an offer. Taking the memorandum of the 10th of June, 1874, as an offer only, it is well established that, until acceptance, either party may retract; Cooke v. Oxley^[9]; Benjamin on Sales^[10]. After Dodds had retracted by selling to Allan, the offer ,vas no longer open. Having an option to retract, he exercised that option: Humphries v. Carvalho^[11]; Pollock on Contracts^[12]; Routledge v. Grant^[13].

In delivering judgment in Martin v. Mitchell^[14], Sir T. Plumer, M.R., put the case of a contract signed by one party only. He asked^[15], "What mutuality is there, if the one is at liberty to renounce the contract, and the other not?" and in Meynell v. Surtees^[16], the distinctions between an offer and an agreement in respect of binding land were pointed out: Fry on Specific Performance^[17].

The postscript being merely voluntary, without consideration, is nudum pactum; and the memorandum may be read as if it contained no postscript.

Jackson, Q.C., and Gazdar, for the Defendant Allan:—

Allan is an unnecessary party. If Dodds has not made a valid [467] contract with the Plaintiff, he is a trustee for Allan; if Dodds has made a binding contract, rights arise between Allan and Dodds which are not now in controversy.

We agree with the co-Defendant that, in order that the Plaintiff may have a locus standi, there must have been a contract. If the postscript is a modification of the offer, it is nudum pactum, and may be rejected.

It may be conceded that if there had been an acceptance, it would have related back in point of date to the offer. But there was no acceptance. Notice of acceptance served on Mrs. Burgess was not enough.

Even if it would have been otherwise sufficient, here it was too late. Dodds had no property left to contract for. The property had ceased to be his. He had retracted his offer; and the property had become vested in some one else: Hebb's Case^[18]. The Plaintiff would not have delivered the notice if he had not heard of the negotiation between Dodds and Allan. What retraciation could be more effectual than a sale of the property to some one else?

The Defendant Allan was a bona fide purchaser without notice.

Kay, in reply:—

The true meaning of the document was a sale. The expression is not “open," but "over." The only liberty to be allowed by that was a liberty for the Plaintiff to retract.

But, taking it as an offer, the meaning was, that at any day or hour within the interval named, the Plaintiff had a right to indicate to the Defendant his acceptance, and from that moment the Defendant would have had no right of retractation. Then, was there a retractation before acceptance? To be a retractation, there must be a notification to the other party. A pure resolve within the recesses of the vendor's own mind is not sufficient. There was no communication to the Plaintiff. He accepted on two several occasions. There could have been no parting with the property without communication with him. He was told that the offer was to be left over.

The grounds of the decision in Cooke v. Oxley^[19] have been [468] abundantly explained by Mr. Benjamin in his work on Sales. It was decided simply on a point of pleading.

BACON, V.C., after remarking that the case involved no question of unfairness or inequality, and after stating the terms of the document of the 10th of June, 1874, and the statement of the Defendant's case as given in his answer, continued:—

I consider that to be one agreement, and I think the terms of the agreement put an end to any question of nudum pactum. I think the inducement for the Plaintiff to enter into the contract was the Defendant's compliance with the Plaintiff's request that there should be some time allowed to him to determine whether he would accept it or not. But whether the letter is read with or without the postscript, it is, in my judgment, as plain and clear a contract for sale as can be expressed in words, one of the terms of that contract being that the Plaintiff shall not be called upon, to accept, or to testify his acceptance, until 9 o'clock on the morning of the 12th of June. I see, therefore, no reason why the Court should not enforce the specific performance of the contract, if it finds that all the conditions have been complied with.

Then what are the facts? It is clear that a plain, explicit acceptance of the contract was, on Thursday, the 11th of June, delivered by the Plaintiff at the place of abode of the Defendant, and ought to have come to his hands. Whether it came to his hands or not, the fact remains that, within the time limited, the Plaintiff did accept and testify his acceptance. From that moment the Plaintiff was bound, and the Defendant could at any time, notwithstanding Allan, have filed a bill against the Plaintiff for the specific performance of the contract which he had entered into, and which the Defendant had accepted.

I am at a loss to guess upon what ground it can be said that it is not a contract which the Court will enforce. It cannot be on the ground that the Defendant had entered into a contract with Allan, because, giving to the Defendant all the latitude which can be desired, admitting that he had the same time to change his mind as he, by the agreement, gave to the Plaintiff-the law, I take it, is clear on the authorities, that if a contract, unilateral in its [469] shape, is completed by the acceptance of the party on the other side, it becomes a perfectly valid and binding contract. It may be withdrawn from by one of the parties in the meantime, but, in order to be withdrawn from, information of that fact must be conveyed to the mind of the person who is to be affected by it. It will not do for the Defendant to say, "I made up my mind that I would withdraw, but I did not tell the Plaintiff; I did not say anything to the Plaintiff until after he had told me by a written notice and with a loud voice that he accepted the option which had been left to him by the agreement." In my opinion, after that hour on Friday, earlier than nine o'clock, when the Plaintiff and Defendant met, if not before, the contract was completed, and neither party could retire from it.

It is said that the authorities justify the Defendant's contention that he is not bound to perform this agreement, and the case of Cooke v. Oxley^[20] was referred to. But I find that the judgment in Cooke v. Oxley went solely upon the pleadings. It was a rule to shew cause why judgment should not be arrested, therefore it must have been upon the pleadings. Now, the pleadings were that the vendor in that case proposed to sell to the Defendant. There was no suggestion of any agreement which could be enforced. The Defendant proposed to the Plaintiff to sell and deliver, if the Plaintiff would agree to purchase upon the terms offered, and give notice at an earlier hour than four of the afternoon of that day; and the Plaintiff says he agreed to purchase, but does not say the Defendant agreed to sell. He agreed to purchase, and gave notice before four o'clock in the afternoon. Although the case is not so clearly and satisfactorily reported as might· be desired, it is only necessary to read the judgment to see that it proceeds solely upon this allegation in the pleadings. Mr. Justice Buller says, "As to the subsequent time, the promise can only be supported upon the ground of a new contract made at four o'clock; but there was no pretence for that." Nor was there the slightest allegation in the pleadings for that; and judgment was given against the Plaintiff.

Routledge v. Grant^[21] is plainly distinguishable from this case upon the grounds which have been mentioned. There the contract [470] was to sell on certain terms; possession to be given upon a particular day. Those terms were varied, and therefore no agreement was come to; and when the intended purchaser was willing to relinquish the condition which he imposed, the other said, "No, I withdraw; I have made up my mind not to sell to you;" and, the judgment of the Court was that he was perfectly right.

Then Warner v. Willington^[22] seems to point out the law in the clearest and most distinct manner possible. An offer was made-call it an agreement or offer, it is quite indifferent. It was so far an offer, that it was not to be binding unless there was an acceptance; and before acceptance was made, the offer was retracted, the agreement was rescinded, and the person who had then the character of vendor declined to go further with the arrangement, which had been begun by what had passed between them. In the present case I read the agreement as a positive engagement on the part of the Defendant Dodds that he will sell for £800, and, not a promise, but, an agreement, part of the same instrument, that the Plaintiff shall not be called upon to express his acquiescence in that agreement until Friday at nine o'clock. Before Friday at nine o'clock the Defendant receives notice of acceptance. Upon what ground can the Defendant now be let off his contract? It is said that Allan can sustain his agreement with the Defendant, because at the time when they entered into the contract the Defendant was possessed of the property, and the Plaintiff had nothing to do with it. But it would be opening the door to fraud of the most flagrant description if it was permitted to a Defendant, the owner of property, to enter into a binding contract to sell, and then sell it to somebody else and say that by the fact of such second sale he has deprived himself of the property which he has agreed to sell by the first contract. That is what Allan says in substance, for he says that the sale to him was a retractation which deprived Dodds of the equitable interest he had in the property, although the legal estate remained in him. But by the fact of the agreement, and by the relation back of the acceptance (for such I must hold to be the law) to the date of the agreement, the property in equity was the property of the Plaintiff, and Dodds had nothing to sell to Allan. The property [471] remained intact, unaffected by any contract with Allan, and there is no ground, in my opinion, for the contention that the contract with Allan can be supported. It would be doing violence to principles perfectly well known and often acted upon in this Court; I think the Plaintiff has made out very satisfactorily his title to a decree for specific performance, both as having the equitable interest, which he asserts is vested in him, and as being a purchaser of the property for valuable consideration without notice against both Dodds, the vendor, and Allan, who has entered into the contract with him.

There will be a decree for specific performance, with a declaration that Allan has no interest in the property; and the Plaintiff will be at liberty to deduct his costs of the suit out of his purchase-money. From this decision both the Defendants appealed, and the appeals were heard on the 31st of March and the 1st of April, 1876.

Swanston, Q.C. (Crossley with him) for the Defendant Dodds.

Sir H. Jackson, Q.C. (Gazdar with him), for the Defendant Allan.

Kay, Q.C., and Caldecott, for the Plaintiff.

The arguments amounted to a repetition of those before the Vice-Chancellor. In addition to the authorities then cited the following cases were referred to: Thornbury v. Bevill^[23]; Taylor v. Wakefield^[24]; Head v. Diggon^[25]; Palmer v. Soott^[26].

JAMES, L. J. after referring to the document of the 10th of June, 1874, continued:—

The document, though beginning "I hereby agree to sell," was nothing but an offer, and was only intended to be an offer, for the Plaintiff himself tells us that he required time to consider whether he would enter into an agreement or not. Unless both parties had then agreed there was no concluded agreement then made; it was [472] in effect and substance only an offer to sell. The Plaintiff, being minded not to complete the bargain at that time, added this memorandum—"This offer to be left over until Friday, 9 o'clock A.M., 12th June, 1874." That shews it was only an offer. There was no consideration given for the undertaking or promise, to whatever extent it may be considered binding, to keep the property unsold until 9 o'clock on Friday morning; but apparently Dickinson was of opinion, and probably Dodds was of the same opinion, that he (Dodds) was bound by that promise, and could not in any way withdraw from it, or retract it, until 9 o'clock on Friday morning, and this probably explains a good deal of what afterwards took place. But it is clear settled law, on one of the clearest principles of law, that this promise, being a mere nudum pactum, was not binding, and that at any moment before a comp1ete acceptance by Dickinson of the offer, Dodds was as free as Dickinson himself. Well, that being the state of things, it is said that the only mode in which Dodds could assert that freedom was by actually and distinctly saying to Dickinson, "Now I withdraw my offer." It appears to me that there is neither principle nor authority for the proposition that there must be an express and actual withdrawal of the offer, or what is called a retractation. It must, to constitute a contract, appear that the two minds were at one, at the same moment of time, that is, that there was an offer continuing up to the time of the acceptance. If there was not such a continuing offer, then the acceptance comes to nothing. Of course it may well be that the one man is bound in some way or other to let the other man know that his mind with regard to the offer has been changed; but in this case, beyond all question, the Plaintiff knew that Dodds was no longer minded to sell the property to him as plainly and clearly as if Dodds had told him in so many words, "I withdraw the offer." This is evident from the Plaintiff's own statements in the bill.

The Plaintiff says in effect that, having heard and knowing that Dodds was no longer minded to sell to him, and that he was selling or had sold to some one else, thinking that he could not in point of law withdraw his offer, meaning to fix him to it, and endeavouring to bind him, "I went to the house where he was lodging, and saw his mother-in-law, and left with her an acceptance of the [473] offer, knowing all the while that he had entirely changed his mind. I got an agent to watch for him at 7 o'clock the next morning, and I went to the train just before 9 o'clock, in order that I might catch him and give him my notice of acceptance just before 9 o'clock, and when that occurred he told my agent, and he told me, you are too late, and he then threw back the paper." It is to my mind quite Clear that before there was any attempt at acceptance by the Plaintiff, he was perfectly well aware that Dodds had changed his mind, and that he had in fact agreed to sell the property to Allan. It is impossible, therefore, to say there was ever that existence of the same mind between the two parties which is essential in point of law to the making of an agreement. I am of opinion, therefore, that the Plaintiff has failed to prove that there was any binding contract between Dodds and himself.

MELLISH, L.J.:—

I am of the same: opinion. The first question is, whether this document of the 10th of June, 1874, which was signed by Dodds, was an agreement to sell, or only an offer to sell, the property therein mentioned to Dickinson; and I am clearly of opinion that it was only an offer, although it is in the first part of it, independently of the postscript, worded as an agreement. I apprehend that, until acceptance, so that both parties are bound, even though an instrument is so worded as to express that both parties agree, it is in point of law only an offer, and, until both parties are bound, neither party is bound. It is not necessary that both parties should be bound within the Statute of Frauds, for, if one party makes an offer in writing, and the other accepts it verbally, that will be sufficient to bind the person who has signed the written document. But, if there be no agreement, either verbally or in writing, then, until acceptance, it is in point of law an offer only, although worded as if it were an agreement. But it is hardly necessary to resort to that doctrine in the present case, because the postscript calls it an offer, and says, "This offer to be left over until Friday, 9 o'clock A.M." Well, then, this being only an offer, the law says—and it is a perfectly clear rule of law-that, although it is said that the offer is to be left open until Friday morning at [474] 9 o'clock, that did not bind Dodds. He was not in point of law bound to hold the offer overuntil 9 o'clock on Friday morning. He was not so bound either in law or ill equity. Well, that being so, when on the next day he made an agreement with Allan to sell the property to him, I am not aware of any ground on which it can be said that that contract with Allan was not as good and binding a contract as ever was made. Assuming Allan to have known (there is some dispute about it, and Allan does not admit that he knew of it, but I will assume that he did) that Dodds had made the offer to Dickinson, and had given him till Friday morning at 9 o'clock to accept it, still in point of law that could not prevent Allan from making a more favourable offer than Dickinson, and entering at once into a binding agreement with Dodds.

Then Dickinson is informed by Berry that the property has been sold by Dodds to Allan. Berry does not tell us from whom he heard it, but he says that he did hear it, that he knew it, and that he informed Dickinson of it. Now, stopping there, the question which arises is this—If an offer has been made for the sale of property, and before that offer is accepted, the person who has made the offer enters into a binding agreement to sell the property to somebody else, and the person to whom the offer was first made receives notice in some way that the property has been sold to another person, can he after that make a binding contract by the acceptance of the offer? I am of opinion that he cannot. The law may be right or wrong in saying that a person who has given to another a certain time within which to accept an offer is not bound by his promise to give that time; but, if he is not bound by that promise, and may still sell the property to some one else, and if it be the law that, in order to make a contract, the two minds must be in agreement at some one time, that is, at the time of the acceptance, how is it possible that when the person to whom the offer has been made knows that the person who has made the offer has sold the property to someone else, and that, in fact, he has not remained in the same mind to sell it to him, he can be at liberty to accept the offer and thereby make a binding contract? It seems to me that would be simply absurd. If a man makes an offer to sell a particular horse in his stable, and says, "I will give you until the day after to-morrow to [475] accept the offer," and the next day goes and sells the horse to somebody else, and receives the purchase-money from him, can the person to whom the offer was originally made then come and say, "I accept," so as to make a binding contract, and so as to be entitled to recover damages for the non-delivery of the horse? If the rule of law is that a mere offer to sell property, which can be withdrawn at any time, and which is made dependent on the acceptance of the person to whom it is made, is a mere nandum pactum, how is it possible that the person to whom the offer has been made can by acceptance make a binding contract after he knows that the person who bas made the offer has sold the property to some one else? It is admitted law that, if a man who makes an offer dies, the offer cannot be accepted after he is dead, and parting with the property has very much the same effect as the death of the owner, for it makes the performance of the offer impossible. I am clearly of opinion that, just as when a man who has made an offer dies before it is accepted it is impossible that it can then be accepted, so when once the person to whom the offer was made knows that the property has been sold to some one else, it is too late for him to accept the offer, and on that ground I am clearly of opinion that there was no binding contract for the sale of this property by Dodds to Dickinson, and evenif there had been, it seems to me that the sale of the property to Allan was first in point of time. However, it is not necessary to consider, if there had been two binding contracts, which of them would be entitled to priority in equity, because there is no binding contract between Dodds and Dickinson.

Baggallay, J.A.:—

I entirely concur in the judgments which have been pronounced.

James, L.J.:—

The bill will be dismissed with costs.

Swanston, Q.C.:—

We shall have the costs of the appeal.

Kay, Q.C.:—

There should only be the costs of one appeal.

Sir H. Jackson, Q.C.:-The Defendant Allan was obliged to protect himself.

[476]Mellish, L.J.:—

He had a separate case. There might, if two contracts had been proved, have been a question of priority.

James, L.J.:—

I think the Plaintiff must pay the costs of both appeals.

Solicitor for Appellants; O. B. Wooler.

Solicitor for Plaintiff: R. T. Jarvis, agent for Hutchinson & Lucas, Darlington.

[1] Law Rep. 1 Ex. 342.

[2] 3 Drew. 523.

[3] 3 Mer. 441, 454.

[4] 1 B. & A. 68l.

[5] 1 B. & A. 681.

[6] 1 H. L. C. 381.

[7] Law Rep. 7 Ch. 587, 595.

[8] 6 Hare, 1.

[9] 3 T. R. 653.

[10] 2nd Ed. p. 52.

[11] 16 East, 45.

[12] Page 8.

[13] 4 Bing. 653.

[14] 2 Jac. & W. 413.

[15] Page 428.

[16] 1 Jur. (N.S.) 737.

[17] Page 80.

[18] Law Rep. 4, Eq. 9, 12.

[19] 3 T. R. 653.

[20] 3 T. R. 653.

[21] 4 Bing. 653.

[22] 3 Drew. 523.

[23] 1 Y. & C. Ch. 554.

[24] 6 E. & B. 765.

[25] 3 Man. & Ry. 97.

[26] 1 Russ. & My. 391.

364 N.W.2d 838 (1985)

DATASERV EQUIPMENT, INC., Respondent, v. TECHNOLOGY FINANCE LEASING CORP., Appellant.

No. CO-84-1514.

Court of Appeals of Minnesota.

March 26, 1985.

Robert J. Hennessey, Minneapolis, for respondent.

Stephen J. Davidson, Minneapolis, Gordon Locke, Technology Finance Group, Inc., Westport, Conn., for appellant.

Heard, considered and decided by HUSPENI, P.J., and FOLEY and WOZNIAK, JJ.

OPINION

WOZNIAK, Judge.

This is an appeal from a judgment entered after trial to the district court determining that appellant was subject to the jurisdiction of Minnesota courts and that appellant breached a contract to purchase certain computer equipment. We affirm that part of the judgment finding that the court had jurisdiction, and reverse on the question of contract formation.

FACTS

Appellant Technology Finance Group, Inc. (Technology), a Nevada corporation with its principal place of business in Connecticut, and Respondent Dataserv Equipment, Inc. (Dataserv), a Minnesota corporation with its principal place of business in Minneapolis, are dealers in new and used computer equipment.

On or about August 29, 1979, Dataserv's Jack Skjonsby telephoned Technology's Ron Finerty in Connecticut and proposed to sell to Technology, for the price of $100,000, certain IBM computer "features" which Dataserv had previously purchased in Canada.

As a result of long distance telephone conversations between Skjonsby and Finerty, on August 30, 1979, Finerty sent Skjonsby a written offer to purchase the features and on September 6, 1979, Dataserv sent to Technology a proposed form of contract. Dataserv's proposed contract form included a nonstandard provision, appearing in the contract form as clause 8 and referred to by the parties as the "Indepth Clause." The clause provided that installation of the features would be done by Indepth, a third party. The contract also provided that "[t]his agreement is subject to acceptance by the seller . . . and shall only become effective on the date thereof," and "[t]his agreement is made subject to the terms and conditions included herein and Purchaser's acceptance is effective only to the extent that such terms and conditions are conditions herein. Any acceptance which contains conditions which are in addition to or inconsistent with the terms and conditions herein will be a counter offer and will not be binding unless agreed to in writing by the Seller."

On October 1, Finerty wrote Skjonsby that three changes "need to be made" in the contract, one of which was the deletion of clause 8. The letter closed with: "Let me know and I will make the changes and sign." Two of the changes were thereafter resolved, but the resolution of clause 8 remained in controversy.

Later in October 1979, Dataserv offered to accept, in substitution for Indepth, any other third-party installation company Technology would designate. Technology never agreed to this.

On November 8, 1979, Dataserv by telephone offered to remove the Indepth clause from the contract form. Technology responded that it was "too late," and that there was no deal.

On November 9, 1979, Finerty called Dataserv, and informed them that "the deal was not going to get done because they'd waited until too late a point in time." During this period of time, the market value of the features was dropping rapidly and Dataserv was anxious to complete the deal. It is undisputed that the market for used computer equipment, including its features, is downwardly price volatile.

By telex dated November 12, 1979, Dataserv informed Technology that the features were ready for pickup and that the pickup and payment be no later than November 15, 1979.

On November 13, 1979, Finerty responded by telex stating:

[S]ince [Dataserv] had not responded in a positive fashion to Alanthus' [Alanthus is the former name of Technology Finance Group] letter requesting contract changes * * * its offer to purchase [the features] was withdrawn on 11/9/79 via telephone conversation with Jack Skjonsby. Ten to fifteen days prior, I made Jack aware that this deal was dead if Dataserv did not agree to contract changes prior to the "Eleventh Hour".

On June 19, 1980, the features were sold by Dataserv to another party for $26,000. It then sought a judgment against Technology for the difference between the sale price of the features and the contract price.

By its Answer and by way of pretrial motion, Technology claimed that the court lacked jurisdiction over the person of the defendant. The trial court denied the motion on February 20, 1981.

At trial the parties stipulated that as of November 8, 1979 Dataserv telephonically offered to take out the Indepth Clause. The trial court found that this telephone call operated as an acceptance of Technology's counteroffer of October 1, 1979, thereby establishing a contract between the parties embodying the terms of Dataserv's printed standard contract dated September 6, 1979, minus clause 8 thereof. The trial court found that as of November 15, 1979, Technology breached its contract to Dataserv's damage, and awarded Dataserv $74,000 in damages, plus interest from the date of the breach.

ISSUES

1. Did the trial court err in finding jurisdiction over the person of Technology within the meaning of Minn.Stat. § 543.19 (1984)?

2. Did the trial court err in finding that the parties entered into a contract?

3. Did the trial court err in finding that Dataserv mitigated its damages?

ANALYSIS

1. The trial court found that because Technology held a business lease with a Minnesota corporation as lessee, it "transacts ... business within the state" under Minn.Stat. § 543.19, subd. 1(b) (1984) as a matter of law. It found that clause (b) constitutionally permitted jurisdiction based on the five-factor analysis of the minimum contacts between the defendant and Minnesota, set forth in Aftanase v. Economy Baler Co., 343 F.2d 187, 197 (8th Cir.1965). Minnesota has adopted the Aftanase test. Dent-Air, Inc. v. Beech Mountain Air Service, Inc., 332 N.W.2d 904, 907 (Minn.1983); Rostad v. On-Deck, Inc., 354 N.W.2d 95, 98 (Minn.Ct.App.1984).

Technology argues that its forum activities were "totally unrelated" to Dataserv's cause of action, thereby precluding jurisdiction under the Aftanase formula. We do not agree. It is apparent that Technology has a number of contacts within the State of Minnesota, including, at the time of negotiations, the maintenance of a sales office and the leasing of equipment within the state. In addition, Technology had the telephone and mail contacts with the State of Minnesota which gave rise to this litigation. Given these substantial contacts between not only Technology and the forum, but between the forum and the litigation, it is apparent that Technology has the requisite minimum contacts with Minnesota to permit Minnesota to exercise personal jurisdiction over it. See BLC Insurance Company v. Westin, Inc., 359 N.W.2d 752(Minn.Ct.App.1985). The purposeful behavior of Technology is such that it should have reasonably anticipated being haled into court here. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 298, 100 S. Ct. 559, 567, 62 L. Ed. 2d 490 (1980).

2. Technology claims that the trial court erred in finding that the parties entered into a contract. It contends that Dataserv's response to its counteroffer operated, as a matter of law, as a rejection, terminating Dataserv's power to subsequently accept the counteroffer.

Under familiar principles of contract law, a party's rejection terminates its power of acceptance. Restatement (Second) of Contracts § 380 (1981). Once rejected, an offer is terminated and cannot subsequently be accepted without ratification by the other party. Nodland v. Chirpich, 240 N.W.2d 513, 307 Minn. 360 (1976).

The critical issue is whether Dataserv rejected Technology's October 1 counteroffer. Dataserv responded to Technology's October 1 counteroffer by agreeing to delete two of the three objectionable clauses, but insisting that the third be included. By refusing to accept according to the terms of the proposal, Dataserv rejected Technology's counteroffer and thus no contract was formed. Moreover, Dataserv's offer to substitute other third party installation companies, which Technology rejected, operated as a termination of its power to accept Technology's counteroffer. Dataserv's so-called "acceptance," when it offered to delete clause 8 on November 8, 1979, was without any legal effect whatsoever, except to create a new offer which Technology immediately rejected.

Dataserv's November 8 "acceptance" was also ineffective because it was not signed in accordance with the offer's conditions. While it is true that Minn.Stat. § 336.2-204 does not require a signed agreement prior to formation of a contract, where the parties know that the execution of a written contract was a condition precedent to their being bound, there can be no binding contract until the written agreement was executed. Staley Manufacturing Co. v. Northern Cooperatives, Inc., 168 F.2d 892 (8th Cir.1948).

3. Having found that no contract was formed between the parties, it is unnecessary to address the question of mitigation of damages.

DECISION

Technology was subject to the jurisdiction of Minnesota courts. No contract was formed between the parties.

Affirmed in part, reversed in part.

Daryl J. Lapp, with whom Thane D. Scott, Stephen L. Coco and Palmer & Dodge LLP were on brief, Boston, MA, for appellant.

Tina M. Traficanti, with whom Anthony M. Doniger and Sugarman, Rogers, Barshak & Cohen, P.C. were on brief, Boston, MA, for appellee.

Before TORRUELLA, Chief Judge, BOWNES, Senior Circuit Judge, and STAHL, Circuit Judge.

TORRUELLA, Chief Judge.

Ionics, Inc. ("Ionics") purchased thermostats from Elmwood Sensors, Inc. ("Elmwood") for installation in water dispensers manufactured by the former. Several of the dispensers subsequently caused fires which allegedly resulted from defects in the sensors. Ionics filed suit against Elmwood in order to recover costs incurred in the wake of the fires. Before trial, the district court denied Elmwood's motion for partial summary judgment. The District Court of Massachusetts subsequently certified to this court "the question whether, in the circumstances of this case, § 2-207 of M.G.L. c. 106 has been properly applied." Order of the district court, November 6, 1995.

I. Standard of Review

We review the grant or denial of summary judgment de novo. See Borschow Hosp. & Medical Supplies v. Cesar Castillo, Inc., 96 F.3d 10, 14 (1st Cir.1996).

II. Background

The facts of the case are not in dispute. Elmwood manufactures and sells thermostats. Ionics makes hot and cold water dispensers, which it leases to its customers. On three separate occasions, Ionics purchased thermostats from Elmwood for use in its water dispensers.^[1] Every time Ionics made a purchase of thermostats from Elmwood, it sent the latter a purchase order form which contained, in small type, various "conditions." Of the 20 conditions on the order form, two are of particular relevance:

18. REMEDIES — The remedies provided Buyer herein shall be cumulative, and in addition to any other remedies provided by law or equity. A waiver of a breach of any provision hereof shall not constitute a waiver of any other breach. The laws of the state shown in Buyer's address printed on the masthead of this order shall apply in the construction hereof.

19. ACCEPTANCE — Acceptance by the Seller of this order shall be upon the terms and conditions set forth in items 1 to 17 inclusive, and elsewhere in this order. Said order can be so accepted only on the exact terms herein and set forth. No terms which are in any manner additional to or different from those herein set forth shall become a part of, alter or in any way control the terms and conditions herein set forth.

Near the time when Ionics placed its first order, it sent Elmwood a letter that it sends to all of its new suppliers. The letter states, in part:

The information preprinted, written and/or typed on our purchase order is especially important to us. Should you take exception to this information, please clearly express any reservations to us in writing. If you do not, we will assume that you have agreed to the specified terms and that you will fulfill your obligations according to our purchase order. If necessary, we will change your invoice and pay your invoice according to our purchase order.

Following receipt of each order, Elmwood prepared and sent an "Acknowledgment" form containing the following language in small type:

THIS WILL ACKNOWLEDGE RECEIPT OF BUYER'S ORDER AND STATE SELLER'S WILLINGNESS TO SELL THE GOODS ORDERED BUT ONLY UPON THE TERMS AND CONDITIONS SET FORTH HEREIN AND ON THE REVERSE SIDE HEREOF AS A COUNTEROFFER. BUYER SHALL BE DEEMED TO HAVE ACCEPTED SUCH COUNTEROFFER UNLESS IT IS REJECTED IN WRITING WITHIN TEN (10) DAYS OF THE RECEIPT HEREOF, AND ALL SUBSEQUENT ACTION SHALL BE PURSUANT TO THE TERMS AND CONDITIONS OF THIS COUNTEROFFER ONLY; ANY ADDITIONAL OR DIFFERENT TERMS ARE HEREBY OBJECTED TO AND SHALL NOT BE BINDING UPON THE PARTIES UNLESS SPECIFICALLY AGREED TO IN WRITING BY SELLER.

Although this passage refers to a "counteroffer," we wish to emphasize that this language is not controlling. The form on which the language appears is labelled an "Acknowledgment" and the language comes under a heading that reads "Notice of Receipt of Order." The form, taken as a whole, appears to contemplate an order's confirmation rather than an order's rejection in the form of a counteroffer.

It is undisputed that the Acknowledgment was received prior to the arrival of the shipment of goods. Although the district court, in its ruling on the summary judgment motion, states that "with each shipment of thermostats, Elmwood included an Acknowledgment Form," Order of the District Court, August 23, 1995, this statement cannot reasonably be taken as a finding in support of the claim that the Acknowledgment and the shipment arrived together. First, in its certification order, the court states that "[t]he purchaser, after receiving the Acknowledgment, accepted delivery of the goods without objection." Order Pursuant to 28 U.S.C. § 1292(b), Nov. 6, 1995 (emphasis added). This language is clearer and more precise than the previous statement and suggests that the former was simply a poor choice of phrasing. Furthermore, Ionics has not disputed the arrival time of the Acknowledgment. In its Memorandum in Support of Defendant's Motion for Partial Summary Judgment Elmwood stated, under the heading of "Statements of Undisputed Facts," that "for each of the three orders, Ionics received the Acknowledgment prior to receiving the shipment of thermostats." Memorandum in Support of Defendant's Motion for Partial Summary Judgment, at 3. In its own memorandum, Ionics argued that there existed disputed issues of material fact, but did not contradict Elmwood's claim regarding the arrival of the Acknowledgment Form. SeePlaintiff's Memorandum in Support of its Opposition to Defendant's Motion for Partial Summary Judgment at 4-10. Furthermore, in its appellate brief, Ionics does not argue that the time of arrival of the Acknowledgment Form is in dispute. Ionics repeats language from the district court's summary judgment ruling that "with each shipment of thermostats, Elmwood included an Acknowledgment Form," Appellee's Brief at 7, but does not argue that the issue is in dispute or confront the language in Elmwood's brief which states that "[i]t is undisputed that for each of the three orders, Ionics received the Acknowledgment prior to receiving the shipment of thermostats." Appellant's Brief at 6.

As we have noted, the Acknowledgment Form expressed Elmwood's willingness to sell thermostats on "terms and conditions" that the Form indicated were listed on the reverse side. Among the terms and conditions listed on the back was the following:

9. WARRANTY

All goods manufactured by Elmwood Sensors, Inc. are guaranteed to be free of defects in material and workmanship for a period of ninety (90) days after receipt of such goods by Buyer or eighteen months from the date of manufacturer [sic] (as evidenced by the manufacturer's date code), whichever shall be longer. THERE IS NO IMPLIED WARRANTY OF MERCHANTABILITY AND NO OTHER WARRANTY, EXPRESSED OR IMPLIED, EXCEPT SUCH AS IS EXPRESSLY SET FORTH HEREIN. SELLER WILL NOT BE LIABLE FOR ANY GENERAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES, INCLUDING WITHOUT LIMITATION ANY DAMAGES FROM LOSS OF PROFITS, FROM ANY BREACH OF WARRANTY OR FOR NEGLIGENCE, SELLER'S LIABILITY AND BUYER'S EXCLUSIVE REMEDY BEING EXPRESSLY LIMITED TO THE REPAIR OF DEFECTIVE GOODS F.O.B. THE SHIPPING POINT INDICATED ON THE FACE HEREOF OR THE REPAYMENT OF THE PURCHASE PRICE UPON THE RETURN OF THE GOODS OR THE GRANTING OF A REASONABLE ALLOWANCE ON ACCOUNT OF ANY DEFECTS, AS SELLER MAY ELECT.

Neither party disputes that they entered into a valid contract and neither disputes the quantity of thermostats purchased, the price paid, or the manner and time of delivery. The only issue in dispute is the extent of Elmwood's liability.

In summary, Ionics' order included language stating that the contract would be governed exclusively by the terms included on the purchase order and that all remedies available under state law would be available to Ionics. In a subsequent letter, Ionics added that Elmwood must indicate any objections to these conditions in writing. Elmwood, in turn, sent Ionics an Acknowledgment stating that the contract was governed exclusively by the terms in the Acknowledgment, and Ionics was given ten days to reject this "counteroffer." Among the terms included in the Acknowledgment is a limitation on Elmwood's liability. As the district court stated, "the terms are diametrically opposed to each other on the issue of whether all warranties implied by law were reserved or waived." Order of the District Court, August 23, 1995.

We face, therefore, a battle of the forms. This is purely a question of law. The dispute turns on whether the contract is governed by the language after the comma in § 2-207(1) of the Uniform Commercial Code, according to the rule laid down by this court in Roto-Lith, Ltd. v. F.P. Bartlett & Co., 297 F.2d 497 (1st Cir.1962), or whether it is governed by subsection (3) of the Code provision, as enacted by both Massachusetts, Mass. Gen. L. ch. 106, § 2-207 (1990 and 1996 Supp.), and Rhode Island, R.I. Gen. Laws § 6A-2-207 (1992).^[2] We find the rule of Roto-Lith to be in conflict with the purposes of section 2-207 and, accordingly, we overrule Roto-Lith and find that subsection (3) governs the contract.^[3] Analyzing the case under section 2-207, we conclude that Ionics defeats Elmwood's motion for partial summary judgment.

III. Legal Analysis

Our analysis begins with the statute. Section 2-207 reads as follows:

§ 2-207. Additional Terms in Acceptance or Confirmation

(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

(2) The additional or different terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:

(a) the offer expressly limits acceptance to the terms of the offer;

(b) they materially alter it; or

(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this chapter.

Mass. Gen. L. ch. 106, § 2-207 (1990 and 1996 Supp.).

In Roto-Lith, Roto-Lith sent a purchase order to Bartlett, who responded with an acknowledgment that included language purporting to limit Bartlett's liability. Roto-Lith did not object. Roto-Lith, 297 F.2d at 498-99. This court held that "a response which states a condition materially altering the obligation solely to the disadvantage of the offeror is an `acceptance * * * expressly * * * conditional on assent to the additional * * * terms.'" Id. at 500. This holding took the case outside of section 2-207 by applying the exception after the comma in subsection (1). The court then reverted to common law and concluded that Roto-Lith "accepted the goods with knowledge of the conditions specified in the acknowledgment [and thereby] became bound." Id. at 500. In other words, the Roto-Lith court concluded that the defendant's acceptance was conditional on assent, by the buyer, to the new terms and, therefore, constituted a counter offer rather than an acceptance. When Roto-Lith accepted the goods with knowledge of Bartlett's conditions, it accepted the counteroffer and Bartlett's terms governed the contract. Elmwood argues that Roto-Lith governs the instant appeal, implying that the terms of Elmwood's acknowledgment govern.

Ionics claims that the instant case is distinguishable because in Roto-Lith "the seller's language limiting warranties implied at law was proposed as an addition to, but was not in conflict with, the explicit terms of the buyer's form. [In the instant case] the explicit terms of the parties' forms conflict with and reject each other." Appellee's Brief at 21.

We do not believe that Ionics' position sufficiently distinguishes Roto-Lith. It would be artificial to enforce language that conflicts with background legal rules while refusing to enforce language that conflicts with the express terms of the contract. Every contract is assumed to incorporate the existing legal norms that are in place. It is not required that every contract explicitly spell out the governing law of the jurisdiction. Allowing later forms to govern with respect to deviations from the background rules but not deviations from the terms in the contract would imply that only the terms in the contract could be relied upon. Aside from being an artificial and arbitrary distinction, such a standard would, no doubt, lead parties to include more of the background rules in their initial forms, making forms longer and more complicated. Longer forms would be more difficult and time consuming to read — implying that even fewer forms would be read than under the existing rules. It is the failure of firms to read their forms that has brought this case before us, and we do not wish to engender more of this type of litigation.

Our inquiry, however, is not complete. Having found that we cannot distinguish this case from Roto-Lith, we turn to the Uniform Commercial Code, quoted above. A plain language reading of section 2-207 suggests that subsection (3) governs the instant case. Ionics sent an initial offer to which Elmwood responded with its "Acknowledgment." Thereafter, the conduct of the parties established the existence of a contract as required by section 2-207(3).

Furthermore, the case before us is squarely addressed in comment 6, which states:

6. If no answer is received within a reasonable time after additional terms are proposed, it is both fair and commercially sound to assume that their inclusion has been assented to. Where clauses on confirming forms sent by both parties conflict[,] each party must be assumed to object to a clause of the other conflicting with one on the confirmation sent by himself. As a result[,] the requirement that there be notice of objection which is found in subsection (2) [of § 2-207] is satisfied and the conflicting terms do not become part of the contract. The contract then consists of the terms originally expressly agreed to, terms on which the confirmations agree, and terms supplied by this Act.

Mass. Gen. L. ch. 106, § 2-207, Uniform Commercial Code Comment 6. This Comment addresses precisely the facts of the instant case. Any attempt at distinguishing the case before us from section 2-207 strikes us as disingenuous.

We are faced, therefore, with a contradiction between a clear precedent of this court, Roto-Lith, which suggests that the language after the comma in subsection (1) governs, and the clear dictates of the Uniform Commercial Code, which indicate that subsection (3) governs. It is our view that the two cannot coexist and the case at bar offers a graphic illustration of the conflict. We have, therefore, no choice but to overrule our previous decision in Roto-Lith, Ltd. v. F.P. Bartlett & Co., 297 F.2d 497 (1st Cir. 1962). Our decision brings this circuit in line with the majority view on the subject and puts to rest a case that has provoked considerable criticism from courts and commentators and alike.^[4]

We hold, consistent with section 2-207 and Official Comment 6, that where the terms in two forms are contradictory, each party is assumed to object to the other party's conflicting clause. As a result, mere acceptance of the goods by the buyer is insufficient to infer consent to the seller's terms under the language of subsection (1).^[5] Nor do such terms become part of the contract under subsection (2) because notification of objection has been given by the conflicting forms. See § 2-207(2)(c).

The alternative result, advocated by Elmwood and consistent with Roto-Lith, would undermine the role of section 2-207. Elmwood suggests that "a seller's expressly conditional acknowledgment constitutes a counteroffer where it materially alters the terms proposed by the buyer, and the seller's terms govern the contract between the parties when the buyer accepts and pays for the goods." Appellant's Brief at 12. Under this view, section 2-207 would no longer apply to cases in which forms have been exchanged and subsequent disputes reveal that the forms are contradictory. That is, the last form would always govern.

The purpose of section 2-207, as stated in Roto-Lith, "was to modify the strict principle that a response not precisely in accordance with the offer was a rejection and a counteroffer." Roto-Lith, 297 F.2d at 500; see also Dorton v. Collins & Aikman Corp., 453 F.2d 1161, 1165-66 (6th Cir.1972) (stating that section 2-207 "was intended to alter the `ribbonmatching' or `mirror' rule of common law, under which the terms of an acceptance or confirmation were required to be identical to the terms of the offer"). Under the holding advocated by Elmwood, virtually any response that added to or altered the terms of the offer would be a rejection and a counteroffer. We do not think that such a result is consistent with the intent of section 2-207 and we believe it to be expressly contradicted by Comment 6.

Applied to this case, our holding leads to the conclusion that the contract is governed by section 2-207(3). Section 2-207(1) is inapplicable because Elmwood's acknowledgment is conditional on assent to the additional terms. The additional terms do not become a part of the contract under section 2-207(2) because notification of objection to conflicting terms was given on the order form and because the new terms materially alter those in the offer. Finally, the conduct of the parties demonstrates the existence of a contract, as required by section 2-207(3). Thus, section 2-207(3) applies and the terms of the contract are to be determined in accordance with that subsection.

We conclude, therefore, that section 2-207(3) prevails and "the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this chapter." Mass. Gen. L. ch. 106, § 2-207(3).

The reality of modern commercial dealings, as this case demonstrates, is that not all participants read their forms. See James J. White & Robert S. Summers, Uniform Commercial Code § 1-3 at 6-7 (4th ed.1995). To uphold Elmwood's view would not only fly in the face of Official Comment 6 to section 2-207 of the Uniform Commercial Code, and the overall purpose of that section, it would also fly in the face of good sense. The sender of the last form (in the instant case, the seller) could insert virtually any conditions it chooses into the contract, including conditions contrary to those in the initial form. The final form, therefore, would give its sender the power to re-write the contract. Under our holding today, we at least ensure that a party will not be held to terms that are directly contrary to the terms it has included in its own form. Rather than assuming that a failure to object to the offeree's conflicting terms indicates offeror's assent to those terms, we shall make the more reasonable inference that each party continues to object to the other's contradictory terms. We think it too much to grant the second form the power to contradict and override the terms in the first form.

IV. Conclusion

For the reasons stated herein, the district court's order denying Elmwood's motion for partial summary judgment is affirmed and the case is remanded to the district court for further proceedings.

[1] Orders were placed in March, June, and September 1990.

[2] There is some uncertainty on the question of whether Massachusetts or Rhode Island law governs. We need not address this issue, however, because the two states have adopted versions of section 2-207 of the Uniform Commercial Code that are virtually equivalent.

[3] Although panel decisions of this court are ordinarily binding on newly constituted panels, that rule does not obtain in instances where, as here, a departure is compelled by controlling authority (such as the interpreted statute itself). In such relatively rare instances, we have sometimes chosen to circulate the proposed overruling opinion to all active members of the court prior to publication even though the need to overrule precedent is reasonably clear. See, e.g., Wright v. Park, 5 F.3d 586, 591 n. 7 (1st Cir.1993); Trailer Marine Transport Corp. v. Rivera Vazquez, 977 F.2d 1, 9 n. 5 (1st Cir.1992). This procedure is, of course, informal, and does not preclude a suggestion of rehearing en banc on any issue. We have followed that praxis here and can report that none of the active judges of this court has objected to the panel's analysis or to its conclusion that Roto-Lith has outlived its usefulness as circuit precedent.

[4] See, e.g., Step-Saver Data Systems, Inc. v. Wyse Technology, 939 F.2d 91, 101 (3d Cir.1991); St. Charles Cable TV, Inc. v. Eagle Comtronics, Inc., 687 F.Supp. 820, 828 & n. 19 (S.D.N.Y.1988); Daitom v. Pennwalt Corp., 741 F.2d 1569, 1576-77 (10th Cir.1984); Luria Bros. v. Pielet Bros. Scrap Iron & Metal, 600 F.2d 103, 113 (7th Cir.1979); Dorton v. Collins & Aikman Corp., 453 F.2d 1161, 1168 & n. 5 (6th Cir.1972); ; James J. White & Robert S. Summers, 1 Uniform Commercial Code, § 1-3, at 12, 16-17 (1995); Murray, Intention over Terms: An Exploration of UCC 2-207 & New Section 60, Restatement of Contracts, 37 Fordham L.Rev. 317, 329 (1969).

[5] See also Official Comment 3 ("If [additional or different terms] are such as materially to alter the original bargain, they will not be included unless expressly agreed to by the other party.").

366 A.2d 162 (1976)

Ernest P. ARDENTE v. William A. HORAN and Katherine L. Horan.

No. 76-6-Appeal.

Supreme Court of Rhode Island.

December 2, 1976.

Manning, West, Santaniello & Pari, Joseph T. Pari, Providence, for plaintiff.

Moore, Virgadamo, Boyle & Lynch, Ltd., Jeremiah C. Lynch, Jr., Joseph R. Palumbo, Jr., Newport, for defendants.

OPINION

DORIS, Justice.

Ernest P. Ardente, the plaintiff, brought this civil action in Superior Court to specifically enforce an agreement between himself and William A. and Katherine L. Horan, the defendants, to sell certain real property. The defendants filed an answer together with a motion for summary judgment pursuant to Super.R.Civ.P. 56. Following the submission of affidavits by both the plaintiff and the defendants and a hearing on the motion, judgment was entered by a Superior Court justice for the defendants. The plaintiff now appeals.

In August 1975, certain residential property in the city of Newport was offered for sale by defendants. The plaintiff made a bid of $250,000 for the property which was communicated to defendants by their attorney. After defendants' attorney advised plaintiff that the bid was acceptable to defendants, he prepared a purchase and sale agreement at the direction of defendants and forwarded it to plaintiff's attorney for plaintiff's signature. After investigating certain title conditions, plaintiff executed the agreement. Thereafter plaintiff's attorney returned the document to defendants along with a check in the amount of $20,000 and a letter dated September 8, 1975, which read in relevant part as follows:

"My clients are concerned that the following items remain with the real estate: a) dining room set and tapestry wall covering in dining room; b) fireplace fixtures throughout; c) the sun parlor furniture. I would appreciate your confirming that these items are a part of the transaction, as they would be difficult to replace."

The defendants refused to agree to sell the enumerated items and did not sign the purchase and sale agreement. They directed their attorney to return the agreement and the deposit check to plaintiff and subsequently refused to sell the property to plaintiff. This action for specific performance followed.

In Superior Court, defendants moved for summary judgment on the ground that the facts were not in dispute and no contract had been formed as a matter of law.[1] The trial justice ruled that the letter quoted above constituted a conditional acceptance of defendants' offer to sell the property and consequently must be construed as a counteroffer. Since defendants never accepted the counteroffer, it followed that no contract was formed, and summary judgment was granted.

Summary judgment is a drastic remedy and should be cautiously applied; nevertheless, where there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law, summary judgment properly issues. Ladouceur v. Prudential Ins. Co., 111 R.I. 370, 302 A.2d 801 (1973). On appeal this court is bound by the same rules as the trial court. Cardente v. Travelers Ins. Co., 112 R.I. 713, 315 A.2d 63 (1974). With these rules in mind we address ourselves to the facts.

The plaintiff assigns several grounds for appeal in his brief. He urges first that summary judgment was improper because there existed a genuine issue of fact. The factual question, according to plaintiff, was whether the oral agreement which preceded the drafting of the purchase and sale agreement was intended by the parties to take effect immediately to create a binding oral contract for the sale of the property.

We cannot agree with plaintiff's position. A review of the record shows that the issue was never raised before the trial justice. The plaintiff did not, in his affidavit in opposition to summary judgment or by any other means, bring to the attention of the trial court any facts which established the existence of a relevant factual dispute. Indeed, at the hearing on the motion plaintiff did not even mention the alleged factual dispute which he now claims the trial justice erred in overlooking. The only issue plaintiff addressed was the proper interpretation of the language used in plaintiff's letter of acceptance. This was solely a question of law. See Cassidy v. Springfield Life Ins. Co., 106 R.I. 615, 262 A.2d 378 (1970); Johnson v. Kile & Morgan Co., 49 R.I. 99, 140 A. 3 (1928).

It is well-settled that one who opposes a motion for summary judgment may not rest upon the mere allegations or denials of his pleading. He has an affirmative duty to set forth specific facts which show that there is a genuine issue of fact to be resolved at trial. If he does not do so, summary judgment, if appropriate, will be entered against him. Gallo v. National Nursing Homes, Inc., 106 R.I. 485, 488, 261 A.2d 19, 21 (1970); Sutter v. Harrington, 51 R.I. 325, 154 A. 657 (1931); 1 Kent, R. I.Civ.Prac. § 56.4 (1969). Accordingly, since no genuine issue of fact was presented to the trial justice, we hold that he did not err in ruling that summary judgment was appropriate.[2]

The plaintiff's second contention is that the trial justice incorrectly applied the principles of contract law in deciding that the facts did not disclose a valid acceptance of defendants' offer. Again we cannot agree.

The trial justice proceeded on the theory that the delivery of the purchase and sale agreement to plaintiff constituted an offer by defendants to sell the property. Because we must view the evidence in the light most favorable to the party against whom summary judgment was entered, in this case plaintiff, we assume as the trial justice did that the delivery of the agreement was in fact an offer.[3]

The question we must answer next is whether there was an acceptance of that offer. The general rule is that where, as here, there is an offer to form a bilateral contract, the offeree must communicate his acceptance to the offeror before any contractual obligation can come into being. A mere mental intent to accept the offer, no matter how carefully formed, is not sufficient. The acceptance must be transmitted to the offeror in some overt manner. Bullock v. Harwick, 158 Fla. 834, 30 So. 2d 539 (1947); Armstrong v. Guy H. James Constr. Co., 402 P.2d 275 (Okl.1965); 1 Restatement Contracts § 20 (1932). See generally 1 Corbin, Contracts § 67 (1963). A review of the record shows that the only expression of acceptance which was communicated to defendants was the delivery of the executed purchase and sale agreement accompanied by the letter of September 8. Therefore it is solely on the basis of the language used in these two documents that we must determine whether there was a valid acceptance. Whatever plaintiff's unexpressed intention may have been in sending the documents is irrelevant. We must be concerned only with the language actually used, not the language plaintiff thought he was using or intended to use.

There is no doubt that the execution and delivery of the purchase and sale agreement by plaintiff, without more, would have operated as an acceptance. The terms of the accompanying letter, however, apparently conditioned the acceptance upon the inclusion of various items of personalty. In assessing the effect of the terms of that letter we must keep in mind certain generally accepted rules. To be effective, an acceptance must be definite and unequivocal. "An offeror is entitled to know in clear terms whether the offeree accepts his proposal. It is not enough that the words of a reply justify a probable inference of assent." 1 Restatement Contracts § 58, comment a (1932). The acceptance may not impose additional conditions on the offer, nor may it add limitations. "An acceptance which is equivocal or upon condition or with a limitation is a counteroffer and requires acceptance by the original offeror before a contractual relationship can exist." John Hancock Mut. Life Ins. Co. v. Dietlin, 97 R.I. 515, 518, 199 A.2d 311, 313 (1964). Accord, Cavanaugh v. Conway, 36 R.I. 571, 587,90 A. 1080, 1086 (1914).

However, an acceptance may be valid despite conditional language if the acceptance is clearly independent of the condition. Many cases have so held. Williston states the rule as follows:

"Frequently an offeree, while making a positive acceptance of the offer, also makes a request or suggestion that some addition or modification be made. So long as it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer whether such request is granted or not, a contract is formed." 1 Williston, Contracts § 79 at 261-62 (3d ed. 1957).

Corbin is in agreement with the above view. 1 Corbin, supra, § 84 at 363-65. Thus our task is to decide whether plaintiff's letter is more reasonably interpreted as a qualified acceptance or as an absolute acceptance together with a mere inquiry concerning a collateral matter.

In making our decision we recognize that, as one text states, "The question whether a communication by an of feree is a conditional acceptance or counter-offer is not always easy to answer. It must be determined by the same common-sense process of interpretation that must be applied in so many other cases." 1 Corbin, supra § 82 at 353. In our opinion the language used in plaintiff's letter of September 8 is not consistent with an absolute acceptance accompanied by a request for a gratuitous benefit. We interpret the letter to impose a condition on plaintiff's acceptance of defendants' offer. The letter does not unequivocally state that even without the enumerated items plaintiff is willing to complete the contract. In fact, the letter seeks "confirmation" that the listed items "are a part of the transaction". Thus, far from being an independent, collateral request, the sale of the items in question is explicitly referred to as a part of the real estate transaction. Moreover, the letter goes on to stress the difficulty of finding replacements for these items. This is a further indication that plaintiff did not view the inclusion of the listed items as merely collateral or incidental to the real estate transaction.

A review of the relevant case law discloses that those cases in which an acceptance was found valid despite an accompanying conditional term generally involved a more definite expression of acceptance than the one in the case at bar. E. g., Moss v. Cogle, 267 Ala. 208, 101 So. 2d 314 (1958); Taybe Constr. Co. v. Beco, Inc., 3 Conn. Cir. 406, 216 A.2d 208, 212 (1965); Katz v. Pratt Street Realty Co., 257 Md. 103, 262 A.2d 540 (1970); Nelson v. Hamlin, 258 Mass. 331, 155 N.E. 18 (1927); Duprey v. Donahoe, 52 Wash. 2d 129, 323 P.2d 903 (1958).

Accordingly, we hold that since the plaintiff's letter of acceptance dated September 8 was conditional, it operated as a rejection of the defendants' offer and no contractual obligation was created.

The plaintiff's appeal is denied and dismissed, the judgment appealed from is affirmed and the case is remanded to the Superior Court.

PAOLINO, J., did not participate.

NOTES

[1] Although the contract would appear to be within the statute of frauds, defendants did not raise this defense in the trial court, nor do they raise it here. Where a party makes no claim to the benefit of the statute, the court sua sponte will not interpose it for him. Conti v. Fisher, 48 R.I. 33, 36, 134 A. 849, 850 (1926).

[2] We note that not only did plaintiff fail to present the supposed factual issue to the trial justice, he also did not raise the issue at oral argument before us. Moreover, in his Memorandum in Opposition to Motion to Affirm Judgment Below, filed in this court after briefs were filed, plaintiff conceded that no factual dispute existed. The plaintiff stated:

"Your appellant readily acknowledges that there was no genuine issue of fact to be resolved and that the trial justice, in this regard, did not err in granting appellee's motion for Summary Judgment. However, having granted appellee's motion, the trial justice proceeded to render decision for the wrong party. This, in substance, is the thrust of appellant's appeal." Id. at 1.

[3] The conclusion that the delivery of the agreement was an offer is not unassailable in view of the fact that defendants did not sign the agreement before sending it to plaintiff, and the fact that plaintiff told defendants' attorney after the agreement was received that he would have to investigate certain conditions of title before signing the agreement. If it was not an offer, plaintiff's execution of the agreement could itself be no more than an offer, which defendants never accepted.

83 So.2d 449 (La. Ct. App. 1955)

EVER-TITE ROOFING CORPORATION v. GREEN

Court of Appeal of Louisiana, Second Circuit

November 28, 1955

AYRES, Judge.

This is an action for damages allegedly sustained by plaintiff as the result of the breach by the defendants of a written contract for the re-roofing of defendants' residence. Defendants denied that their written proposal or offer was ever accepted by plaintiff in the manner stipulated therein for its acceptance, and hence contended no contract was ever entered into. The trial court sustained defendants' defense and rejected plaintiff's demands and dismissed its suit at its costs. From the judgment thus rendered and signed, plaintiff appealed.

Defendants executed and signed an instrument June 10, 1953, for the purpose of obtaining the services of plaintiff in re-roofing their residence situated in Webster Parish, Louisiana. The document set out in detail the work to be done and the price therefor to be paid in monthly installments. This instrument was likewise signed by plaintiff's sale representative, who, however, was without authority to accept the contract for and on behalf of the plaintiff. This alleged contract contained these provisions:

"This agreement shall become binding only upon written acceptance hereof, by the principal or authorized officer of the Contractor, or upon commencing performance of the work. This contract is Not Subject to Cancellation. It is understood and agreed that this contract is payable at office of Ever-Tite Roofing Corporation, 5203 Telephone, Houston, Texas. It is understood and agreed that this Contract provides for attorney's fees and in no case less than ten per cent attorney's fees in the event same is placed in the hands of an attorney for  collecting or collected through any court, and further provides for accelerated maturity for failure to pay any installment of principal or interest thereon when due.

"This written agreement is the only and entire contract covering the subject matter hereof and no other representations have been made unto Owner except these herein contained. No guarantee on repair work, partial roof jobs, or paint jobs." (Emphasis supplied.)

Inasmuch as this work was to be performed entirely on credit, it was necessary for plaintiff to obtain credit reports and approval from the lending institution which was to finance said contract. With this procedure defendants were more or less familiar and knew their credit rating would have to be checked and a report made. On receipt of the proposed contract in plaintiff's office on the day following its execution, plaintiff requested a credit report, which was made after investigation and which was received in due course and submitted by plaintiff to the lending agency. Additional information was requested by this institution, which was likewise in due course transmitted to the institution, which then gave its approval.

The day immediately following this approval, which was either June 18 or 19, 1953, plaintiff engaged its workmen and two trucks, loaded the trucks with the necessary roofing materials and proceeded from Shreveport to defendants' residence for the purpose of doing the work and performing the services allegedly contracted for the defendants. Upon their arrival at defendants' residence, the workmen found others in the performance of the work which plaintiff had contracted to do. Defendants notified plaintiff's workmen that the work had been contracted to other parties two days before and forbade them to do the work.

Formal acceptance of the contract was not made under the signature and approval of an agent of plaintiff. It was, however, the intention of plaintiff to accept the contract by commencing the work, which was one of the ways provided for in the instrument for its acceptance, as will be shown by reference to the extract from the contract quoted hereinabove. Prior to this time, however, defendants had determined on a course of abrogating the agreement and engaged other workmen without notice thereof to plaintiff.

The basis of the judgment appealed was that defendants had timely notified plaintiff before "commencing performance of work". The trial court held that notice to plaintiff's workmen upon their arrival with the materials that defendants did not desire them to commence the actual work was sufficient and timely to signify their intention to withdraw from the contract. With this conclusion we find ourselves unable to agree.

Defendants' attempt to justify their delay in thus notifying plaintiff for the reason they did not know where or how to contact plaintiff is without merit. The contract itself, a copy of which was left with them, conspicuously displayed plaintiff's name, address and telephone number. Be that as it may, defendants at no time, from June 10, 1953, until plaintiff's workmen arrived for the purpose of commencing the work, notified or attempted to notify plaintiff of their intention to abrogate, terminate or cancel the contract.

Defendants evidently knew this work was to be processed through plaintiff's Shreveport office. The record discloses no unreasonable delay on plaintiff's part in receiving, processing or accepting the contract or in commencing the work contracted to be done. No time limit was specified in the contract within which it was to be accepted or within which the work was to be begun. It was nevertheless understood between the parties that some delay would ensue before the acceptance of the contract and the commencement of the work, due to the necessity of compliance with the requirements relative to financing the job through a lending agency. The evidence as referred to hereinabove shows that plaintiff proceeded with due diligence.

The general rule of law is that an offer proposed may be withdrawn before its acceptance and that no obligation is incurred thereby. This is, however, not without exceptions. For instance, Restatement of the Law of Contracts stated:

"(1) The power to create a contract by acceptance of an offer terminates at the time specified in the offer, or, if no time is specified, at the end of a reasonable time.

"What is a reasonable time is a question of fact depending on the nature of the contract proposed, the usages of business and other circumstances of the case which the offeree at the time of his acceptance either knows or has reason to know."

These principles are recognized in the Civil Code. LSA-C.C. Art. 1800 provides that an offer is incomplete as a contract until its acceptance and that before its acceptance the offer may be withdrawn. However, this general rule is modified by the provisions of LSA-C.C. Arts. 1801, 1802, 1804 and 1809, which read as follows:

"Art. 1801. The party proposing shall be presumed to continue in the intention, which his proposal expressed, if, on receiving the unqualified assent of him to whom the proposition is made, he do not signify the change of his intention.

"Art. 1802. He is bound by his proposition, and the signification of his dissent will be of no avail, if the proposition be made in terms, which evince a design to give the other party the right of concluding the contract by his assent; and if that assent be given within such time as the situation of the parties and the nature of the contract shall prove that it was the intention of the proposer to allow. * * *

"Art. 1804. The acceptance needs (need) not be made by the same act, or in point of time, immediately after the proposition; if made at any time before the person who offers or promises has changed his mind, or may reasonably be presumed to have done so, it is sufficient. * * *

"Art. 1809. The obligation of a contract not being complete, until the acceptance, or in cases where it is implied by law, until the circumstances, which raise such implication, are known to the party proposing; he may therefore revoke his offer or proposition before such acceptance, but not without allowing such reasonable time as from the terms of his offer he has given, or from the circumstances of the case he may be supposed to have intended to give to the party, to communicate his determination." (Emphasis supplied.)

Therefore, since the contract did not specify the time within which it was to be accepted or within which the work was to have been commenced, a reasonable time must be allowed therefor in accordance with the facts and circumstances and the evident intention of the parties. A reasonable time is contemplated where no time is expressed. What is a reasonable time depends more or less upon the circumstances surrounding each particular case. The delays to process defendants' application were not unusual. The contract was accepted by plaintiff by the commencement of the performance of the work contracted to be done. This commencement began with the loading of the trucks with the necessary materials in Shreveport and transporting such materials and the workmen to defendants' residence. Actual commencement or performance of the work therefore began before any notice of dissent by defendants was given plaintiff. The proposition and its acceptance thus became a completed contract.

By their aforesaid acts defendants breached the contract. They employed others to do the work contracted to be done by plaintiff and forbade plaintiff's workmen to engage upon that undertaking. By this breach defendants are legally bound to respond to plaintiff in damages. LSA-C.C. Art. 1930 provides:

"The obligations of contract (contracts) extending to whatsoever is incident to such contracts, the party who violates them, is liable, as one of the incidents of his obligations, to the payment of the damages, which the other party has sustained by his default."

The same authority in Art. 1934 provides the measure of damages for the breach of a contract. This article, in part, states:

"Where the object of the contract is anything but the payment of money, the damages due to the creditor for its breach are the amount of the loss he has sustained, and the profit of which he has been deprived, * * *".

Plaintiff expended the sum of $85.37 in loading the trucks in Shreveport with materials and in transporting them to the site of defendants' residence in Webster Parish and in unloading them on their return, and for wages for the workmen for the time consumed. Plaintiff's Shreveport manager testified that the expected profit on this job was $226. None of this evidence is controverted or contradicted in any manner.

True, as plaintiff alleges, the contract provides for attorney's fees where an attorney is employed to collect under the contract, but this is not an action on the contract or to collect under the contract but is an action for damages for a breach of the contract. The contract in that respect is silent with reference to attorney's fees. In the absence of an agreement for the payment of attorney's fees or of some law authorizing the same, such fees are not allowed.

For the reasons assigned, the judgment appealed is annulled, avoided, reversed and set aside and there is now judgment in favor of plaintiff, Ever-Tite Roofing Corporation, against the defendants, G.T. Green and Mrs. Jessie Fay Green, for the full sum of $311.37, with 5 per cent per annum interest thereon from judicial demand until paid, and for all costs.

Reversed and rendered.

CHARLES A. HOBBS

VS.

MASSASOIT WHIP COMPANY.

Essex. January 12, 1893. —March 1, 1893.


Present: FIELD, C. J., ALLEN, HOLMES, KNOWLTON, & BARKER, JJ.

Contract — Retention of Merchandise — Acceptance.

A. brought an action against B. for the price of eelskins. A. had sent eelskins in the same way four or five times before, which skins had been accepted and paid for by B. On B.’s testimony, it was to be assumed that if he had admitted the eelskins to be over a certain length, and fit for his business, as A. testified, and the jury found that they were, he would have accepted them; that this was understood by A.; and that there was a standing offer to A. for such skins. Held, that A. was warranted in sending B. skins conforming to the requirements, and even if the offer was not such that the contract was made as soon as skins corresponding to its terms were sent, sending them did not impose on B. a duty to act about them; and silence on his part, coupled with a retention of the skins for a reasonable time, might be found by the jury to warrant A. in assuming that they were accepted, and thus to amount to an acceptance.

CONTRACT, upon an account annexed for one hundred and eight ⁵⁰⁄₁₀₀ dollars, for 2,850 eelskins sold by the plaintiff to the defendant. At the trial in the Superior Court, before Hammond, J., it appeared in evidence that the plaintiff lived in Saugus, and the defendant had its usual place of business in Westfield, and was engaged in the manufacture of whips.

The plaintiff testified that he delivered the skins in question to one Harding of Lynn, on February 18, 1890, who upon the same or the following day forwarded them to the defendant; that the skins were in good condition when received by Harding, 2,050 of them being over twenty-seven inches in length each, and the balance over twenty-two inches in length each; that he had forwarded eelskins to the defendant through said Harding several different times in 1888 and 1889, and received payment therefor from the defendant; that he knew the defendant used such skins in its business in the manufacture of whips; that the skins sent on February 18, 1890, were for such use; that he understood that all skins sent by him were to be in good condition and over twenty-two inches in length, and that the defendant had never ordered of him skins less than twenty-two inches in length; and that Harding took charge of the skins for him and

[195]

that he received orders through Harding, but that Harding was not his agent.

Harding, who was called as a witness, testified that he had some correspondence for the plaintiff with the defendant in reference to skins; that he acted for the plaintiff in forwarding skins to the defendant, and in receiving pay therefor, and acted for the plaintiff in giving him any information, order, or notice which he received from the defendant in reference to skins sent or to be sent.

The defendant contended that Harding acted as the plaintiff’s agent. The plaintiff contended that Harding acted as the agent of the defendant, and not as his agent. On this point the evidence was conflicting, and the question was submitted to the jury, upon instructions not excepted to.

Four letters were offered in evidence, three of which, dated in 1889, showed transactions between the plaintiff and the defendant, and the fourth of which, dated Lynn, February 18, 1890, signed by Harding and addressed to the defendant, was as follows : “ We send you to-day, for Mr. Hobbs, 2,050 eelskins at .05 and 300 at .02.”

One Pirnie, president of the defendant corporation, called by the defendant, testified that before February 18,1890, the plaintiff had sent eelskins four or five times by Harding to the defendant, which were received and paid for by the defendant; that the defendant agreed to pay five cents each for eelskins over twenty-seven inches in length, and two cents each for eelskins over twenty-two inches in length and less than twenty-seven inches, suitable for use in the defendant’s business; that Harding was not acting for the defendant, but for the plaintiff; that the defendant never ordered the skins in question, and did not purchase them in any manner, and that no officer or employee of the corporation except himself had authority to order or purchase skins, and that he never ordered or purchased those in question; that skins came from Hobbs through Harding on February 19 or 20, 1890, and were at once examined by him, and found to be less than twenty-two inches in length, and found to be unfit for use, and that he notified Harding at once, in writing, that the skins were unfit for use, and that they were held subject to the plaintiff’s order; that the skins remained some months at the defendant’s place of

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business in Westfield, and were then destroyed; and that the defendant received no other skins in the month of February from the plaintiff or from any other person.

One Case, the defendant’s shipping clerk, and one Gowdy, the defendant’s treasurer, testified that the skins sent on February 18, 1890, and received February 19 or 20, 1890, were examined by them, and were very short, in very bad shape, not fit for use, and worthless.

The judge instructed the jury that the plaintiff could not recover for eelskins less than twenty-two inches in length, nor for any of the eelskins if they were in the condition described by the witnesses for the defendant.

The plaintiff denied that he received any notice from the defendant that the skins were not suitable for use, or that they were held subject to his order.

The judge, among other instructions, also gave the following : “ Whether there was any prior contract or not, if skins are sent to them (the defendants) and they see fit, whether they have agreed to take them or not, to lie back and say nothing, having reason to suppose that the man who has sent them believes that they are taking them, since they say nothing about it, then, if they fail to notify, you would be warranted in finding for the plaintiff, on that state of things.”

The jury returned a verdict for the plaintiff; and the defendant alleged exceptions.

F. L. Evans, for the defendant.


J. E. Hanly & J. F. Libby, for the plaintiff.


HOLMES, J.

This is an action for the price of eel skins sent by the plaintiff to the defendant, and kept by the defendant some months, until they were destroyed. It must be taken that the plaintiff received no notice that the defendants declined to accept the skins. The case comes before us on exceptions to an instruction to the jury that, whether there was any prior contract or not, if skins are sent to the defendant, and it sees fit, whether it has agreed to take them or not, to lie back, and to say nothing, having reason to suppose that the man who has sent them believes that it is taking them, since it says nothing about it, then, if it fails to notify, the jury would be warranted in finding for the plaintiff.

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Standing alone, and unexplained, this proposition might seem to imply that one stranger may impose a duty upon another, and make him a purchaser, in spite of himself, by sending goods to him, unless he will take the trouble, and be at the expense, of notifying the sender that he will not buy. The case was argued for the defendant on that interpretation. But, in view of the evidence, we do not understand that to have been the meaning of the judge, and we do not think that the jury can have understood that to have been his meaning. The plaintiff was not a stranger to the defendant, even if there was no contract between them. He had sent eelskins in the same way four or five times before, and they had been accepted and paid for. On the defendant’s testimony, it is fair to assume that, if it had admitted the eelskins to be over twenty-two inches in length, and fit for its business, as the plaintiff testified, and the jury found that they were, it would have accepted them; that this was understood by the plaintiff; and, indeed, that there was a standing offer to him for such skins.

In such a condition of things, the plaintiff was warranted in sending the defendant skins conforming to the requirements, and even if the offer was not such that the contract was made as soon as skins corresponding to its terms were sent, sending them did impose on the defendant a duty to act about them; and silence on its part, coupled with a retention of the skins for an unreasonable time, might be found by the jury to warrant the plaintiff in assuming that they were accepted, and thus to amount to an acceptance. See Bushel v. Wheeler, 15 Q. B. 442; Benjamin on Sales, §§ 162-164; Taylor v. Dexter Engine Co. 146 Mass. 613, 615. The proposition stands on the general principle that conduct which imports acceptance or assent is acceptance or assent in the view of the law, whatever may have been the actual state of mind of the party, — a principle sometimes lost sight of in the cases. O’Donnell v. Clinton, 145 Mass. 461, 463. McCarthy v. Boston & Lowell Railroad, 148 Mass. 550, 552.

Exceptions overruled.

Royal Courts of Justice.

7th December 1892

Before:

LORD JUSTICE BOWEN
LORD JUSTICE LINDLEY
LORD JUSTICE A.L. SMITH

Carlill
Plaintiff
v.
Carbolic Smoke Ball Company
Defendants

J. Banks Pittman for the Plaintiff
Field & Roscoe for the Defendants.

LORD JUSTICE LINDLEY: I will begin by referring to two points which were raised in the Court below. I refer to them simply for the purpose of dismissing them. First, it is said no action will lie upon this contract because it is a policy. You have only to look at the advertisement to dismiss that suggestion. Then it was said that it is a bet. Hawkins, J., came to the conclusion that nobody ever dreamt of abet, and that the transaction had nothing whatever in common with a bet. I so entirely agree with him that I pass over this contention also as not worth serious attention.

Then, what is left? The first observation I will make is that we are not dealing with any inference of fact. We are dealing with an express promise to pay £100 in certain events. Read the advertisement how you will, and twist it about as you will, here is a distinct promise expressed in language which is perfectly unmistakable —

"£100 reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the iufluenza after having used the ball three times daily for two weeks according to the printed directions supplied with each ball."

We must first consider whether this was intended to be a promise at all, or whether it was a mere puff which meant nothing.Was it a mere puff? My answer to that question is No, and I base my answer upon this passage: "£1000 is deposited with the Alliance Bank, shewing our sincerity in the matter. Now, for what was that money deposited or that statement made except to negative the suggestion that this was a mere puff and meant nothing at all? The deposit is called in aid by the advertiser as proof of his sincerity in the matter — that is, the sincerity of his promise to pay this £100 in the event which he has specified. I say this for the purpose of giving point to the observation that we are not inferring a promise; there is the promise, as plain as words can make it.

Then it is contended that it is not binding. In the first place, it is said that it is not made with anybody in particular. Now that point is common to the words of this advertisement and to the words of all other advertisements offering rewards. They are offers to anybody who performs the conditions named in the advertisement, and anybody who does perform the condition accepts the offer. In point of law this advertisement is an offer to pay £100 to anybody who will perform these conditions, and the performance of the conditions is the acceptance of the offer. That rests upon a string of authorities, the earliest of which is Williams v. Carwardine 4 B. Ad. 621, which has been followed by many other decisions upon advertisements offering rewards.

But then it is said, "Supposing that the performance of the conditions is an acceptance of the offer, that acceptance ought to have been notified." Unquestionably, as a general proposition, when an offer is made, it is necessary in order to make a binding contract, not only that it should be accepted, but that the acceptance should be notified. But is that so in cases of this kind? I apprehend that they are an exception to that rule, or, if not an exception, they are open to the observation that the notification of the acceptance need not precede the performance. This offer is a continuing offer. It was never revoked, and if notice of acceptance is required — which I doubt very much, for I rather think the true view is that which was expressed and explained by Lord Blackburn in the case of Brogden v. Metropolitan Ry. Co. 2 App. Cas. 666, 691 — if notice of acceptance is required, the person who makes the offer gets the notice of acceptance contemporaneously with his notice of the performance of the condition. If he gets notice of the acceptance before his offer is revoked, that in principle is all you want. I, however, think that the true view, in a case of this kind, is that the person who makes the over shews by his language and from the nature of the transaction that he does not expect and does not require notice of the acceptance apart from notice of the performance.

We, therefore, find here all the elements which are necessary to form a binding contract enforceable in point of law, subject to two observations. First of all it is said that this advertisement is so vague that you cannot really construe it as a promise — that the vagueness of the language shews that a legal promise was never intended or contemplated. The language is vague and uncertain in some respects, and particularly in this, that the £100 is to be paid to any person who contracts the increasing epidemic after having used the balls three times daily for two weeks. It is said, When are they to be used? According to the language of the advertisement no time is fixed, and, construing the offer most strongly against the person who has made it, one might infer that any time was meant. I do not think that was meant, and to hold the contrary would be pushing too far the doctrine of taking language most strongly against the person using it. I do not think that business people or reasonable people would understand the words as meaning that if you took a smoke ball and used it three times daily for two weeks you were to be guaranteed against influenza for the rest of your life, and I think it would be pushing the language of the advertisement too far to construe it as meaning that. But if it does not mean that,what does it mean? It is for the defendants to shew what it does mean; and it strikes me that there are two, and possibly three, reasonable constructions to be put on this advertisement, any one of which will answer the purpose of the plaintiff.

Possibly it may be limited to persons catching the "increasing epidemic" (that is, the then prevailing epidemic), or any colds or diseases caused by taking cold, during the prevalence of the increasing epidemic. That is one suggestion; but it does not commend itself to me. Another suggested meaning is that you are warranted free from catching this epidemic, or colds or other diseases caused by taking cold, whilst you are using this remedy after using it for two weeks. If that is the meaning, the plaintiff is right, for she used the remedy for two weeks and went on using it till she got the epidemic. Another meaning, and the one which I rather prefer, is that the reward is offered to any person who contracts the epidemic or other disease within a reasonable time after having used the smoke ball. Then it is asked, What is a reasonable time? It has been suggested that there is no standard of reasonableness; that it depends upon the reasonable time for a germ to develop! I do not feel pressed by that. It strikes me that a reasonable time may be ascertained in a business sense and in a sense satisfactory to a lawyer, in this way; find out from a chemist what the ingredients are; find out from a skilled physician how long the effect of such ingredients on the system could be reasonably expected to endure so as to protect a person from an epidemic or cold, and in that way you will get a standard to be laid before a jury, or a judge without a jury, by which they might exercise their judgment as to what a reasonable time would be. It strikes me, I confess, that the true construction of this advertisement is that £100 will be paid to anybody who uses this smoke ball three times daily for two weeks according to the printed directions, and who gets the influenza or cold or other diseases caused by taking cold within a reasonable time after so using it; and if that is the true construction, it is enough for the plaintiff.

I come now to the last point which I think requires attention — that is, the consideration. It has been argued that this is nudum pactum — that there is no consideration. We must apply to that argument the usual legal tests. Let us see whether there is no advantage to the defendants. It is said that the use of the ball is no advantage to them, and that what benefits them is the sale; and the case is put that a lot of these balls might be stolen, and that it would be no advantage to the defendants if the thief or other people used them. The answer to that, I think, is as follows. It is quite obvious that in the view of the advertisers a use by the public of their remedy, if they can only get the public to have confidence enough to use it, will react and produce a sale which is directly beneficial to them. Therefore, the advertisers get out of the use an advantage which is enough to constitute a consideration.

But there is another view. Does not the person who acts upon this advertisement and accepts the offer put himself to some inconvenience at the request of the defendants? Is it nothing to use this ball three times daily for two weeks according to the directions at the request of the advertiser? Is that to go for nothing? It appears to me that there is a distinct inconvenience,not to say a detriment, to any person who so uses the smoke ball. I am of opinion, therefore, that there is ample consideration for the promise.

We were pressed upon this point with the case of Gerhard v. Bates 2 E. B. 476, which was the case of a promoter of companies who had promised the bearers of share warrants that they should have dividends for so many years, and the promise as alleged was held not to shew any consideration. Lord Campbell's judgment when you come to examine it is open to the explanation, that the real point in that case was that the promise, if any, was to the original bearer and not to the plaintiff, and that as the plaintiff was not suing in the name of the original bearer there was no contract with him. Then Lord Campbell goes on to enforce that view by shewing that there was no consideration shewn for the promise to him. I cannot help thinking that Lord Campbell's observations would have been very different if the plaintiff in that action had been an original bearer, or if the declaration had gone on to shew what a société anonyme was, and had alleged the promise to have been, not only to the first bearer, but to anybody who should become the bearer. There was no such allegation, and the Court said, in the absence of such allegation, they did not know (judicially, of course) what a société anonyme was, and, therefore, there was no consideration. But in the present case, for the reasons I have given, I cannot see the slightest difficulty in coming to the conclusion that there is consideration.

It appears to me, therefore, that the defendants must perform their promise, and, if they have been so unwary as to expose themselves to a great many actions, so much the worse for them.

LORD JUSTICE BOWEN: I am of the same opinion. We were asked to say that this document was a contract too vague to be enforced.

The first observation which arises is that the document itself is not a contract at all, it is only an offer made to the public.

The defendants contend next, that it is an offer the terms of which are too vague to be treated as a definite offer, inasmuch as there is no limit of time fixed for the catching of the influenza, and it cannot be supposed that the advertisers seriously meant to promise to pay money to every person who catches the influenza at any time after the inhaling of the smoke ball. It was urged also, that if you look at this document you will find much vagueness as to the persons with whom the contract was intended to be made — that, in the first place, its terms are wide enough to include persons who may have used the smoke ball before the advertisement was issued; at all events, that it is an offer to the world in general, and, also, that it is unreasonable to suppose it to be a definite offer, because nobody in their senses would contract themselves out of the opportunity of checking the experiment which was going to be made at their own expense. It is also contended that the advertisement is rather in the nature of a puff or a proclamation than a promise or offer intended to mature into a contract when accepted. But the main point seems to be that the vagueness of the document shews that no contract whatever was intended. It seems to me that in order to arrive at a right conclusion we must read this advertisement in its plain meaning, as the public would understand it. It was intended to be issued to the public and to be read by the public.How would an ordinary person reading this document construe it?

It was intended unquestionably to have some effect, and I think the effect which it was intended to have, was to make people use the smoke ball, because the suggestions and allegations which it contains are directed immediately to the use of the smoke ball as distinct from the purchase of it. It did not follow that the smoke ball was to be purchased from the defendants directly, or even from agents of theirs directly. The intention was that the circulation of the smoke ball should be promoted, and that the use of it should be increased. The advertisement begins by saying that a reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic after using the ball. It has been said that the words do not apply only to persons who contract the epidemic after the publication of the advertisement, but include persons who had previously contracted the influenza. I cannot so read the advertisement. It is written in colloquial and popular language, and I think that it is equivalent to this:

"£100 will be paid to any person who shall contract the increasing epidemic after having used the carbolic smoke ball three times daily for two weeks."

And it seems to me that the way in which the public would read it would be this, that if anybody, after the advertisement was published, used three times daily for two weeks the carbolic smoke ball, and then caught cold, he would be entitled to the reward. Then again it was said:

"How long is this protection to endure? Is it to go on for ever, or for what limit of time?"

I think that there are two constructions of this document, each of which is good sense, and each of which seems to me to satisfy the exigencies of the present action. It may mean that the protection is warranted to last during the epidemic, and it was during the epidemic that the plaintiff contracted the disease. I think, more probably, it means that the smoke ball will be a protection while it is in use. That seems tome the way in which an ordinary person would understand an advertisement about medicine, and about a specific against influenza. It could not be supposed that after you have left off using it you are still to be protected for ever, as if there was to be a stamp set upon your forehead that you were never to catch influenza because you had once used the carbolic smoke ball. I think the immunity is to last during the use of the ball. That is the way in which I should naturally read it, and it seems to me that the subsequent language of the advertisement supports that construction. It says:

"During the last epidemic of influenza many thousand carbolic smoke balls were sold, and in no ascertained case was the disease contracted by those using" (not "who had used") "the carbolic smoke ball,"

and it concludes with saying that one smoke ball will last a family several months (which imports that it is to be efficacious while it is being used), and that the ball can be refilled at a cost of 5s. I, therefore, have myself no hesitation in saying that I think, on the construction of this advertisement, the protection was to enure during the time that the carbolic smoke ball was being used. My brother, the Lord Justice who preceded me,thinks that the contract would be sufficiently definite if you were to read it in the sense that the protection was to be warranted during a reasonable period after use. I have some difficulty myself on that point; but it is not necessary for me to consider it further, because the disease here was contracted during the use of the carbolic smoke ball.

Was it intended that the £100 should, if the conditions were fulfilled, be paid? The advertisement says that £1000 is lodged at the bank for the purpose. Therefore, it cannot be said that the statement that £100 would be paid was intended to be a mere puff. I think it was intended to be understood by the public as an offer which was to be acted upon.

But it was said there was no check on the part of the persons who issued the advertisement, and that it would be an insensate thing to promise £100 to a person who used the smoke ball unless you could check or superintend his manner of using it. The answer to that argument seems to me to be that if a person chooses to make extravagant promises of this kind he probably does so because it pays him to make them, and, if he has made them, the extravagance of the promises is no reason in law why he should not be bound by them.

It was also said that the contract is made with all the world — that is, with everybody; and that you cannot contract with everybody. It is not a contract made with all the world. There is the fallacy of the argument. It is an offer made to all the world;and why should not an offer be made to all the world which is to ripen into a contract with anybody who comes forward and performs the condition? It is an offer to become liable to any one who,before it is retracted, performs the condition, and, although the offer is made to the world, the contract is made with that limited portion of the public who come forward and perform the condition on the faith of the advertisement. It is not like cases in which you offer to negotiate, or you issue advertisements that you have got a stock of books to sell, or houses to let, in which case there is no offer to be bound by any contract. Such advertisements are offers to negotiate — offers to receive offers — offers to chaffer, as, I think, some learned judge in one of the cases has said. If this is an offer to be bound, then it is a contract the moment the person fulfils the condition.

That seems to me to be sense, and it is also the ground on which all these advertisement cases have been decided during the century; and it cannot be put better than in Willes, J.'s, judgment in Spencer v. Harding Law Rep. 5 C. P. 561, 563.

"In the advertisement cases,"

he says,

"there never was any doubt that the advertisement amounted to a promise to pay the money to the person who first gave information. The difficulty suggested was that it was a contract with all the world. But that,of course, was soon overruled. It was an offer to become liable to any person who before the offer should be retracted should happen to be the person to fulfil the contract, of which the advertisement was an offer or tender. That is not the sort of difficulty which presents itself here. If the circular had gone on, 'and we undertake to sell to the highest bidder,' the reward cases would have applied, and there would have been a good contract in respect of the persons."

As soon as the highest bidder presented himself, says Willes, J., the person who was to hold the vinculum juris on the other side of the contract was ascertained, and it became settled.

Then it was said that there was no notification of the acceptance of the contract. One cannot doubt that, as an ordinary rule of law, an acceptance of an offer made ought to be notified to the person who makes the offer, in order that the two minds may come together. Unless this is done the two minds may be apart,and there is not that consensus which is necessary according to the English law — I say nothing about the laws of other countries — to make a contract. But there is this clear gloss to be made upon that doctrine, that as notification of acceptance is required for the benefit of the person who makes the offer, the person who makes the offer may dispense with notice to himself if he thinks it desirable to do so, and I suppose there can be no doubt that where a person in an offer made by him to another person, expressly or impliedly intimates a particular mode of acceptance as sufficient to make the bargain binding, it is only necessary for the other person to whom such offer is made to follow the indicated method of acceptance; and if the person making the offer, expressly or impliedly intimates in his offer that it will be sufficient to act on the proposal without communicating acceptance of it to himself, performance of the condition is a sufficient acceptance without notification.

That seems to me to be the principle which lies at the bottom of the acceptance cases, of which two instances are the well-known judgment of Mellish, L.J., in Harris's Case Law Rep. 7 Ch. 587, and the very instructive judgment of Lord Blackburn in Brogden v. Metropolitan Ry. Co. 2 App. Cas. 666, 691, in which he appears to me to take exactly the line I have indicated.

Now, if that is the law, how are we to find out whether the person who makes the offer does intimate that notification of acceptance will not be necessary in order to constitute a binding bargain? In many cases you look to the offer itself. In many cases you extract from the character of the transaction that notification is not required, and in the advertisement cases it seems to me to follow as an inference to be drawn from the transaction itself that a person is not to notify his acceptance of the offer before he performs the condition, but that if he performs the condition notification is dispensed with. It seems to me that from the point of view of common sense no other idea could be entertained. If I advertise to the world that my dog is lost, and that anybody who brings the dog to a particular place will be paid some money, are all the police or other persons whose business it is to find lost dogs to be expected to sit down and write me a note saying that they have accepted my proposal? Why, of course, they at once look after the dog, and as soon as they find the dog they have performed the condition. The essence of the transaction is that the dog should be found, and it is not necessary under such circumstances, as it seems to me, that in order to make the contract binding there should be any notification of acceptance. It follows from the nature of the thing that the performance of the condition is sufficient acceptance without the notification of it, and a person who makes an offer in an advertisement of that kind makes an offer which must be read by the light of that common sense reflection. He does, therefore, in his offer impliedly indicate that he does not require notification of the acceptance of the offer.

A further argument for the defendants was that this was a nudum pactum — that there was no consideration for the promise — that taking the influenza was only a condition, and that the using the smoke ball was only a condition, and that there was no consideration at all; in fact, that there was no request, express or implied, to use the smoke ball. Now, I will not enter into an elaborate discussion upon the law as to requests in this kind of contracts. I will simply refer to Victors v. Davies 12 M. W. 758 and Serjeant Manning's note to Fisher v. Pyne 1 M. G. 265,which everybody ought to read who wishes to embark in this controversy. The short answer, to abstain from academical discussion, is, it seems to me, that there is here a request to use involved in the offer. Then as to the alleged want of consideration. The definition of "consideration" given in Selwyn's Nisi Prius, 8^th ed. p. 47, which is cited and adopted by Tindal, C.J., in the case of Laythoarp v. Bryant 3 Scott, 238, 250, is this:

"Any act of the plaintiff from which the defendant derives a benefit or advantage, or any labour, detriment, or inconvenience sustained by the plaintiff, provided such act is performed or such inconvenience suffered by the plaintiff, with the consent, either express or implied, of the defendant."

Can it be said here that if the person who reads this advertisement applies thrice daily, for such time as may seem to him tolerable, the carbolic smoke ball to his nostrils for a whole fortnight, he is doing nothing at all — that it is a mere act which is not to count towards consideration to support a promise (for the law does not require us to measure the adequacy of the consideration). Inconvenience sustained by one party at the request of the other is enough to create a consideration. I think, therefore, that it is consideration enough that the plaintiff took the trouble of using the smoke ball. But I think also that the defendants received a benefit from this user, for the use of the smoke ball was contemplated by the defendants as being indirectly a benefit to them, because the use of the smoke balls would promote their sale.

Then we were pressed with Gerhard v. Bates 2 E. B. 476. In Gerhard v. Bates 2 E. B. 476, which arose upon demurrer, the point upon which the action failed was that the plaintiff did not allege that the promise was made to the class of which alone the plaintiff was a member, and that therefore there was no privity between the plaintiffs and the defendant. Then Lord Campbell went on to give a second reason. If his first reason was not enough,and the plaintiff and the defendant there had come together as contracting parties and the only question was consideration, it seems to me Lord Campbell's reasoning would not have been sound. It is only to be supported by reading it as an additional reason for thinking that they had not come into the relation of contracting parties; but, if so, the language was superfluous. The truth is, that if in that case you had found a contract between the parties there would have been no difficulty about consideration; but you could not find such a contract. Here, in the same way, if you once make up your mind that there was a promise made to this lady who is the plaintiff, as one of the public — a promise made to her that if she used the smoke ball three times daily for a fortnight and got the influenza, she should have £100, it seems to me that her using the smoke ball was sufficient consideration. I cannot picture to myself the view of the law on which the contrary could be held when you have once found who are the contracting parties. If I say to a person, "If you use such and such a medicine for a week I will give you £5," and he uses it, there is ample consideration for the promise.

LORD JUSTICE A. L. SMITH: The first point in this case is, whether the defendants' advertisement which appeared in the Pall Mall Gazette was an offer which, when accepted and its conditions performed, constituted a promise to pay, assuming there was good consideration to uphold that promise, or whether it was only a puff from which no promise could be implied, or, as put by Mr.Finlay, a mere statement by the defendants of the confidence they entertained in the efficacy of their remedy. Or as I might put it in the words of Lord Campbell in Denton v. Great Northern Ry. Co. 5 E. B. 860, whether this advertisement was mere waste paper. That is the first matter to be determined. It seems to me that this advertisement reads as follows:

"£100 reward will be paid by the Carbolic Smoke Ball Company to any person who after having used the ball three times daily for two weeks according to the printed directions supplied with such ball contracts the increasing epidemic influenza, colds, or any diseases caused by taking cold. The ball will last a family several months, and can be refilled at a cost of 5s."

If I may paraphrase it, it means this: "If you" — that is one of the public as yet not ascertained, but who, as Lindley and Bowen, L. JJ., have pointed out, will be ascertained by the performing the condition —

"will hereafter use my smoke ball three times daily for two weeks according to my printed directions, I will pay you £100 if you contract the influenza within the period mentioned in the advertisement."

Now, is there not a request there? It comes to this:

"In consideration of your buying my smoke ball, and then using it as I prescribe, I promise that if you catch the influenza within a certain time I will pay you £100."

It must not be forgotten that this advertisement states that as security for what is being offered, and as proof of the sincerity of the offer, £1000 is actually lodged at the bank wherewith to satisfy any possible demands which might be made in the event of the conditions contained therein being fulfilled and a person catching the epidemic so as to entitle him to the £100. How can it be said that such a statement as that embodied only a mere expression of confidence in the wares which the defendants had to sell? I cannot read the advertisement in any such way. In my judgment, the advertisement was an offer intended to be acted upon, and when accepted and the conditions performed constituted a binding promise on which an action would lie, assuming there was consideration for that promise. The defendants have contended that it was a promise in honour or an agreement or a contract in honour - whatever that may mean. I understand that if there is no consideration for a promise, it may be a promise in honour, or, as we should call it, a promise without consideration and nudum pactum; but if anything else is meant, I do not understand it. Ido not understand what a bargain or a promise or an agreement in honour is unless it is one on which an action cannot be brought because it is nudum pactum, and about nudum pactum I will say a word in a moment.

In my judgment, therefore, this first point fails, and this was an offer intended to be acted upon, and, when acted upon and the conditions performed, constituted a promise to pay.

In the next place, it was said that the promise was too wide,because there is no limit of time within which the person has to catch the epidemic. There are three possible limits of time to this contract. The first is, catching the epidemic during its continuance; the second is, catching the influenza during the time you are using the ball; the third is, catching the influenza within a reasonable time after the expiration of the two weeks during which you have used the ball three times daily. It is not necessary to say which is the correct construction of this contract, for no question arises thereon. Whichever is the true construction, there is sufficient limit of time so as not to make the contract too vague on that account.

Then it was argued, that if the advertisement constituted an offer which might culminate in a contract if it was accepted, and its conditions performed, yet it was not accepted by the plaintiff in the manner contemplated, and that the offer contemplated was such that notice of the acceptance had to be given by the party using the carbolic ball to the defendants before user, so that the defendants might be at liberty to superintend the experiment. All I can say is, that there is no such clause in the advertisement, and that, in my judgment, no such clause can be read into it; and I entirely agree with what has fallen from my Brothers, that this is one of those cases in which a performance of the condition by using these smoke balls for two weeks three times a day is an acceptance of the offer.

It was then said there was no person named in the advertisement with whom any contract was made. That, I suppose, has taken place in every case in which actions on advertisement shave been maintained, from the time of Williams v. Carwardine 4 B. Ad. 621, and before that, down to the present day. I have nothing to add to what has been said on that subject, except that a person becomes a persona designat a and able to sue, when he performs the conditions mentioned in the advertisement.

Lastly, it was said that there was no consideration, and that it was nudum pactum. There are two considerations here. One is the consideration of the inconvenience of having to use this carbolic smoke ball for two weeks three times a day; and the other more important consideration is the money gain likely to accrue to the defendants by the enhanced sale of the smoke balls, by reason of the plaintiff's user of them. There is ample consideration to support this promise. I have only to add that as regards the policy and the wagering points, in my judgment, there is nothing in either of them.

Appeal dismissed.