NEW YORK, NOV. 2 -- In a devastating blow to beleaguered Texaco Inc., the Texas Supreme Court today upheld the record $10.3 billion judgment awarded by a jury to Pennzoil Co. as compensation for Texaco's interference with a merger contract.

Texaco said tonight that it would appeal the ruling to the U.S. Supreme Court.

The nine-member Texas high court, which had been asked by Texaco to review and reverse the jury's verdict, declined in a one-page order to hear arguments about the case, saying the Texas Court of Appeals had made no reversible error when it upheld all but $2 billion of the verdict last February.

The court's decision leaves Texaco, which in April filed for protection under the federal bankruptcy laws because of the case, with only one appeal remaining -- to the U.S. Supreme Court -- before Pennzoil's award becomes final. The decision will have no immediate effect on Texaco's operations, which are supervised by a federal bankruptcy judge here.

In a statement issued tonight, Texaco, the nation's third largest oil company, said it "will continue to pay trade creditors and to meet our other financial obligations on a current basis."

The decision makes a quick settlement of the case unlikely because it puts Pennzoil in the driver's seat. The two oil giants have tried unsuccessfully on several occasions to solve their dispute through negotiation.

The Texas high court, whose members are elected, found itself in the midst of a political firestorm over the case and was expected by many lawyers involved to grant Texaco a hearing on its appeal. Only three votes of the nine-member panel are required to accept a case for hearing.

Aspects of the Texas judicial system itself were attacked in Texaco's appeals briefs and related public statements. Texaco questioned a $10,000 campaign contribution made by Pennzoil's lead trial attorney, Joe Jamail, to the first of two judges to preside over the trial. And Texaco argued that the Texas appeals panel had misapplied the laws of New York and Delaware in affirming the jury's verdict.

The high court assembled at 5:30 p.m. (EST) today in its Austin chambers and read out its brief order denying Texaco's appeal. The court issued no written opinion addressing the legal issues in the case.

The case arose over a disputed 1984 merger between Texaco and Getty Oil Co. Pennzoil believed it had agreed to merge with Getty, but Getty's directors solicited a merger with Texaco to thwart the Pennzoil deal. Pennzoil sued Texaco for interfering with its contract, and in November 1985 won its unprecedented $10.53 billion verdict from a Houston jury.

"This refusal to hear our appeal defies both logic and the law," Texaco's chief executive, James Kinnear, said in a statement. "Up to now, the judicial errors and ethical misconduct in this litigation have turned justice on its ear."

"I've been saying all along that anybody who reads this record {of the jury trial} will come to the same conclusion," said Pennzoil's Jamail. "Maybe this will bring some semblance of sanity to Texaco's management."

Pennzoil chairman J. Hugh Liedtke issued a brief statement expressing gratitude to the Texas high court.

The decision leaves Texaco with 15 days to file a motion in the Texas Supreme Court for rehearing of its appeal. Pennzoil will then have five days to respond. There is no time limit governing the Texas high court's ruling on a rehearing motion, but since the court issued no opinion with its order today, attorneys involved expect the panel to promptly deny any motion by Texaco.

If it does, Texaco then will have 90 days to seek review of its appeal in the U.S. Supreme Court. When it files a brief seeking review, Pennzoil will be allowed 45 days to respond. The court would likely rule by next summer on whether it will hear the case. The high court has no obligation to review the case.

Texaco said tonight that it will focus in its appeal to the U.S. high court on some of the same arguments it unsuccessfully pressed in Texas. Chief among them is Texaco's contention that the contract between Pennzoil and Getty Oil with which Texaco allegedly interfered violated Securities and Exchange Commission rules and was therefore unenforceable.

Texaco's position on that issue was bolstered last summer when the SEC filed a friend-of-the-court brief before the Texas high court supporting some of Texaco's arguments and urging the panel to review Texaco's appeal. But the Texas Supreme Court was apparently unpersuaded by the SEC's brief.

"I think the {SEC} argument is the only one that merits further thought," said Laurence H. Tribe, a Harvard law professor and constitutional scholar who has joined Pennzoil's team of lawyers. "On that one, I still believe that we are correct."

As to whether the U.S. Supreme Court will agree to review Texaco's appeal, Tribe said, "Obviously, the magnitude of the judgment makes the case more interesting than it otherwise would be. But in terms of the legal issues, I continue to believe that we're right. ... I'm confident of the ultimate outcome."