SP Terrace, LP v. Meritage Homes of Texas, LLC

Meritage Homes of Texas, LLC (plaintiff) entered into a development contract with SP Terrace, LP (defendant). Under the contract, SP Terrace was responsible for improving the overall subdivision, including filing a subdivision plat with the local government. After the plat was filed, Meritage Homes would then purchase the lots in a series of transactions. The total price of the contract was $2,688,000. Meritage Homes deposited 10 percent, or $268,000, with SP Terrace as earnest money. The contract stated that Meritage Homes could recover the earnest money if SP Terrace failed to file the subdivision plat by December 31, 2005, the date specified as substantial completion. On the other hand, if Meritage Homes breached the contract, SP Terrace was entitled to keep the earnest money as liquidated damages. Also, if Meritage Homes caused a delay in SP Terrace’s performance, the substantial-completion deadline would be extended for the period of that delay. Meritage Homes and SP Terrace met on November 30, 2005. At that time, SP Terrace was prepared to file the subdivision plat, but Meritage Homes requested changes to the plat and requested that SP Terrace delay the filing of the plat to accommodate the changes. The parties attempted to work together on these changes, but in February Meritage Homes declared that SP Terrace was in breach. Meritage Homes then demanded a return of its earnest money. SP Terrace refused, and Meritage Homes filed this lawsuit, alleging breach of contract. SP Terrace filed a counterclaim, alleging that it was entitled to keep the earnest money and that SP Terrace had incurred additional damages. SP Terrace also alleged that the liquidated-damages clause was an unenforceable penalty. Meritage Homes filed a motion for summary judgment. The trial court granted the motion, and SP Terrace appealed.