## Facts

- A developer (SP Terrace, L.P. and Tyee Management, LLC) contracted to sell 96 subdivision lots to a homebuilder (Meritage Homes of Texas, LLC) for $2,688,000, with $268,000 (10%) deposited as earnest money.
- SP Terrace agreed to develop and substantially complete the subdivision by December 31, 2005, including filing the subdivision plat with Harris County.
- The contract allowed Meritage to terminate and recover the earnest money if SP Terrace missed the substantial-completion deadline; if Meritage breached, SP Terrace could keep the earnest money as liquidated damages.
- The contract also provided that if Meritage delayed SP Terrace’s performance, the substantial-completion deadline would be extended to the extent of the delay.
- On November 30, 2005, SP Terrace was prepared to file the plat, but Meritage requested changes and asked SP Terrace to postpone filing; SP Terrace indicated it would need an approximately six-month extension to implement the changes.
- The parties continued working after December 31, 2005, but in February 2006 Meritage declared SP Terrace in breach for missing the original deadline and demanded return of the earnest money; SP Terrace refused, asserting Meritage’s conduct extended or waived the deadline and claiming damages.
- Meritage sued for breach of contract (seeking return of earnest money and attorney’s fees); SP Terrace counterclaimed for breach and argued the earnest-money/liquidated-damages provision was an unenforceable penalty.
- The trial court granted summary judgment for Meritage; SP Terrace appealed.

## Issues

1. Whether an alleged oral agreement extending the substantial-completion deadline was enforceable despite the statute of frauds.
2. Whether evidence created a fact issue that Meritage waived strict compliance with the December 31, 2005 deadline.
3. Whether evidence created a fact issue that Meritage caused delay that extended the deadline under the contract’s delay clause.
4. Whether summary judgment properly disposed of SP Terrace’s counterclaim and its contention that the liquidated-damages provision was an unenforceable penalty.

## Decision

- Affirmed summary judgment against SP Terrace on oral modification: the alleged extension was a material modification of a real-estate contract term and was unenforceable absent a writing satisfying the statute of frauds.
- Reversed summary judgment on waiver: evidence of Meritage’s requests to postpone filing and continued performance after the deadline raised a fact issue on waiver.
- Reversed summary judgment on contractual delay: evidence that SP Terrace was ready to file but delayed at Meritage’s request raised a fact issue whether the deadline was extended under the delay clause.
- Affirmed summary judgment rejecting an independent “interference” theory distinct from the contract’s delay provision.
- Held SP Terrace’s breach-of-contract counterclaim could proceed to the extent it depended on the fact issues regarding waiver and contractual delay.
- Affirmed summary judgment that SP Terrace produced no evidence the liquidated-damages provision was an unenforceable penalty.
- Remanded for further proceedings consistent with these holdings.

## Legal Principles

- A material modification to a contract for the sale of real estate, including a change to a substantial-completion deadline that affects termination and earnest-money rights, must satisfy the statute of frauds; an oral extension is unenforceable absent a compliant writing.
- Waiver may be shown by intentional relinquishment of a known right or conduct inconsistent with an intent to enforce that right; waiver is commonly a fact question when supported by evidence of post-deadline conduct.
- When a contract provides that deadlines are extended to the extent of delays caused by the other party, evidence that the other party requested postponement or changes may create a fact issue on extension by delay.
- A liquidated-damages clause is unenforceable as a penalty only if the stipulated amount is shown to be an unreasonable forecast or disproportionate to anticipated or actual damages; lack of such evidence supports enforcement on summary judgment.

## Conclusion

The court held the alleged oral extension of the substantial-completion deadline was barred by the statute of frauds, but it reinstated claims and defenses dependent on fact issues as to whether Meritage waived the deadline or caused contractually recognized delay; it also upheld the earnest-money liquidated-damages provision against a penalty challenge and remanded for trial on the remaining disputed issues.


SP Terrace, L.P. v. Meritage Homes of Tex., LLC, 334 S.W.3d 275 (Tex. App.—Houston [1st Dist.] 2010, no pet.)