This case presents novel questions about the meaning of a price escalator clause in a contract to build a home. Defendant Ceran is a mass residential builder. It has developed Hidden Lake, a community of single homes, rental apartments and attached townhouses in North Brunswick, New Jersey. Plaintiffs Robert and Dinah G. Einhorn became interested, in the fall of 1978, in the purchase of one of the 220 planned townhouses. After they selected the model and options that suited them, Ceran sent them a form contract to sign. Some weeks of correspondence and discussion produced little change in contract language. One focus of the Einhorns' concern was the price escalator clause. Ceran insisted on the originally proposed language. The Einhorns eventually conceded and on December 4, 1978, signed the contract and made the required deposit. Ceran presumably executed the contract on the same day.
The agreed price for the townhouse was $78,800. Closing was to take place "on or about March 1979." There were clauses regarding possible delays in construction. The price escalator said:
This agreement is conditioned upon the ability of Seller to complete the unit at present prices for materials and labor. If Seller is at any time or for any reason, unable to complete the unit at the present prices for materials and labor, Seller shall have the option to cancel this contract upon written notice to Buyer, in which event the full deposit shall be returned to Buyer without interest and this agreement cancelled. However, the Buyer shall have the option of paying any increased costs of labor and material, and if Buyer, within ten (10) calendar days after notice of any increase in cost, agrees in writing to pay such increased costs at closing, this agreement shall continue in full force and effect.
The Einhorns' house was not ready, as promised, "on or about March 1979." On March 12, Ceran wrote to them that bad weather conditions and delays in material deliveries would prevent the scheduled closing. The letter invited them to get in touch with Ceran at the end of March or beginning of April, at
which time Ceran would be "in a better position to give [them] a more definite closing date." On June 1, a letter from the Einhorns asked Ceran for "a realistic completion date." Ceran replied in two form letters sent to them in late July in the same envelope. One, dated July 27, told the Einhorns their home should be ready between August 13 and 27 and invited them to call around August 6 for "a more definite date." The second letter was dated July 26. After calling attention to the agreed price escalator clause, the letter said:
You have the right to postpone any closing to a period of ten days after receipt of this notice. If you fail to notify the seller within the said ten days of your willingness to accept said increase, then at the expiration of the said ten days the contract shall be deemed cancelled and you will be returned the monies paid on deposit.*fn1
On August 1, the Einhorns' lawyer wrote to Ceran. In order to decide to accept or reject the increased price, he said, they needed some explanation of the increase. Ceran did not reply. On August 15, another letter requested an explanation. Ceran replied on August 21 saying only that its costs had risen 18-20% and asking if the Einhorns intended to accept the increase. They wrote again on August 23. They said they wanted to buy but could not decide whether to accept the increase without some information substantiating it. That letter was answered on August 30. Ceran said, "We regret we cannot give you a breakdown of our costs on this unit." Michael Kaplan, Ceran's president, testified at trial that he did not mean he was incapable of giving the Einhorns the information. Rather, he believed he had no duty to do so and meant that he would not do so. Further communication between the parties failed to resolve the matter. The Einhorns were prepared to tender the original price. Ceran would accept nothing less than the $8,000 increase.
Then, a meeting was arranged for October 5, at which Michael Kaplan read to the Einhorns a list of cost categories and what he said were the increases therein. He revealed neither Ceran's originally expected costs nor its allegedly greater actual costs. He gave no dates of increases or other explanation of any kind. The increases were read at the meeting from an untotalled list which Kaplan kept and produced at trial. He testified the listed increases totalled some $12,000 or $13,000. In fact, they totalled more than $16,000. Kaplan testified Ceran did not seek to pass on all of the increases but, rather, decided to absorb some of them out of its own profits.
Kaplan explained at trial how the list of increases was compiled. In early September 1978, he said, a townhouse price list was established on the foundation of then current costs of labor and materials. It was those costs that formed the baseline for the increases. They were subsequently compared with the costs Ceran actually incurred for the Einhorns' home over the ensuing 12 months and the differences tallied.*fn2 No effort was made to segregate cost increases occurring before December 4, 1978, the date the Einhorns signed the agreement, or those occurring after March 1979, when the closing was originally to take place.
After the October 5 meeting, a closing took place by order of this court. The Einhorns paid $78,800 to Ceran. They paid $8,000 to the clerk of the Superior Court subject to this decision whether the parties' agreement and their conduct legitimated the price rise demanded by Ceran. For the following reasons, I ...