Background
In 2021, Alexis Stombaugh contracted with Ashburn Homes, Inc. to purchase a home that Ashburn would construct in the Riverview subdivision of Frederica, Delaware for a base price of $334,900 (total $350,411 with options). The parties executed an Agreement of Sale and three addendums on March 3, 2021. Critically, the “Price Escalation Addendum” prohibited Ashburn from adding escalation charges to the purchase price after breaking ground on construction.
Stombaugh selected tile options in January 2021 and confirmed them by March 3. In August 2021, after Ashburn had broken ground, Ashburn’s representative McCann acknowledged to the realtor that Ashburn “should not have started this home without providing” a price escalation notice before breaking ground. Nevertheless, Ashburn attempted to impose a $42,363 price escalation. When Stombaugh sought to discuss this with Ashburn directly, she received no response to multiple calls and emails on October 22, 25, and 26, 2021.
Instead of engaging with Stombaugh, Ashburn’s counsel asserted that Stombaugh had defaulted by failing to select options within 14 days of signing the Agreement, and demanded her deposit or threatened to terminate the contract. Construction stalled, leaving the Property exposed to the elements from November 2021 until late 2024. Stombaugh filed suit seeking specific performance of the Agreement and damages. Ashburn countered that Stombaugh had breached by failing to timely select options and failing to maintain a valid mortgage commitment.
The Court’s Holding
The Court of Chancery rejected Ashburn’s counterclaim and found that Ashburn breached the Agreement. The court held that Stombaugh did not breach the “time is of the essence” clause regarding option selections for several reasons. First, the 14-day deadline applied only to major option selections like structural choices, not to tile color selections, which could be made at the preconstruction meeting. Second, Stombaugh actually selected her tile in January 2021, before the Agreement was even signed, and thus well within any 14-day window. Third, even if Stombaugh had somehow missed a deadline, Ashburn had waived strict compliance by continuing to act as if the contract remained in effect for months after any alleged deadline lapsed.
The court found particularly inequitable Ashburn’s position that Stombaugh failed to work with L&L Tile Company by the 14-day deadline, when Ashburn itself—the party that knew L&L’s role—failed to inform Stombaugh about L&L until August 2021, months after the deadline supposedly passed. The court also rejected as untimely Ashburn’s late-raised argument that Stombaugh breached by failing to maintain a valid mortgage commitment throughout the dispute, finding this argument was waived because Ashburn did not raise it in its counterclaim, during discovery, in the pretrial order, or at trial until the second day of trial testimony.
On the merits, the court found that Ashburn breached the Price Escalation Addendum by attempting to impose a $42,363 price escalation after breaking ground on the Property. The Price Escalation Addendum’s language was plain and unambiguous: no additional escalation charges would be added once Ashburn broke ground. Ashburn’s own representative McCann admitted at trial that Ashburn “should not have started this home” without providing the escalation charge beforehand. Although Mr. Ashburn claimed at trial that the escalation was later retracted after he realized it was unenforceable, the court found this testimony incredible because Ashburn offered no contemporaneous evidence of any retraction and did not address the issue in posttrial briefing or argument. The court concluded that Ashburn’s attempt to impose the escalation constituted a repudiation of the Agreement, and Stombaugh is entitled to specific performance of the Agreement and an award of attorney fees.
Key Takeaways
- The Price Escalation Addendum clearly prohibited cost escalations after breaking ground, and a developer cannot impose escalations in violation of that prohibition, even through an attempt to renegotiate.
- A “time is of the essence” clause in a contract may be waived if one party continues to perform under the contract as if it remains valid and only later invokes the deadline when performance becomes inconvenient.
- In construction contracts, ambiguities about deadlines and procedures will be construed against the drafter, particularly when the drafter withheld key information (like the involvement of a third-party selection vendor) from the buyer.
- Arguments not raised in pleadings, discovery responses, or the pretrial order will be deemed waived if raised for the first time during trial, particularly when the late argument was available much earlier and constitutes trial-by-ambush.
Why It Matters
This decision reinforces the enforceability of price escalation caps in residential construction contracts and demonstrates that Delaware courts will not permit developers to ignore unambiguous contractual limitations on their pricing power. The court’s willingness to award specific performance—rather than limiting the buyer to damages—is significant: it means that absent genuine impossibility or extraordinary hardship, developers cannot escape their contractual obligations merely by citing changed circumstances. The opinion also illustrates that courts will apply contra proferentem principles strictly against developers who draft their own form contracts, particularly when they make themselves the gatekeeper of information essential to the buyer’s performance.
For developers and builders, the decision signals that price escalation addendums will be read literally, that “time is of the essence” clauses must be enforced consistently (not selectively when convenient), and that procedurally sound litigation practice—raising defenses promptly, not waiting for trial—is not optional. For homebuyers, the decision affirms that specific performance remains available for breached construction contracts and that buyers need not accept damages in lieu of the home they contracted to purchase.