Case Title: Rental Development Corp. v. Rubenstein Const. Co.

Citation: 393 P.2d 144, 96 Ariz. 133

Docket Number: 

State: arizona

Court: Arizona Supreme Court

Date: 1964-06-11T00:00:00Z

Document:
96 Ariz. 133 (1964) 393 P.2d 144 RENTAL DEVELOPMENT CORPORATION OF AMERICA, a corporation, Appellant, v. RUBENSTEIN CONSTRUCTION COMPANY, a corporation, and Fireman's Fund Indemnity Company, a corporation, Appellees. No. 7070. Supreme Court of Arizona, In Division. June 11, 1964. James T. Bialac, Lewis, Roca, Scoville, Beauchamp & Linton, Phoenix, for appellant. James E. Flynn, Phoenix, for appellees. *134 LOCKWOOD, Vice Chief Justice. The Rental Development Corporation of America, hereafter referred to as Rental Development, owns the Park Lee Alice Apartments. Rental Development sued the builder of the apartments, the Rubenstein Construction Company, hereafter referred to as Rubenstein, for $210,000 damages for latent defects discovered within one year after the acceptance of the apartments. The trial court held for Rubenstein and this appeal resulted. The facts are as follows: Rubenstein contracted with Rental Development to construct an apartment project for approximately $4,000,000. The Irving Trust Company financed the project and took a mortgage in return. Irving Trust would advance money periodically to Rental Development. This money was then turned over to Rubenstein. Repayment of this mortgage was insured by the Federal Housing Administration. Consequently, F.H.A. maintained its own building inspectors on the project. The construction contract between Rental Development and Rubenstein contained the following condition: This portion of the construction contract was a standard F.H.A. form. In February of 1956, the construction of the project was almost completed. The contract provided that Rubenstein could not get its last cash advancement from Irving Trust until the project was completed and accepted. At a meeting on February 8, 1956, to close this phase of the operation, Rental Development was asked to sign a letter, hereafter referred to as Exhibit 9. This was a statement accepting the project, releasing Rubenstein "from any claim or responsibility of every kind, character, nature and description" and providing that "full responsibility for the construction of the said project is, from the date of this correspondence, the sole responsibility" of Rental Development. When Rental Development refused to sign such a release, another letter was prepared. This letter, hereafter referred to as Exhibit 8, reads as follows: This letter was signed by Joseph F. Walton, the corporate secretary of Rental Development. Nine months later, F.H.A. inspected the apartment project for defects and, on November 13, 1956, sent the inspection report listing numerous defects to Rubenstein. On November 15, 1956, Rubenstein wrote one of its subcontractors to take care of the roofing defects indicated on the F.H.A. report. Then on November 19, 1956, in reply to the inspection report, Hyman Rubenstein, the corporate president of Rubenstein, wrote to F.H.A. a letter which stated, in part: But as to the other items listed in the inspection report, Rubenstein advised F.H.A. that "said items do not constitute latent defects" and informed F.H.A. that Rubenstein would "take no corrective action whatsoever in connection therewith." F.H.A. demanded that Rental Development take all possible remedial action against Rubenstein. F.H.A. is a preferred stockholder of Rental Development and could take over its management. This action resulted. At the trial below, Rubenstein offered Exhibit 8 as a release of all future claims for latent defects. The trial judge held this was a valid defense to Rental Development's complaint and, therefore, granted judgment for Rubenstein. Rental Development appealed. The key issue in this case involved Exhibit 8 which is set forth above. Did this letter manifest an intention to release Rubenstein from the obligation imposed by the construction contract to correct latent defects discovered within one year following substantial completion of the project? In response to this question, two conflicting constructions of Exhibit 8 are offered this Court by the parties. Rubenstein contends Exhibit 8 constitutes an unambiguous release. Rental Development on the other hand, contends that the language "fully completed * * * in accordance with the plans and specifications" does not indicate an intention to release, especially when interpreted in the context of the entire transaction. The rule is well established that a court, when construing an agreement, must put itself in the position of the parties and give effect to their intention as of the time the agreement was made. Ashton v. Ashton, 89 Ariz. 148, 359 P.2d 400 (1961). Where two parties have made a written agreement to which they have both assented as the complete and accurate integration of that contract, evidence of antecedent understandings and negotiations will not be admitted for the purpose of varying or contradicting the writing. Guerin v. Higgins, 70 Ariz. 219, 218 P.2d 870 (1950); Corbin, Contracts § 573 (1960). This is what has been called the "parol evidence rule," a rule that causes much confusion because it has been called a rule of evidence. As Corbin points out, however, this is a rule of substantive contract law, rather than a rule of evidence: For similar views, see also McCormick, Evidence 441 (1954); Wigmore, Evidence § 2430 (3rd ed. 1940); Restatement, Contracts § 240. In the instant case, however, the trial judge, appears to have regarded the "parol evidence rule" as a rule of evidence. The trial judge repeatedly cut off testimony concerning the circumstances surrounding Exhibit 8. For example, the following incident took place at the trial: Although the trial judge properly admitted all the offered documentary evidence relevant to the purpose of Exhibit 8, he consistently refused to allow oral testimony of the surrounding circumstances. The trial judge concluded that the language of Exhibit 8 constituted an unambiguous release of liability for all future defects, latent or otherwise. But when Exhibit 8 is read in the light of the F.H.A. inspection requirement in the original construction contract, it is evident that Exhibit 8 was not intended as such a release. At the time it was signed, Exhibit 8 had two purposes: first, it enabled Rubenstein to obtain the last cash advancement from Irving Trust; and, second, it enabled Rental Development to take possession of the project from Rubenstein. Rental Development, before signing Exhibit 8, had refused to sign Exhibit 9 which was an express release. Moreover, F.H.A. did not consider Exhibit 8 a release because F.H.A. inspected the project in accordance with the terms of the original construction contract. The letters written by Rubenstein to the subcontractor and to F.H.A. further support the position that Exhibit 8 was not intended as a release. Examining the record, we find no evidence to support the trial judge's finding that Exhibit 8 constituted an unambiguous release. To the contrary, "fully completed * * * in accordance with the plans and specifications" may mean that the owner does not waive any defects, latent or otherwise, where the defects occur because of a failure to live up to the specifications. For the foregoing reasons, the judgment is reversed and the case is remanded for a new trial in accordance with the views herein expressed. UDALL, C.J., and STRUCKMEYER, J., concur.