Rental Development Corp. of America v. Rubenstein Const. Co.

• Citation: 393 P.2d 144,96 Ariz. 133
• Decision Date: 11 June 1964
• Docket Number: No. 7070,7070
• Parties: RENTAL DEVELOPMENT CORPORATION OF AMERICA, a corporation, Appellant, v. RUBENSTEIN CONSTRUCTION COMPANY, a corporation, and Fireman's Fund Indemnity Company, a corporation, Appellees. . In Division
• Court: Supreme Court of Arizona

Page 144

393 P.2d 144

96 Ariz. 133

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.

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:

'6. The Contractor shall acceptably correct any defects due to faulty materials or workmanship which appear within a period of one year following substantial completion. The date of substantial completion is the date when the project has been acceptably completed in accordance with the drawings and specifications, when the entire project has been accepted for occupancy by the local authorities having jurisdiction and by the Lender and the F.H.A., and when the mortgage has been finally endorsed for insurance.'

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:

'Phoenix,Arizona

February 8, 1956

Rubenstein Construction Company

Phoenix, Arizona

RE Park Lee Alice

Project No. 123-00012

Rental Development Corp. of America

Gentlemen:

This will acknowledge that the above captioned project has been fully completed by the Rubenstein Construction Company, the general contractor, on the 18th day of November, 1955, in accordance with the plans and specifications, approved by and filed with the Federal Housing Administration, and this will further acknowledge that the Rental Development Corporation of America accepts above captioned project as completed.

The undersigned herewith agrees that it will not make further demands upon the contractor by reason of the construction of the project except through the Federal Housing Administration.

Yours very truly

Rental Development Corporation of America

By JOS. F. WALTON'

This letter was signed by Joseph F. Walton, the corporate severtary 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:

'I have gone over the inspection report very carefully for the purpose of ascertaining whether or not the inspection report contained any latent defects in order to determine where any corrective action on the part of Rubenstein Construction Company was indicated in the premises.

'After a complete and thorough analysis of the inspection report, I have concluded that there are two items in the report which by a rather broad construction of the term 'latent defect' may be considered to fall in that category. Those are the repairs necessary to the roof and such corrective action as may be necessary by reason of the peeling of the paint as indicated in the report.'

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...