File Photo/NWA Democrat-Gazette/ANDY SHUPE Traffic passes in August at the U.S. Post Office on Dickson Street in Fayetteville. Central United Methodist Church purchased the property from Barbstan Partners n 2014 for $3.3 million but filed suit to stop the sale claiming a mistake was made.

FAYETTEVILLE -- Central United Methodist Church won't be allowed to pursue fraud allegations in a federal lawsuit related to the sale of neighboring property where the U.S. Post Office sits. The church can continue trying to have the sale reversed as a mutual mistake, a federal judge has ruled.

The church contends it wouldn't have bought the property had it known the government could exercise an option to buy it first and well below market value, according to an amended complaint in a federal lawsuit.

Legal lingo Rescission Defined in contract law as the unmaking of a contract between parties. Rescission is the unwinding of a transaction. This is done to bring the parties, as far as possible, back to the position in which they were before they entered into a contract. Source: Staff report

The church in August sued Barbstan Partners, a brother and sister partnership.

U.S. District Judge Timothy L. Brooks ruled this week on a motion by Barbstan to dismiss the lawsuit. Brooks found the church's fraud claims are barred by the statute of limitations; in other words, they did not file their lawsuit in time.

Brooks said there was no evidence Barbstan tried to keep any alleged fraud a secret and noted both sides were represented by lawyers during the transaction.

"In fact, plaintiff had both the original lease and the lease amendment in its possession at all relevant times," Brooks wrote. "Merely alleging fraud is not enough -- there must be active concealment."

Brooks dismissed fraud claims against Barbstan.

The church bought the property from Barbstan in 2014 for $3.3 million. The church owes about $2.75 million on the property, which is valued at $5 million, according to the lawsuit.

The post office has leased the site since 1971, according to the lawsuit. The lease was amended in 1981 and later extended through July 2021. The church was bound by the terms of purchase to honor the lease.

Church officials said they learned after the sale that a provision in the 1971 lease gives the post office an option to buy the land in 2021 for $1.2 million.

The lawsuit contends both the church and Barbstan mistakenly thought the post office would have to pay fair market value, based on the 1981 lease.

"Central United Methodist Church would never have paid $3.3 million -- much less with borrowed money -- to purchase the post office property if CUMC believed that it might have to sell the property to the U.S.A. a short time later for $1.2 million," according to court documents.

Post office officials have told the church they intend to exercise their option and buy the property when the lease expires, according to the lawsuit.

The church is asking a judge to reverse the sale, arguing both the church and Barbstan misunderstood the government's option on the property. Barbstan filed a motion to dismiss the lawsuit.

Barbstan also contends if there was a mistake, it was a mistake of law on the part of United Methodist because the church came to an erroneous conclusion as to the legal effect of the contract, according to the motion.

Both sides believed during negotiation the 1971 agreement had been amended to require the government to pay full market value for the property, according to the church's amended complaint. As evidence, the church points to email messages, separate appraisals and the church's written offer to buy the property.

"If either party believed that the lease could require the property to be sold to the U.S.A. for $1.27 million in 2016 or $1.2 million in 2021, this undoubtedly would have negatively affected the appraised price," according to a court brief. "CUMC's appraisal determined the fair market value to be $3.16 million in a vacated state with no facilities on the property and a fair market value of $2.87 million with the existing lease in place. Barbstan's subsequent appraisal found a fair market value of $3.3 million."

The issue apparently came to light in March after a third party approached the church about buying the property. During preliminary discussions, the church received information the option to buy in the 1971 lease might not be superseded by provisions of the 1981 lease.

The lawsuit contends the church offered to give the property back to Barbstan, but Barbstan refused.

NW News on 05/23/2019