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COA reaffirms decision in church breach of contract case

October 25, 2016

The Indiana Court of Appeals granted a church’s petition to rehear its breach of contract case and reaffirmed its previous ruling that the church had failed to carry out the terms of the lease in question.

In Randy Faulkner & Associates, Inc. and Randall W. Faulkner v. The Restoration Church, Inc., 41A01-1506-PL-706, the lease agreement between Randy Faulkner & Associates Inc. and the church called for the church to give timely notice of its intent to renew the lease each year, something the church never did despite their continual payment of rent and occupation of the property. Eventually, RFA notified the church that it had to vacate the property and that the lease would be cancelled, prompting the church to sue the property management company for breach of contract and other claims.

When the case went to trial, the Johnson Superior Court determined that RFA had waived its right to a timely notice of the intent to renew the lease when its accepted the church’s untimely notices and annual rent payments. However, the Indiana Court of Appeals reversed in July 2016, writing then that the act of holding over and paying rent did not constitute sufficient notice to RFA on the part of the church because the lease specifically called for written notice of intent to renew.

The church then filed a petition for rehearing in the Court of Appeals, arguing that the court failed to take into account Section 41 of the lease, which said, “Lessor and lessee expressly covenant one to another that this Lease agreement shall be interpreted and construed consistently with the principles of good faith and fair dealing.” “Good faith,” the church argued, imposed a duty on both parties, and RFA breached that duty when it “lulled” the church into thinking that the specific notice of renewal requirement would not be enforced.

However, the Court of Appeals pointed out in its Tuesday opinion that there was also a provision in the lease that said RFA’s failure to enforce one term of the lease “shall not be deemed a waiver of any subsequent breach or default.”

“In essence, the Church would have a single, general provision of the lease supersede several specific and express provisions applicable here,” Judge Margret Robb wrote. “(Section 41) does not impose a specific duty on RFA to explicitly state it has waived a provision this time but will not do so again, especially in light of a specific provision in the lease which says exactly that.”

The Court of Appeals granted the rehearing to consider the church’s Section 41 argument, but noted in its opinion that it still reaffirmed its decision in all respects to overturn the Johnson Superior Court judgement.

Judge Patricia Riley dissented, but did not provide a separate opinion.

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