City of Gainesville v. Charter Leasing Corp.

In June 1979, the city of Gainesville (the city) (defendant) entered into a lease agreement with Sopwith Camel, Incorporated (Sopwith). The lease provided that the city would lease to Sopwith certain premises located within the Gainesville Regional Airport to allow Sopwith to provide aircraft-fueling services. Sopwith subsequently subleased the premises to Dewkat II, Incorporated (Dewkat) (defendant). This sublease was permitted pursuant to the lease agreement and was approved by the city. Dewkat obtained a loan from Wauchula State Bank and mortgaged its leasehold interest as security. Wauchula State Bank then assigned Dewkat’s mortgage to Charter Air Center, and Charter Air Center assigned the mortgage to Charter Leasing Corporation (plaintiff). The city approved Dewkat’s original mortgage with Wauchula State Bank but did not have knowledge of or permit any of the subsequent assignments. Dewkat defaulted on its mortgage payments, and Charter Leasing sued Dewkat seeking foreclosure and declaratory judgment as to its interest. The city was later joined with Dewkat as a defendant. The city argued that the lease agreement should be deemed automatically terminated because Dewkat had engaged in unlawful assignments to Charter Air Center and Charter Leasing. Specifically, the city alleged that Dewkat was required to seek approval for any transfer of any interest in the lease except to a bank or lending institution for financing purposes. Charter Leasing argued that the transfers of the mortgage and note were not governed by the assignment provision, because they were not assignments of the lease agreement and, therefore, prior approval was not required. The district court agreed with Charter Leasing, and the city filed an appeal.