Lewis Broadcasting Corp. v. Phoenix Broadcasting Partners

• Decision Date: 07 April 1998
• Docket Number: No. A98A0157.,A98A0157.
• Citation: 232 Ga. App. 94,502 S.E.2d 254
• Parties: LEWIS BROADCASTING CORPORATION v. PHOENIX BROADCASTING PARTNERS et al.
• Court: Georgia Court of Appeals

502 S.E.2d 254

232 Ga. App. 94

LEWIS BROADCASTING CORPORATION v. PHOENIX BROADCASTING PARTNERS et al.

No. A98A0157.

Court of Appeals of Georgia.

April 7, 1998.

Bouhan, Williams & Levy, Walter C. Hartridge, Timothy H. Edwards, Chamberlain, Hrdlicka, White, Williams & Martin, John W. Sognier, Savannah, for appellant.

Oliver, Maner & Gray, James P. Gerard, Savannah, for appellees.

BLACKBURN, Judge.

Lewis Broadcasting Corporation appeals the trial court's grant of summary judgment to Phoenix Broadcasting Partners on Lewis' suit for specific performance of an option agreement. For the reasons discussed below, we affirm.

In January 1994, Phoenix's predecessor-in-interest, Gulf Atlantic Media of Georgia, Inc., borrowed $650,000 from Lewis. The purpose of the loan was to enable Gulf to finance a settlement with its lender and to avoid a forced sale of its two Savannah radio stations, for which a receiver had been appointed. All parties were represented by counsel in the negotiation and execution of the loan documents. Gulf executed a $650,000 promissory note in favor of Lewis, which note was to mature one year after the assignment from the receiver to Gulf of the FCC licenses to operate the stations, but no later than July 1, 1995. Gulf executed a security agreement granting Lewis a security interest in all of the operating assets of the two stations except their FCC licenses, which under the rules of the FCC could not be transferred or assigned without FCC approval. The agreement provided that the licenses would become part of the collateral in the event of any rule change by the FCC allowing a security interest to be given in such licenses.

As part of the transaction, Gulf also executed an option agreement, giving Lewis the option to purchase the radio stations' assets, including the FCC licenses (subject to FCC approval), upon the occurrence of a default under the loan. The option price was $650,000, less any amount outstanding on the loan. Phoenix also agreed to pay a $100,000 consultation or noncompetition fee to Gulf's principal, Carl Marcocci, and his wife upon exercise of the option. This option agreement was executed on January 19, 1994, the same day as the security agreement.

Phoenix subsequently acquired all of Gulf's assets and assumed its obligations under the loan documents. After Phoenix defaulted on the loan, Lewis gave notice of its intent to exercise the option to purchase the radio stations. When Phoenix refused to perform under the option agreement, Lewis filed this action seeking payment of the loan and specific performance of the option agreement. The trial court granted Phoenix's motion for summary judgment on the specific performance claim, finding that the option agreement was an impermissible restraint on the debtor's right to redeem its collateral upon default.

1. Lewis contends that the trial court erred in finding the option agreement void and granting summary judgment to Phoenix on Lewis' claim for specific performance of such agreement.

The facts of this case are similar to Bromley v. Bromley, 106 Ga.App. 606, 611(2), 127 S.E.2d 836 (1962), where a borrower assigned to the lender as security for a loan certain shares of stock owned by the borrower. Id. at 608, 127 S.E.2d 836. The assignment agreement also contained a provision allowing the lender, upon default by the buyer, to purchase the stock by crediting a set amount against the outstanding indebtedness. Id. at 610, 127 S.E.2d 836. In holding such a provision invalid, we stated as follows: "The common law has jealously guarded the mortgagor's equity of redemption which may not be `fettered' or `clogged.' [Cit.] In general any provision in the mortgage at its inception which takes away the right of the mortgagor to exercise his equity of redemption is void. The mortgagor cannot by the initial agreement bind himself not to exercise his equity to redeem the property. `A direct agreement, part of the original transaction, whereby a chattel mortgagor, a pledgor, or a mortgagor of personal property forfeits, or clogs, or fetters his equity of redemption, is void.' 24 ALR 822, 825, Sec. III(b), and authorities there cited. The mortgagor cannot enter into a contract with a mortgagee at the time of the loan for purchase of the equity of redemption at a fixed sum.... Pledges, chattel mortgages and bills of sale to secure debt are treated similarly by the law and equity; certainly this is true insofar as any forfeiture of the equity or right of redemption is asserted or may be involved." (Emphasis supplied.) Id. at 611(2), 127 S.E.2d 836.

Bromley thus stands for the proposition that an option to purchase collateral for a fixed price upon default, entered into at the time of the...