## Facts

- Gulf Atlantic Media of Georgia, Inc. borrowed $650,000 from Lewis Broadcasting Corporation to avoid a forced sale of two Savannah radio stations.
- As part of one transaction on January 19, 1994, Gulf executed: (1) a promissory note, (2) a security agreement, and (3) an option agreement.
- The promissory note matured one year after reassignment of FCC licenses from a receiver to Gulf, but no later than July 1, 1995.
- The security agreement granted Lewis a security interest in essentially all station operating assets, excluding FCC licenses (which could not be encumbered without FCC approval under then-current rules).
- The option agreement gave Lewis the right, upon a loan default, to purchase the stations’ assets (including FCC licenses subject to FCC approval) for $650,000 minus any outstanding loan balance; it also included a $100,000 consultation/noncompetition fee payable to Gulf’s principal and his wife upon exercise.
- Phoenix Broadcasting Partners later acquired Gulf’s assets and assumed Gulf’s obligations under the loan documents.
- After Phoenix defaulted, Lewis gave notice of intent to exercise the option; Phoenix refused to perform.
- Lewis sued for payment on the loan and for specific performance of the option; the trial court granted summary judgment to Phoenix on specific performance.

## Issues

1. Whether an in-default option, created in the same transaction as a secured loan and tied to the loan amount, is unenforceable as an impermissible restraint (“clog”) on the debtor’s equitable right of redemption in the collateral.
2. Whether the option could be enforced at least as to FCC licenses excluded from the security agreement, on the theory that they were not collateral and therefore not subject to redemption.

## Decision

- The Court of Appeals of Georgia affirmed summary judgment for Phoenix on the specific performance claim.
- The court held the option agreement was an impermissible restraint on the debtor’s right to redeem collateral and was unenforceable.
- The court rejected severing the option to enforce it only as to FCC licenses because the option’s terms treated the assets and licenses as a single, default-triggered package priced by reference to the loan.

## Legal Principles

- A borrower retains an equitable right of redemption in collateral securing a loan, and contractual provisions made in connection with the loan that materially restrain or negate redemption are unenforceable.
- An option allowing a secured creditor to acquire the debtor’s collateral upon default at a price tied to the loan can function as a prohibited “clog” on redemption, even in negotiated commercial transactions between represented parties.
- Courts assess substance and transactional integration; documents executed together as part of one financing arrangement may be treated as a unified transaction for purposes of the anti-clog rule.
- Where an option to purchase collateral and related rights is structured as a single package triggered by default and priced by the debt, it is not readily severable to enforce only selected components.

## Conclusion

The court affirmed denial of specific performance, holding that a lender’s default-triggered option to purchase assets tied to the secured loan constituted an unenforceable restraint on the debtor’s equitable right of redemption, and the option could not be partially enforced as to FCC licenses because it was integrated with the overall financing arrangement.


Lewis Broad. Corp. v. Phoenix Broad. Partners, 232 Ga. App. 94, 502 S.E.2d 254 (Ga. Ct. App. 1998)