Before Thomas, P.j., Diaz, And Southwick, JJ.
The opinion of the court was delivered by: Southwick, J.
DATE OF JUDGMENT: 05/23/97
TRIAL JUDGE: HON. W. HOLLIS MCGEHEE II
COURT FROM WHICH APPEALED: PIKE COUNTY CHANCERY COURT
NATURE OF THE CASE: CIVIL - CONTRACT
TRIAL COURT DISPOSITION: APPELLANT REQUIRED TO SPECIFICALLY PERFORM JULY 8, 1993 SUBSCRIPTION AGREEMENT
DISPOSITION: REVERSED AND RENDERED - 12/18/98
¶1. First Southwest Corporation debentures were issued to Dudley F. Lampton in 1987. In 1993 Lampton wanted to exchange them for stock, but he had recently lost the debentures. When Lampton was unable to secure the indemnity bond required by statute for the replacement of lost securities, he successfully requested the chancery court to order the exchange without a bond.
¶2. First Southwest raises fourteen issues on appeal which concern the proper procedure for reissue of lost securities and whether those requirements were waived. We do not address every issue, as we reverse and enter judgment here because there was never a waiver of the requirement of physical delivery of the lost debentures prior to exchanging them for stock, and Lampton failed to provide the indemnity bond necessary for issuance of replacement debentures. Lampton was completely within his procedural rights to seek chancery court review of the bond requirements imposed by First Southwest. However, the proper limit to the chancellor's review was whether the corporation was insisting upon unreasonable terms, either in the amount of the bond or in other details. That was never shown, and the obligation to provide the bond remained intact.
¶3. Lampton was the registered owner of $137,640 worth of debentures issued by First Southwest. Each had a face value of $30, paid 15 % interest, and matured December 31, 1994. On May 12, 1993, First Southwest offered to exchange corporate stock for debentures at a four to one exchange ratio. Lampton under this formula would be entitled to about 18,000 shares. The deadline to accept the offer was June 30, 1993, later extended until July 9, 1993. Lampton executed and returned the subscription agreement on July 8, 1993.
¶4. These debentures and some stock owned by Lampton were subject to a lien held by Hancock Bank. Lampton was behind in his monthly payments and received notice from Hancock on May 28, 1993, that unless the loan was brought current or other satisfactory arrangements were made, it would liquidate the assets securing the loan. Thus simultaneously with Lampton's effort to take advantage of the corporation's offer, he also had to negotiate with Hancock to get the debentures released from the bank's lien. A settlement agreement was eventually reached whereby Hancock would release the debentures and stock in exchange for $66,000. The debentures had been in Hancock's possession. On about July 22, 1993, Hancock sent them to Lampton's attorney, Ron Smith, to deliver to Lampton upon payment of the $66,000. The payment was not made. On August 31, 1993, Smith notified First Southwest that he had lost the debentures.
¶5. First Southwest refused to exchange the lost debentures for corporate stock until there was physical delivery of the debentures. That meant Lampton and Smith had either to find the debentures or comply with a provision of the Uniform Commercial Code and obtain a sufficient indemnity bond to protect Southwest from claims of bona fide purchasers. Miss. Code Ann. § 75-8-405 (Rev. 1981). Once the indemnity bond was presented, First Southwest could reissue the debentures and proceed with the exchange. First Southwest insisted upon a $150,000 third-party indemnity bond. Though Lampton and Smith apparently could afford the premium, they did not have the net worth to qualify for the bond. The deadline for exchange was extended a second time to November 13, 1993. Because of the present suit, the corporation made one last extension to December 31, 1993, in an effort to settle. That day came and went without a bond being presented, the debentures being discovered, or the subscription agreement being formally rejected.
¶6. On November 10, 1993, just before the November 13 deadline, Lampton filed suit in the Chancery Court of Pike County seeking an order directing First Southwest to reissue the debentures without bond, to authorize the conversion of the debentures into stock, and to have the stock deposited into the registry of the court. First Southwest responded by claiming that Lampton was required to post an indemnity bond "at least equal to the value of the stock issued" in exchange for the debentures. *fn1
¶7. In April 1994, Lampton amended his complaint. In addition to the exchange of debentures for stock, Lampton sought past due interest on the debentures. He also claimed that First Southwest's indebtedness to him was the cause of his default on his Hancock loan. The chancellor on August 22, 1994, granted Lampton's motion for partial summary judgment, finding that $61,938 in interest due on the debentures must be paid. Since Lampton's exercise of any rights under the missing debentures potentially could subject First Southwest to damages if a bona fide purchaser surfaced, the court ordered Lampton to obtain an indemnity bond in the amount of $77,422.50. That represented 125% of the total interest due. Lampton complied with this order by executing a bond along with his brother Dunn, both of whom executed the bond as joint attorneys-in-fact for their mother. The interest was then paid. *fn2
¶8. On September 7, 1994, the chancellor ordered First Southwest to reissue the debentures once Lampton deposited $35,000 in stocks and/or certificates of deposit into the registry of the court. Lampton complied. First Southwest prepared replacement debentures but never executed them.
¶9. Following hearings held on October 4, 1996, and on April 1, 1997, the chancellor entered his findings of fact and Conclusions of law. He found that physical delivery of the debentures was not a condition precedent to acceptance of the subscription agreement by First Southwest. Even if it were, First Southwest had waived any such requirement by its acts subsequent to the execution of the original documents. The chancellor also held that section 75-8-405 was not the exclusive remedy for replacement of lost securities. First Southwest was ordered to reissue the debentures.
¶10. The chancellor said that there was "no real need for bond" since he did not find it likely that the lost debentures would ever reappear. Even so, he required a bond to reimburse costs to First Southwest "if someone were to come forward and claim possession of the original certificates." The bond that had been executed by Dudley Lampton and his brother on September 7, 1994, as attorneys-in-fact for their mother, was ordered "continued." That bond had secured the payment of past-due interest in the amount of $61,938. The clerk of court was also authorized to sell a sufficient amount of the $35,000 in stock to cover all costs and attorney's fees incurred by First Southwest should a bona fide purchaser of the lost debentures come forward.
¶11. The chancellor further ordered that First Southwest convert the reissued debentures to corporate stock in accordance with the conversion ratio set in the offering circular. Additionally, he required that First Southwest pay Lampton all stock dividends due and unpaid. It is from this order that First Southwest appeals.
¶12. Though individual issues are critical to our review of the chancellor's decision, the overall focus should not be lost. This is a contract case. The central question is whether a contract was ever formed. First Southwest sent an offer -- the proposal to exchange debentures for stock. Included in the offer were certain terms, including a date to respond and requirements that unencumbered debentures be exchanged for the stock. Lampton argues that a valid acceptance occurred and a contract was entered despite ...