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Business Associations Keyed to Hamilton
Litwin v. Allen
Facts
On October 16, 1930, Trust Company (Defendant) and its subsidiary, Guaranty Company (Defendant), agreed to participate in the purchase of $3,000,000 in Missouri Pacific Convertible Debentures, through the firm of J.P. Morgan & Co. (Defendant), at par, with an option to the seller, Alleghany Corporation, to repurchase them at the same price at any time within six months. The purpose of the purchase was to enable Alleghany to raise money to pay for particular properties without going over its borrowing limit. The only purpose served by the option therefore, was to make the transaction conform as closely as possible to a loan without the usual incidents of a loan transaction. The decision to purchase was made after the October 1929 stock market crash when the market was in a slight upswing that started in April 1930. After October 1930, there was another sharp and unexpected drop in the market. Guaranty (Defendant) and Trust (Defendant) could not sell any of the bonds until October 8, 1931, and the last were not sold until December 28, 1937, which resulted in a loss of $2,250,000. Stockholders (Plaintiff) brought a derivative action to hold the directors liable for the loss.
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