''Guth v. Loft Inc'', 5 A.2d 503, 23 Del. Ch. 255 (Del. 1939) is a Delaware corporation law case, important for United States corporate law, on corporate opportunities and the duty of loyalty. It deviated from the year 1726 rule laid down in ''

Keech v Sandford is a foundational case, deriving from English trusts law, on the fiduciary duty of loyalty. It concerns the law of trusts and has affected much of the thinking on directors' duties in company law. It holds that a trustee owes a strict duty of ...

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'' (1726) Sel Cas Ch61 that a fiduciary should leave open no possibility of

conflict of interest A conflict of interest (COI) is a situation in which a person or organization is involved in multiple wikt:interest#Noun, interests, financial or otherwise, and serving one interest could involve working against another. Typically, this relates t ...

between his private dealings and the job he is entrusted to do.

Facts

Charles Guth was the president of Loft, Inc., a candy and

syrup In cooking, syrup (less commonly sirup; from ; , beverage, wine and ) is a condiment that is a thick, viscous liquid consisting primarily of a Solution (chemistry), solution of sugar in water, containing a large amount of dissolved sugars but ...

manufacturer, which served a

cola Cola is a Carbonation, carbonated soft drink flavored with vanilla, cinnamon, citrus essential oil, oils, and other flavorings. Cola became popular worldwide after the American pharmacist John Stith Pemberton invented Coca-Cola, a trademarked br ...

drink at its fountain stores. Loft Inc's soda fountains purchased cola syrup from

The Coca-Cola Company The Coca-Cola Company is an American multinational corporation founded in 1892. It manufactures, sells and markets soft drinks including Coca-Cola, other non-alcoholic beverage concentrates and syrups, and alcoholic beverages. Its stock is lis ...

, but Guth decided it would be cheaper to buy from

Pepsi Pepsi is a Carbonated water, carbonated soft drink with a cola flavor, manufactured by PepsiCo which serves as its flagship product. In 2023, Pepsi was the second most valuable soft drink brand worldwide behind Coca-Cola; the two share a long ...

after Coke declined to give him a larger jobber discount. Pepsi went

bankrupt Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the de ...

before Guth (and Loft Inc) could inquire about obtaining syrup from Pepsi. Guth then personally bought the Pepsi company and its syrup recipe. With the aid of Loft Inc chemists, he reformulated the recipe, and soon purported to sell the syrup to Loft Inc. He was sued by Loft Inc's shareholders, who alleged that he breached his

fiduciary A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (legal person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, ...

duty of loyalty to the company by failing to offer that opportunity to Loft Inc, instead appropriating it for himself.

Judgment

The Delaware Supreme Court, Chief Justice Daniel J. Layton, held that Guth had breached his fiduciary duties to Loft Inc, by taking an opportunity that the company was interested in, and could itself have exploited. It followed that where a corporation cannot take an opportunity because (1) it has no money (2) it has a different business, and/or (3) it has not "interest or reasonable expectancy" in taking the opportunity, then a director will be found to have legitimately taken an opportunity for itself. Layton felt that there was no real standard for loyalty and it depends on the facts of the case. The court may enquire and will decide upon the fairness of any transaction.

Significance

This has been followed in the

Delaware General Corporation Law The Delaware General Corporation Law (sometimes abbreviated DGCL), officially the General Corporation Law of the State of Delaware (Title 8, Chapter 1 of the Delaware Code), is the statute of the Delaware Code that governs corporate law in the U ...

§144, although authorities differ as to whether §144 covers the Guth v. Loft situation.

Notes

{{reflist, 2

References

*David Kershaw, 'Does it matter how the Law Thinks About Corporate Opportunities?' (2005) 25:4 ''Legal Studies'' 533 *John Lowry and Rod Edmunds, 'The No Conflict-No Profit Rules and the Corporate Fiduciary-Challenging the Orthodoxy of Absolutism'

000 Triple zero, Zero Zero Zero, 0-0-0 or variants may refer to: * 000 (emergency telephone number), the Australian emergency telephone number * 000, the size of several small List of screw drives, screw drives * 0-0-0, a Droid (Star Wars)#0-0-0, dro ...

''Journal of Business Law'' 122-142 *V. Brudney and R. C. Clark, "A New Look at Corporate Opportunities" (1981) 94 ''

Harvard Law Review The ''Harvard Law Review'' is a law review published by an independent student group at Harvard Law School. According to the ''Journal Citation Reports'', the ''Harvard Law Review''s 2015 impact factor of 4.979 placed the journal first out of ...

'' 997 United States corporate case law Delaware state case law 1939 in United States case law 1939 in Delaware PepsiCo