''Guth v. Loft Inc'', 5 A.2d 503, 23 Del. Ch. 255 (Del. 1939) is a

Delaware corporation The Delaware General Corporation Law (Title 8, Chapter 1 of the Delaware Code) is the statute of the Delaware Code that governs corporate law in the U.S. state of Delaware. Adopted in 1899, the statute has since seen Delaware become the most im ...

law case, important for

United States corporate law United States corporate law regulates the governance, finance and power of corporations in US law. Every state and territory has its own basic corporate code, while federal law creates minimum standards for trade in company shares and governanc ...

, on

corporate opportunities The ''corporate opportunity'' doctrine is the legal principle providing that directors, officers, and controlling shareholders of a corporation must not take for themselves any business opportunity that could benefit the corporation. The corporate ...

and the

duty of loyalty The duty of loyalty is often called the cardinal principal of fiduciary relationships, but is particularly strict in the law of trusts. In that context, the term refers to a trustee's duty to administer the trust solely in the interest of the ben ...

. 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 ...

''''

'' (1726) Sel Cas Ch61 that a fiduciary should leave open no possibility of conflict of interest between his private dealings and the job he is entrusted to do.

Facts

Charles Guth Charles George Guth (June 3, 1877May 24, 1948) was an American businessman, who, as executive of the Loft Candy Company, purchased the trademark and the syrup recipe of the twice-bankrupt Pepsi-Cola Company. He was President of Loft Candy Compan ...

was the president of

Loft, Inc. Loft, Inc. was the world's largest maker and seller of candy in the 1920s. It manufactured its own products and distributed them throughout greater New York City and Newark, New Jersey. Happiness Candy Stores, Inc., was controlled by Loft, Inc. ...

, a candy and

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

manufacturer, which served a

cola Cola is a carbonated soft drink flavored with vanilla, cinnamon, citrus oils and other flavorings. Cola became popular worldwide after the American pharmacist John Stith Pemberton invented Coca-Cola, a trademarked brand, in 1886, which was imi ...

drink at its fountain stores. Loft Inc's

soda fountains A soda fountain is a device that dispenses carbonated soft drinks, called fountain drinks. They can be found in restaurants, concession stands and other locations such as convenience stores. The device combines flavored syrup or syrup concentrat ...

purchased cola syrup from

The Coca-Cola Company The Coca-Cola Company is an American multinational beverage corporation founded in 1892, best known as the producer of Coca-Cola. The Coca-Cola Company also manufactures, sells, and markets other non-alcoholic beverage concentrates and syrup ...

, but Guth decided it would be cheaper to buy from

Pepsi Pepsi is a carbonated soft drink manufactured by PepsiCo. Originally created and developed in 1893 by Caleb Bradham and introduced as Brad's Drink, it was renamed as Pepsi-Cola in 1898, and then shortened to Pepsi in 1961. History Pepsi wa ...

after Coke declined to give him a larger

jobber Jobber may refer to: Athletics * Job (professional wrestling) - A professional wrestler who routinely loses a match. * Wichita Jobbers, a minor league baseball team in the Western Association from 1905 to 1911 Commerce * A person or corporation ...

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 debtor ...

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 (person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, for examp ...

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 The Delaware Supreme Court is the sole appellate court in the United States state of Delaware. Because Delaware is a popular haven for corporations, the Court has developed a worldwide reputation as a respected source of corporate law decision ...

, Chief Justice

Daniel J. Layton Daniel John Layton (August 1, 1879 – May 13, 1960) served on the Delaware Supreme Court as Chief Justice from 1933 to 1945 and earlier as attorney general of Delaware from late 1932 until his nomination. He was a native of Sussex County, Delawa ...

, 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 (Title 8, Chapter 1 of the Delaware Code) is the statute of the Delaware Code that governs corporate law in the U.S. state of Delaware. Adopted in 1899, the statute has since seen Delaware become the most im ...

§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, Triple Zero, Zero Zero Zero, Triple 0, Triple-0, 000, or 0-0-0 may refer to: * 000 (emergency telephone number), the Australian emergency telephone number * "Triple Zero", a song by AFI from ''Shut Your Mouth and Open Your Eyes'' * Th ...

''Journal of Business Law'' 122-142 *V. Brudney and R. C. Clark, "A New Look at Corporate Opportunities" (1981) 94 '' Harvard Law Review'' 997 United States corporate case law Delaware state case law 1939 in United States case law 1939 in Delaware PepsiCo