Guth v. Loft
| Guth v. Loft Inc | |
|---|---|
 |
|
| Court | Delaware Court of Chancery |
| Decided | April 11, 1939 |
| Citation(s) | 5 A.2d 503, 23 Del. Ch. 255 (Del. 1939) |
| Case opinions | |
| Layton | |
| Court membership | |
| Judge(s) sitting | Daniel J. Layton, Richards, Rodney, Speakman, Terry |
| Keywords | |
| Directors' duties, conflicts of interest | |
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 that a fiduciary should leave open no possibility of conflict of interest between his private dealings and the job he is entrusted to do.
Mr. Guth was the president of Loft, Inc. which manufactured a cola drink. Loft's soda fountains purchased cola syrup from Coca-Cola Ltd., but then Mr. Guth decided it would be cheaper to buy from Pepsi after Coke declined to give him a larger jobber discount. Pepsi went bankrupt before Mr. Guth could inquire about obtaining syrup from Pepsi. Mr. Guth bought the company and its syrup recipe (which he then had Loft chemists reformulate) and then purported to sell the syrup on to Loft. He was alleged to have breached his fiduciary duty of loyalty to the company by failing to offer that opportunity to Loft, instead appropriating it for himself.
Daniel J. Layton, the concurrent chief justice, gave the lead judgment for the Delaware Supreme Court. He started off by paying service to the general principle against conflicts of interest.
Corporate officers and directors are not permitted to use their position of trust and confidence to further their private interests. While technically not trustees, they stand in a fiduciary relation to the corporation and its stockholders. A public policy, existing through the years, and derived from a profound knowledge of human characteristics and motives, has established a rule that demands of a corporate officer or director, peremptorily and inexorably, the most scrupulous observance of his duty, not only affirmatively to protect the interest of the corporation committed to his charge, but also to refrain from doing anything that would work injury to the corporation, or to deprive it of profit or advantage which his skill and ability might properly bring to it, or to enable it to make in the reasonable and lawful exercise of its powers.
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