Guth v. Loft, Inc. - 5 A.2d 503 (Del. 1939)

Rule:

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. 

Facts:

Charles Guth was the President of Loft, Inc. (“Loft”). Loft filed a lawsuit against Guth after learning that Guth had acquired Pepsi-Cola enterprise for himself using the money and facilities of Loft which were committed to his protection.The lower court found in favor of Loft.

Issue:

Did Guth breach his fiduciary duty of loyalty to Loft?

Answer:

Yes

Conclusion:

The court held that, upon a consideration of all the facts and circumstances as disclosed, the opportunity to acquire the Pepsi-Cola trademark and formula, goodwill and business belonged to Loft, and that Guth, as its president, had no right to appropriate the opportunity to himself. The court held that the facts and circumstances demonstrate that Guth's appropriation of the Pepsi-Cola opportunity to himself placed him in a competitive position with Loft with respect to a commodity essential to it, thereby rendering his personal interests incompatible with the superior interests of his corporation; and this situation was accomplished, not openly and with his own resources, but secretly and with the money and facilities of the corporation which was committed to his protection.