## Facts

- Loft, Inc., a Delaware corporation, operated a large retail and wholesale business selling candies, syrups, and fountain beverages, with substantial assets and working capital during 1931–1935.
- Charles G. Guth, Loft’s president and dominant board member, sought improved terms from The Coca-Cola Company for cola syrup used in Loft’s soda fountains; Coca-Cola refused.
- Pepsi-Cola Company was financially distressed and became a potential substitute source of cola syrup and related business opportunity.
- Guth did not present to Loft the opportunity to acquire and develop Pepsi; instead, he personally obtained control of Pepsi and held most Pepsi shares through himself and The Grace Company, Inc., a corporation he controlled.
- Guth used Loft’s funds, facilities, laboratories, chemists, personnel, and distribution channels to reformulate and improve Pepsi syrup and to build Pepsi’s business, while Loft continued purchasing and selling Pepsi syrup.
- Loft sued in equity to impose a trust on the Pepsi shares held by Guth and Grace, compel transfer of those shares to Loft, and obtain an accounting.

## Issues

1. Whether the acquisition and development of Pepsi constituted a corporate opportunity belonging to Loft that Guth, as Loft’s fiduciary, was required to offer to Loft before taking it for himself.
2. Whether Guth breached the duty of loyalty by (a) taking the Pepsi opportunity while Loft was able to pursue it and (b) using Loft’s assets and personnel to advance Guth’s separate interest.

## Decision

- The Delaware Supreme Court affirmed the Chancery Court’s decree for Loft.
- The court held that Guth breached his fiduciary duty of loyalty by appropriating a corporate opportunity and by using Loft’s resources for his own benefit.
- The court imposed a constructive trust on the Pepsi shares held by Guth and Grace, ordered their transfer to Loft, and required an accounting of benefits derived from the disloyal conduct.

## Legal Principles

- Corporate officers and directors owe a strict duty of loyalty and may not use their position to advance personal interests at the corporation’s expense.
- A fiduciary may not take for personal benefit a business opportunity when: (1) the corporation is financially able to undertake it; (2) it is in the corporation’s line of business and of practical advantage; (3) the corporation has an interest or reasonable expectancy in it; and (4) the fiduciary’s self-interest would conflict with the corporation’s interest.
- Misuse of corporate funds, facilities, personnel, or other assets for a fiduciary’s separate venture constitutes disloyal self-dealing and supports equitable relief.
- Equity may require forfeiture of gains obtained through disloyalty, including imposition of a constructive trust and an accounting to prevent a faithless fiduciary from profiting.

## Conclusion

The court held that Loft’s president violated the duty of loyalty by taking control of Pepsi as a corporate opportunity and by using Loft’s resources to develop that business, warranting a constructive trust transferring the Pepsi shares to Loft and an accounting for resulting profits.


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