Corporate Law
1939
Guth v. Loft, Inc.
5 A.2d 503 (Del. 1939)
Supreme Court of Delaware
Issue
Duty of loyalty and a corporate officer's appropriation of an opportunity connected to the corporation's business and resources.
Facts
Charles Guth, president of Loft, pursued the Pepsi-Cola opportunity personally after Coca-Cola declined a requested syrup discount. He used Loft personnel, facilities, credit, and other resources to develop and operate the Pepsi business without fully protecting Loft's interest.
Holding
The Delaware Supreme Court upheld equitable relief requiring Guth to account for and transfer the appropriated Pepsi interest to Loft.
Reasoning
The court treated the opportunity as one Loft was financially able to pursue, within its line of business, and of practical advantage to it. A fiduciary could not place personal interest in conflict with the corporation and use corporate resources to capture the gain.
Why It Matters
Guth supplies the classic Delaware formulation of the corporate-opportunity doctrine and frames disclosure, consent, resource use, and hidden appropriation as agency-cost problems.
Institutional Analysis
Institutional problem
Corporate law must distinguish legitimate personal entrepreneurship from a fiduciary's hidden appropriation of opportunities, assets, and information belonging to the corporation.
Economic analysis
A corporate-opportunity rule reduces monitoring costs and discourages fiduciaries from diverting valuable projects, but a vague rule can chill independent investment or force firms to evaluate opportunities they cannot use. Disclosure and disinterested approval can lower classification uncertainty.
Alternatives and limits
Advance waivers, line-of-business tests, interest-or-expectancy tests, board consent, compensation, and constructive trusts allocate opportunity and proof differently. The economic account does not replace the fact-sensitive fiduciary inquiry required by Delaware law.
This analytical supplement distinguishes institutional interpretation from the court’s holding and reasoning.
Research Questions
- Which opportunity characteristics most reliably separate corporate assets from personal projects?
- When do advance waivers reduce transaction costs without weakening loyalty?
Case Text and Citation
Cite the reported decision as 5 A.2d 503 (Del. 1939). The linked copy is provided for reading access and may be hosted by a court, institutional repository, or secondary case archive.
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