23 Del. Ch. 255, 5 A.2d 503 (1939)
Loft, Inc. operated a chain of retail candy stores and manufactured fountain syrups for its own extensive needs.1 Charles G. Guth served as its president and exercised dominant control over the corporation, selecting its directors who held their positions at his favor.2 In May 1931, Guth became convinced that Loft was being unfairly discriminated against by the Coca-Cola Company and determined to replace Coca-Cola with Pepsi-Cola in the Loft stores.3
Around the same time, National Pepsi-Cola Company went into bankruptcy. Megargel approached Guth with an offer to acquire the long-established Pepsi-Cola formula and trademark at a small price.4 Guth negotiated the acquisition but did not present the opportunity to Loft's board of directors.5 He pursued the venture personally, making use of Loft's money, plant facilities, executives, personnel, and other resources to develop the Pepsi-Cola business without securing for Loft a contract for a constant supply of syrup at any definite price or for any definite time.6
Guth and his associate John F. Grace ultimately obtained ninety-one percent of the capital stock in the new Pepsi-Cola enterprise, which grew to be worth many millions.7 Loft's contributions included substantial advances of money and the use of its facilities on a large scale.8 The Chancellor made findings of fact regarding the circumstances of the acquisition and development of the Pepsi-Cola business.9 Guth and the other appellants appealed to the Supreme Court of Delaware.10 They accepted the Chancellor's basic fact findings as unassailable but sought only modification of the decree, contending that the Chancellor had drawn unwarranted inferences from those facts.11
Whether Guth, as president and dominant director of Loft, was obligated to take the Pepsi-Cola opportunity for Loft rather than for himself?12
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 interests 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. The rule that requires an undivided and unselfish loyalty to the corporation demands that there shall be no conflict between duty and self-interest.13
Yes. Guth served as president and exercised dominant control over Loft, selecting its directors who held their positions at his favor. In May 1931 Guth determined to replace Coca-Cola with Pepsi-Cola in the Loft stores. The opportunity to acquire the Pepsi-Cola formula and trademark arose at the same time National Pepsi-Cola Company went into bankruptcy.14
Loft manufactured fountain syrups for its own extensive needs and possessed the plant, equipment, executives, personnel and facilities adequate to finance and develop the enterprise. By pursuing the opportunity personally without offering it to the board and by using Loft resources on a large scale, Guth brought his self-interest into direct conflict with his duty to Loft. The law therefore charges the interest acquired with a trust for the benefit of Loft at its election.15
Guth was obligated to take the Pepsi-Cola opportunity for Loft rather than for himself.16
Whether the Pepsi-Cola opportunity belonged in equity to Loft given the circumstances of its presentation and Loft's business activities?17
If there is presented to a corporate officer or director a business opportunity which the corporation is financially able to undertake, is, from its nature, in the line of the corporation's business and is of practical advantage to it, is one in which the corporation has an interest or a reasonable expectancy, and, by embracing the opportunity, the self-interest of the officer or director will be brought into conflict with that of his corporation, the law will not permit him to seize the opportunity for himself. And, if, in such circumstances, the interests of the corporation are betrayed, the corporation may elect to claim all of the benefits of the transaction for itself, and the law will impress a trust in favor of the corporation upon the property, interests and profits so acquired.18
Yes. The opportunity arose precisely when Loft needed a cola syrup to replace Coca-Cola at its stores. Loft was already manufacturing fountain syrups of numerous kinds and its wholesale business exceeded eight hundred thousand dollars. The manufacture of syrup formed the core of the Pepsi-Cola opportunity and was one of Loft's established activities.19
Loft had a practical and essential concern with respect to some cola syrup with an established formula and trademark. When Guth determined to discontinue Coca-Cola, the need for a replacement became a matter of urgent necessity created by him as the directing head of Loft. The opportunity was therefore impressed with a Loft interest and expectancy.20
The Pepsi-Cola opportunity belonged in equity to Loft given the circumstances of its presentation and Loft's business activities.21
Whether Guth was estopped from denying that he received the Pepsi-Cola opportunity on behalf of Loft?22
Under such circumstances as are disclosed in this case, Guth is estopped by what he subsequently caused Loft to do, to deny that when he embraced the Megargel offer he did so in behalf of Loft.23 The offer cannot be viewed in any light other than an expectancy that was Loft's.24 Guth is estopped to contend to the contrary.25
Yes. Guth caused Loft to advance substantial sums of money and to furnish its plant facilities, executives and personnel on a large scale to develop the Pepsi-Cola business. He did not secure for Loft any contract guaranteeing a constant supply of syrup at a definite price or for a definite time. These acts, performed after he embraced the opportunity, render it impossible for him to deny that he received the opportunity on behalf of Loft.26
Guth was estopped from denying that he received the Pepsi-Cola opportunity on behalf of Loft.27
Whether Loft's contributions of resources to the Pepsi-Cola enterprise entitled it to the interests acquired by Guth and Grace?28
If an officer or director of a corporation, in violation of his duty as such, acquires gain or advantage for himself, the law charges the interest so acquired with a trust for the benefit of the corporation, at its election, while it denies to the betrayer all benefit and profit.29 The rule, inveterate and uncompromising in its rigidity, does not rest upon the narrow ground of injury or damage to the corporation resulting from a betrayal of confidence, but upon a broader foundation of a wise public policy that, for the purpose of removing all temptation, extinguishes all possibility of profit flowing from a breach of the confidence imposed by the fiduciary relation.30
Yes. Loft's money, plant facilities, executives, personnel and other resources were used on a large scale to acquire and develop the Pepsi-Cola business. Guth invested little or no money of his own. He and Grace ultimately obtained ninety-one percent of the capital stock of the new enterprise, now worth many millions. Because these contributions were made in violation of Guth's fiduciary duty, the law impresses a trust upon the interests acquired for the benefit of Loft.31
Loft's contributions of resources to the Pepsi-Cola enterprise entitled it to the interests acquired by Guth and Grace.32