Posted: September 9th, 2022

Guth v. Loft, Inc. 5A. 2d 503,23 Del. Ch. 255 (Del 1939

Case Law

Guth v. Loft, Inc. 5A. 2d 503,23 Del. Ch. 255 (Del 1939)
Issue:
The plaintiff Mr. Guth was a top member of the of the defendant company, Loft. Because the company used to buy one their main product from Coca-Cola, it became expensive for Mr. Guth’s company to go on buying from Coca Cola. Therefore, Mr. Guth who had been previously offered to buy the whole formulae from alternative company and refused saw it as a good opportunity to invest. He bought the company that could offer an alternative product, Pepsi Cola and produced the Pepsi Cola to sell to Loft Inc. The Pepsi Cola was manufactured by the experts from Loft Inc. Guth then pretended to sell the syrup manufactured from Pepsi Cola to the Company in which he was the president. Loft then argued that Guth had breached his duty as a fiduciary member.
Rule:
It is a common rule under Company Laws that members who serve in the corporate section or directors could not engage in activities that breached the trust bestowed to them by the company. It was also wrong for one to use his or her position in a company to gain financially on a personal level.
Application:
Guth had abused his role as the president of Loft Inc. and went behind the back using his position to acquire the other company to sell products to Loft Inc. He had used his office to bring a conflict of interest in the activities of the company he was serving as the president.
Conclusion:
Guth knew that Loft Inc. which he was the president had the ability to buy Pepsi-Cola Company but instead went ahead and bought the syrup formulae and the company behind Loft Inc.’s involvement. It was therefore concluded that he had abused his fiduciary role thus was liable.
United States v. Jensen 537F Supp. 2d, 1069. (ND Cal. 2008)
Issue:
The appellant had been convicted of making false financial records of a corporate entity and also for collaborating with others to give benefits to the from the company’s profits. As a senior member of the management of the company, the appellant had backdated records to suit their intention to commit fraud.
Rule:
One could not be imprisoned or sentenced for committing an offence under the Securities Exchange Act if that person was not aware that there was a rule making it an offence to falsify such documents.
Application:
It was found that the appellant had knowledge of the provisions of the Securities Exchange Act and was therefore found to be liable for the offence of falsifying records and books.
Conclusion:
The principle of applying the “lack of knowledge “of the provisions of the laws under the Securities Act and the Securities Exchange Act would be used to determine whether someone would be sentenced to prison or not. After its application, it was determined that the appellant failed to convince the Courts that she had no knowledge of such.

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