Friday, October 12, 2012

Guth v. Luft, Inc. case brief

 Guth v. Luft, Inc. (Del. Ch. 1939).
  • The Guth Rule provides that if a business opportunity is presented to a corporate officer or director in his representative capacity the law will not permit him to take the opportunity for himself if:
    • The corporation is financially able to undertake it;
    • The opportunity is in the line of the corporation’s business and is of practical advantage to it;
    • The opportunity is one in which the corporation has an interest or a reasonable expectancy.
  • The Guth Corollary provides that when a business opportunity comes to a corporate officer or director in his individual capacity he can seize the opportunity for himself, as long as he does not steal corporate assets, if:
    • The opportunity, because of the nature of the enterprise, is not essential to the corporation
    • The opportunity is not one in which the corporation has an interest or expectancy;
  • Even if it was not feasible for the corporation to pursue the opportunity or if it had no interest or expectancy in the project, a fiduciary can still be estopped from seizing the opportunity for himself if he used corporate asset’s to develop or acquire the opportunity.
    • Corporate assets include “company” time, cash, facilities, contracts, goodwill, and corporate information.
  • The tough question is how do you determine whether someone is in their representative versus individual capacity? Are they ever in an individual capacity?

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