The suit began after Loft filleda statement in the court of Chancery against Mr. Charles Guth andPepsi Company seeking the transfer of stock shares that wereinitially registered under the name of Guth and Grace. Loft is acorporation that was located in long Island City, New York thatspecialized in the manufacture of syrups, candies, beverages andfoodstuff commodities. Mr. Guth, who had vast knowledge in chocolateand beverage industry, assumed the corporation’s Vice Presidency inAugust, the year 1929. He eventually became the organizationpresident in March 1930. On the other hand, Grace was a licensedcompany specializing in the manufacturing of syrups used in softdrinks. It had been tasked by both Loft and Coca-Cola Company withsupplying Lady Grace Chocolate Syrup and Coca-Cola syruprespectively. Upon becoming the president of Loft, Guth held amemorandum with his Vice President Mr. V. O. Robertson, over theprices of the Coca-Cola syrup which was $1.48 per gallon, a deal thatGuth considered to be unfair. The president hence made a suggestionof exploring the Pepsi Cola syrup that was manufactured by thePepsi-Cola Company, and overseen by Megargel. On May 26, 1931, theNational Pepsi-Cola Company was declared bankrupt by a suit filed on18th May, just a day before Guth made the suggestion to Robertson.Before joining Loft, Guth had never established any connection withthe Pepsi-Cola Company, which in various occasions had unsuccessfullytried to communicate with Mr. Guth. Megargel, the controller ofPepsi-Cola Company, entered into an agreement with Mr Guth, such thatMegargel would acquire the Pepsi trademark and formula, incorporatethem into a new company and transfer the shares later to Mr. Guth.Mr. Guth loaned Megargel $12,000 upon their agreement, in sums of$5,000 cash and $7,000 using a cheque. The shares of the NationalPepsi-Cola Company were successfully acquired from the trustees, andthe remaining $100,000 was transferred to Grace Company upon Mr. Guthadvancing payments of $426, under Delaware Law. Grace Company thatbelonged to Mr. Guth was running insolvent after acquiring the PepsiCompany. Mr. Guth became highly indebted to Loft which was stable andable to support the Pepsi. Without any consent or permission ofLoft`s Board of Directors, Mr. Guth drew Loft resources to furtherPepsi Company. Grace added the necessary ingredients and billed Pepsifor the syrup at an undisputed profit while scrupulously selling thesyrup directly to Pepsi`s customers as Loft tool a lion shares inProfit.
Mr. Guth’s plans to replaceCoca-cola contributed to an estimated loss of $300,000.When Pepsistabilized in the year 1931 Grace Company received 100,000 of theshares. Around August 1933, Megargel filled a claim against Pepsithat was settled for $35,000. Mr. Guth provided $500, while Loftcontributed $34,500. The shares came into Guth`s possession. InAugust 1933 Mr. Guth claimed that Loft Board of Directors consentedwithout voting, to extend resources and facilities of Loft, uponverbal agreement that the supply of syrup would be done at afavourable price.
The Chancellor found that thefacts presented were in favor of the complainant. The Chancellor feltit was necessary to fine Mr. Guth for gross misconduct. Apparently,according to the Chancellor, an employee is expected to act in theinterests of the company and not their own interest. The appellantmade findings between Mr.Guth and Pepsi Cola in connection to hisofficial capacity in Loft during the time of Pepsi.
Judges, in making their decisionreferred to several other similar cases such as Beatty v. GuggenheimExploration Co., 225 N.Y 380, 122 to determine the logic of the case.The court ruled in favour of the company.
The Chancellor decided thatMr.Guth was acting on behalf of Loft, since he was an official at thecompany. Indeed, as an employee he found all the possible chances toinvest in Pepsi corporation. Therefore, despite the circumstancesargued in court Mr. Guth saw an opportunity for Loft.