Opinion ID: 1776404
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Heading: law of corporate opportunity

Text: The Delaware law regarding corporate opportunity was settled by two decisions, Guth v. Loft, Inc., 23 Del.Ch. 255, 5 A.2d 503 (1939), and Johnston v. Greene, 35 Del.Ch. 479, 121 A.2d 919 (1956). See Equity Corp. v. Milton, 43 Del.Ch. 160, 221 A.2d 494 (1966). The rule of the Guth case is that when there is presented to a corporate officer a business opportunity which the corporation is financially able to undertake, and which, by its nature, falls into the line of the corporation's business and is of practical advantage to it, or is an opportunity in which the corporation has an actual or expectant interest, the officer is prohibited from permitting his self-interest to be brought into conflict with the corporation's interest and may not take the opportunity for himself. A corollary of the Guth rule is that when a business opportunity comes to a corporate officer, which, because of the nature of the opportunity, is not one which is essential or desirable for his corporation to embrace, being an opportunity in which it has no actual or expectant interest, the officer is entitled to treat the business opportunity as his own and the corporation has no interest in it, provided the officer has not wrongfully embarked the corporation's resources in order to acquire the business opportunity. Equity Corp., 43 Del.Ch. at 164, 221 A.2d at 497. The doctrine of corporate opportunity has been called a species of the duty of a fiduciary to act with undivided loyalty. Science Accessories Corp. v. Summagraphics Corp., 425 A.2d 957, 963 (Del. 1980). Thus, the relevant inquiry is: to whom is the fiduciary duty owed and at what time? Anadarko Petroleum Corp. v. Panhandle Eastern Corp., 545 A.2d 1171, 1178 (Del.1988). At this time, it may be helpful to discuss the nature of the fiduciary duty owed by directors, such as Donovan, as well as by parent corporations, such as Disctronics, Ltd. This duty was described by the New York Court of Appeals as follows: Because the power to manage the affairs of a corporation is vested in the directors and majority shareholders, they are cast in the fiduciary role of `guardians of the corporate welfare.' In this position of trust, they have an obligation to all shareholders to adhere to fiduciary standards of conduct and to exercise their responsibilities in good faith when undertaking any corporate action.... Actions that may accord with statutory requirements are still subject to the limitation that such conduct may not be for the aggrandizement or undue advantage of the fiduciary to the exclusion or detriment of the stockholders. The fiduciary must treat all shareholders, majority and minority, fairly. Moreover, all corporate responsibilities must be discharged in good faith and with `conscientious fairness, morality and honesty in purpose.' Also imposed are the obligations of candor and of good and prudent management of the corporation. When a breach of fiduciary duty occurs, that action will be considered unlawful and the aggrieved shareholder may be entitled to equitable relief. Alpert v. 28 Williams St. Corp., 63 N.Y.2d 557, 568-69, 483 N.Y.S.2d 667, 673-74, 473 N.E.2d 19, 25 (1984). The corporate fiduciary duty is divided into two parts: (1) a duty of care; and (2) a duty of loyalty. The duty of care has been described as requiring officers and directors to act as ordinarily prudent and diligent men ... under similar circumstances. Briggs v. Spaulding, 141 U.S. 132, 152, 11 S.Ct. 924, 931, 35 L.Ed. 662 (1891). Delaware law provides that directors of a corporation in managing the corporate affairs are bound to use that amount of care which ordinarily careful and prudent men would use in similar circumstances. Their duties are those of control, and whether or not by neglect they have made themselves liable for failure to exercise proper control depends on the circumstances and facts of the particular case. Graham v. Allis-Chalmers Manufacturing Co., 41 Del.Ch. 78, 84, 188 A.2d 125, 130 (1963). One commentator has stated the duty of care as a duty of attention. See Bayless Manning, The Business Judgment Rule and the Director's Duty of Attention: Time for Reality, 39 Bus.Law. 1477 (1984). The duty of loyalty, on the other hand, prohibits faithlessness and self-dealing by corporate directors. The duty of loyalty has been explained as follows: `By assuming his office, the corporate director commits allegiance to the enterprise and acknowledges that the best interest of the corporation and its shareholders must prevail over any individual interest of his own. The basic principle to be observed is that the director should not use his corporate position to make a personal profit or gain other personal advantage.' The duty of loyalty is thus transgressed when a corporate fiduciary ... uses his corporate office ... to promote, advance or effectuate a transaction between the corporation and such person (or an entity in which the fiduciary has a substantial economic interest, directly or indirectly) and that transaction is not substantively fair to the corporation.' Dennis J. Block, Nancy E. Barton, and Stephen A. Radin, The Business Judgment Rule: Fiduciary Duties of Corporate Directors and Officers 71 (2d ed. 1988) (quoting Committee on Corporate Laws, American Bar Association, Corporate Director's Guidebook (rev. ed. 1978), reprinted in 33 Bus.Law. 1595, 1599 (1978)). The corporate opportunity doctrine is one aspect of the duty of loyalty. The Delaware courts have stated that the determination of whether the duty of loyalty was breached when the opportunity was taken depends upon the circumstances existing at the time [the opportunity] presented itself to [the fiduciary] without regard to subsequent events, and those courts have said that due weight should be given to [the] character of the opportunity which [the offeror] envisioned and brought to [the fiduciary's] door. Guth v. Loft, Inc, 23 Del.Ch. 255, 277, 5 A.2d 503, 513 (1939).