Dutton v. Willner

New York Court of Appeals · 1873 · Corporations

7 N.Y. 312 (1873)

Updated August 22, 2026

CorporationsAgencyFiduciary dutyLife insuranceagent-principalself-dealingsecret profitconstructive trust

Facts

O. H. Dutton entrusted the defendant, Willner, as his agent, with a life insurance policy for the purpose of surrendering it for cancellation so that Dutton would be relieved from further liability on premium notes. After the original policy was surrendered, but before Dutton's premium notes were canceled or surrendered, the defendant and George D. Dutton procured a reissue or renewal of the policy for their own benefit, using the outstanding notes and the prior policy's status to obtain favorable terms. The company issued a reissued policy showing on its face that it was a reissue of the original policy and that O. H. Dutton was the assured, with benefits payable to George D. Dutton and Willner, and later to Willner alone. The defendant ultimately received the proceeds, after paying amounts necessary to preserve the policy, without O. H. Dutton's knowledge or consent.

Issue

When an agent is entrusted to surrender a principal's insurance policy for cancellation, may the agent instead procure a renewal or reissue of that policy for his own benefit and keep the resulting proceeds? More broadly, can an agent retain profits gained by departing from the principal's instructions in the very matter of the agency?

Rule

A person who undertakes to act for another in any matter shall not, in the same matter, act for himself. If an agent deals with the subject matter of the agency, or by departing from the principal's instructions obtains a better result than would have been obtained by following them, any profit or advantage so gained belongs to the principal at the principal's option, regardless of the agent's fairness, the principal's lack of actual injury, or the agent's contribution of his own funds, except that the agent is entitled to reimbursement for necessary payments made to preserve the property or contract.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Buffalo, Nora Kemp gave her agent, Eli Mercer, a membership bond in a mutual benefit association and instructed him to surrender it so she would no longer be liable on installment notes tied to the bond. Before the notes were canceled, Eli arranged for the association to issue a substitute bond on the same life for Eli's own benefit and later collected a surplus payout on it.

If Nora's estate sues Eli for the payout, which result is most consistent with the governing rule?

Explanation. An agent who undertakes to act for another in a matter cannot, in that same matter, act for himself and retain a profit gained by departing from instructions. It does not matter that the principal suffered no actual loss, that the contract was in the agent's name, or that the agent contributed his own funds. The principal may claim the advantage, with the agent entitled only to credit for necessary preserving expenditures.