Story Case

Clifford Clayton was a railroad messenger for the Eastern Express Company. Clayton acted in good faith, but carelessly permitted a new friend to enter the express car and the latter took a package containing valuable papers, for which loss the company was compelled to pay. What right has the company to compel Clayton to reimburse it?

Ruling Court Case. San Pedro Lumber Company Vs. Reynolds, Volume 121 California Reports, Page 74

The San Pedro Lumber Company, a corporation, had its principal place of business in San Francisco. The defendant, Reynolds, was the general manager of the business, and had his office in San Pedro. He had control of all the affairs, all real and personal property, and all employees of the company outside of the City of San Francisco.

It appears that he began to misappropriate some funds from the company and direct his bookkeeper to enter up false entries. Some of these false entries were very obvious and must have been known to the bookkeeper. It then appeared that the bookkeeper began also to misappropriate money and make false entries. These entries would have been apparent to Reynolds had he ever made an investigation.

When the conditions were disclosed upon the hasty departure of the bookkeeper, and when it appeared that Reynolds was also a wrong-doer, he pledged stock, which he owned, to secure any amount which he might owe to the corporation, either because of his own default or because of the default of the bookkeeper, in case it were held that he was answerable for him also. This was an action by the company to foreclose the lien upon the stock, and recover what money Reynolds was under obligation to pay.

Justice Henshaw gave the decision.

Reynolds is liable not only for his own default but also for those of his bookkeeper. He failed to use that degree of care and skill which should characterize one acting in the capacity of an agent. His own wrong, no doubt, tempted the bookkeeper. At any rate he might well have detected the wrong of the bookkeeper had he been exercising skill and care in the management of the business.

Ruling Law. Story Case Answer

When a person undertakes to act as agent for another, it becomes his duty to use ordinary care and skill in the performance of such duties. Unless he does exercise the degree of care which by law is exacted of him in the agency relation, he is liable to his principal for all losses attributable to his neglect of duty. What degree of care is demanded of him, depends upon the nature of the agency, and the circumstances of a given case. It is sometimes said that an agent, to escape liability, must exercise that degree of care and skill, which he, as a reasonably prudent man, would have exercised in his own business. Certain it is, that the agent does not guarantee the success of his undertaking unless by special agreement; nor will he be held for honest and reasonable mistake of judgment. Consequently, in the Story Case, Clayton can be compelled to reimburse the company.