Story Case

Richard Mundy, an engineer in the employ of the Interstate Construction Company, was sent to New Mexico to make an irrigation survey in accordance with a contract existing between the construction company and the Southwest Land Company. By this contract, the former agreed to build a dam within a stated period. Mundy spent four weeks on the survey and then learned that his work was erroneous because of a mistake he negligently made in starting operations. He then employed aid to help him complete the work within the stipulated time, paying for this service out of his own money. When the work was completed, he asked for reimbursement from his company for these advancements. The company refused to pay on the ground that the expenditures were caused by Mundy's own carelessness. Is this a valid objection?

Ruling Court Case. Veltum Vs. Koehler, Volume 82 Kentucky Reports, Page 49

Veltum was the owner of a tract of land upon which there were two mortgages. He went to Koehler, who was the head of an abstract company, and engaged him to secure a loan of money and pay both mortgages. The agent immediately procured the loan and paid one mortgage, and had sufficient funds remaining with which to pay the other, but he negligently overlooked the second mortgage, and it was foreclosed before anything was done. After foreclosure, he redeemed the mortgage, but the money remaining in his hands was not then sufficient to pay the principal, interest and costs. So he personally advanced $246, for which he claims reimbursement in this action.

Justice Armstrong delivered the opinion.

Koehler bound himself, in consideration of the commissions he was to receive, not only to effect the loan, but to pay and discharge the prior mortgages with the funds thus obtained. He was bound to discharge that duty faithfully, and is clearly not entitled to reimbursement for costs and expenses incurred by a foreclosure caused solely by his neglect. It may be stated, as a general rule, that an agent is entitled to reimbursement for all advances and expenditures made in the cause of his agency, for the benefit of his principal, when the same have been paid properly, and in good faith. But he cannot claim reimbursement when the advances and expenditures were rendered necessary by his own failure to exercise care and diligence in the performance of the duties of his agency. When they were incurred, and made necessary, by his own neglect, the principal is not liable therefor.

Ruling Law. Story Case Answer

When an agent uses his own money in carrying on the business of his principal, or in furthering his interest, he is entitled to receive, from the principal, the amount he has thus personally expended. This is known as the right of reimbursement. If the agent exceeds his authority in spending such money, he does so at his peril. Likewise, where the necessity for such expenditure arises by his own negligence, or default, the principal is under no duty to reimburse him.

In the Story Case, the objection made by the company, to the payment of the advancements made by Mundy, is valid. The company is under no liability to reimburse Mundy, when the advancement was caused through his own negligence and carelessness.