Short answer. In four cases. Under Article 1918, the principal is not liable for the agent's expenses when the agent acted against the principal's instructions, when the expenses were due to the agent's own fault, when the agent incurred them knowing an unfavourable result would follow while the principal did not, or when the agent agreed to bear them.
What the law says
The principal is not liable for the expenses incurred by the agent in the following cases
Civil Code, Article 1918 — When the Principal Is Not Liable for Expenses. Read the full provision →
The general rule, and its four exceptions
Ordinarily a principal must reimburse his agent for the expenses the agent properly incurred in carrying out the agency. Article 1918 sets out the situations where that duty does not apply. The principal is not liable for the expenses incurred by the agent in the following cases, and it lists four. Each describes an expense the principal fairly should not have to bear — because the agent went against instructions, was at fault, courted a known bad outcome, or had agreed to carry the cost himself.
Acting against instructions — with a twist
The first case is where the agent acted in contravention of the principal's instructions. Expenses run up while disobeying the principal are not the principal's to reimburse — the agent departed from what he was told, so he carries the cost of that departure. But the article adds a fair qualification: the principal loses this defence if the latter should wish to avail himself of the benefits derived from the contract. In other words, the principal cannot both take the benefit of what the disobedient agent did and refuse the expense of doing it.
Fault, known bad outcome, and agreement
The other three cases are more straightforward. Second, the principal is not liable when the expenses were due to the fault of the agent — an agent whose own carelessness or wrongdoing generated the cost cannot pass it to the principal. Third, the principal escapes when the agent incurred them with knowledge that an unfavorable result would ensue, if the principal was not aware thereof — an agent who spent money knowing the venture was heading for a bad end, while the principal did not, bears that expense himself; he should have warned the principal, not pressed on. Fourth, the principal is not liable when it was stipulated that the expenses would be borne by the agent, or that the latter would be allowed only a certain sum.
Before you refuse an expense claim
If your agent presents expenses you think you should not have to pay, check them against these four grounds: did he act against your instructions, was the cost his own fault, did he spend knowing the result would be bad when you did not, or had he agreed to bear the expense or take a fixed sum? If one fits, you may refuse. But watch the twist on the first ground — if you want the benefit of the transaction he disobeyed to make, you must accept its expenses too. Keep your instructions, the correspondence and any expense agreement, because whether you owe the expense turns on exactly those facts.