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AGENT, SUB-AGENT AND SUBSTITUTED AGENT: A DISTINCTION

Contract- I

Submitted By:
Tathagat
SM0115055
2nd Year 4th Semester

NATIONAL LAW UNIVERSITY, ASSAM


Content

Page No.

Table of Cases ............................................................................................................................ ii


Table of Statutes ........................................................................................................................ ii
Table of Abbreviations ............................................................................................................... ii
Introduction ................................................................................................................................ 4
Aim(s)......................................................................................................................................... 5
Objective(s) ................................................................................................................................ 6
Scope and Limitations ................................................................................................................. 7
Review of Literature ................................................................................................................... 8

Research Questions ..................................................................................................................... 9


Research Methodology.............................................................................................................. 10
Agent........................................................................................................................................ 11

Scope of Agents Authority ........................................................................................... 12


Liability and Duties of the Agent towards the Principle .............................................. 12

Duties not to delegate .................................................................................................... 13


Sub Agent ................................................................................................................................ 13

Sub Agency ................................................................................................................... 18


Relationship between Agent and Sub Agent ................................................................ 19
Sub Agents Responsibility........................................................................................... 20
Liability of Agent towards the Principle for acts of Sub Agent .................................. 21

Authority to appoint Sub Agent ................................................................................... 21


Substituted Agent ................................................................................................................... 22
Difference between Sub agent and Substituted Agent .............................................. 23

Conclusion ................................................................................................................................ 19
Bibliography ............................................................................................................................. iii
Table of Cases:

1. Foreman v Great Western Rly Co

2. McCarty v King County Medical Service Corporation

3. Banaras Bank v. Ram Prasad

4. Bonsor v Musicians Union

5. New Zealand Farmers Cooperative Ltd v National Mortgage & Agency of NZ

6. Chaudhry v Prabhakar

7. Yasuda v Fire & Marine Ltd v Orion Marine Insurance Ltd

8. Kelly v Cooper

9. Bryant, Powis and Bryant Ltd v La Banque du Peuple Cunnigham & Co. Ltd

10. Ferguson v. Um Chand Boid

11. Mulukchand bin Gyanmal v. Shan Mohan Vardraj

12. Wheeler v. Reed

13. Casco Nat. Bk. v. Clark

14. De Busche v. Alt

15. John McCain & Co. v. Pow

16. Warren v. Martin

17. Smith v. Jefferson Bank

18. Morris v. Warlick

19. Barnard v. Coffin

20. Bank of Ky. V. Adams Express Co.

21. Whitlock v. Hichs


22. Blackburn v. Mason

23. Cf. De Bussche v. Alt

24. Mccants v. Wells

25. Rogers v. Challis

26. Shaw v. OByrne

27. Consolidated Underwriters Ins. Co. v. Landers

28. McKnight v. Peoples-Pittsburgh Trust Co

29. Baker-Riedt Motor Co. v. Moore

30. Sanoma, Inc. v. Interested Underwriters Concerned Via Ewing Intl Marine Corp

31. Union Casualty & Surety Co. v. Gray

32. Baisley v. Henry

33. Booker v. United American Insurance Co.

34. Consolidated Underwriters Ins. Co. v. Landers

35. Eagle Motor Lines v. Hood

36. Butler v. Standard Life Ins. Co. of the South

37. Union of India v. Mohd Nazim

38. S Summan Singh v. National City Bank of New York

39. Purushotham Haridas v. Amruth Ghee Co Ltd

40. Hugh Francis Hoole v. Royal Trust Co.

41. Stephens v. Badcock

42. Franklin Fire Ins. Co, v, Bradford

43. Rughunath Prasad v. Seva Ram Tikam Das

44. Bradford v. Hanover Ins. Co.


45. Breck v. Meeker

46. Ruthven v. American Fire Ins.

47. Connor v. Parker

48. Appleton Bank v. McGilvray

49. Planters' etc. Nat'l Bank v. Wilmington First Nal'l Bank

50. Central Bank Of India Ltd. v. Firm Rur Chand Kurra Mal

51. Mercantile Bank of India Ltd. v. Chetumal Bulchand

Table of Statues:

The Constitution of India, 1950

The Indian Contract Act, 1872

Table of Abbreviations:

1. AIR All India Reporter

2. Anr Another

3. Ch Chapter

4. Co. Company

5. Ltd. Limited

6. Ors Others

7. Art. Article
8. UOI Union of India

9. & And

10. SC Supreme Court

11. v. Versus

12. e.g. Example

13. UT Union Territory

14. Rs. Rupees

15. S.H.O. Station House Officer

16. A.P. Andhra Pradesh

17. H.P. Himachal Pradesh


Abstract:

India has seen a growing trend of incorporating western laws into the ambit of domesticated laws
that have been developed over a course of time, one of the prime example of such adoption in the
present scenario is the relation of agent and the principle under the Indian Contract Act, 1872.
The act contractualize the relationship between the agent and his principle. But at the same time
the act also talks about the agent himself delegating his duties to either of the sub agent or the
substituted agent. The particular instance of an agent delegating his or her duties further to a third
person, the scenario becomes much more complicated in cases wherein the principle is not directly
aware of the existence of such sub agents or substituted agents on behalf of the agent. Who owes
the responsibility in cases of mistake on part of agent, sub agent or substituted agents. This has
been a highly worrisome trend in the recent times. Whereas the regulations for the delegation of
authority as an agent to the sub agents as well as the substituted agents has been provided under
the statutes of the Indian Contract Act, 1872, but the interpretation of those provisions has largely
been ignored, though the provisions provide for the responsibility of the agent in case of any
default to the principle but the statutes lack the implementation of those provisions.
Introduction:

In India, the agent and principle share a relationship that is contractual in nature, and therefore it
is governed by the terms and conditions of the contract between them. Chapter X of the Indian
Contract Act, 1872 provides the basic structure of rules and regulations that basically govern the
performance and formation of any type of contract including the agency contract. In agency
contracts, there exists a legal relationship between two people whereby one person acts on behalf
of the other. The person acting on behalf of the other is called an agent, and the person from whom
the agent derives authority to act is called the principal. The law of agency is based on the Latin
maxim qui facit per alium, facit per se, which means, he who acts through another is deemed
in law to do it himself

Agent and principal are defined under Section 182 of the Indian Contract Act, 1872. According to
the section an agent is a person employed to do any act for another or to represent another in
dealings with third persons. The person for whom such act is done, or who is so represented, is
called the principal. 1 The competent agent is legally capable of acting for the principal vis--vis
the third party. Now who can become an agent? Section 184 answers this question. According to
this section any person can become an agent i.e. there is no need to have a contractual capacity to
become an agent. Therefore, a minor can also act as an agent. But the minor will not be responsible
to his principal. 2

Different types of commercial agents have been identified under Indian law like brokers,
auctioneers, del credere agents, persons entrusted with money for obtaining sales and insurance
agents.

1
Section 182, Indian Contract Act, 1872
2
Foreman v Great Western Rly Co, (1878) 38 LT 851.
Aim(s):

The research paper aims to analyze the extent of duties and responsibilities assigned to each of the
agent, sub agent and substituted agent within the ambit of the Indian Contract Act, 1872.

Objectives(s):

The objectives being tried to be achieved are:

1. To understand the duties and responsibilities of an agent, sub agent and substituted agent.

2. To analyze the extent of duties of the agent toward the sub agent and the substituted agent.

3. To understand the functional difference between a sub agent and a substituted agent.

4. To understand the need and legality of appointing a substituted agent as well as a sub agent even
in the presence of an Agent.

Scope and Limitations:

The scope of this research paper is limited to the study of the responsibilities and duties of the
agent, sub agent and the substituted agent as has been provided under the Indian Contract Act,
1872.

Review of Literature:

Avtar Singh, CONTRACT AND SPECIFIC RELIEF, 11th ed. 2013, Eastern Book Company.

This book has helped the researcher in understanding the concept of substituted agent in a deeper
sense. It gives the researcher an immense knowledge to attribute the of each of the agents, sub
agents and substituted agent under the Indian Contract Act . This book has also provided with the
responsibilities of a principle under a valid contract.
H.G.Beale, CHITTY ON CONTRACTS, VOLUME II, SPECIFIC CONTRACTS, 25th ed.,
Sweet and Maxwell, London

This book deals in details in great details with the fundamentals of Contract law. It also discusses
the roles of agents and sub agents in a contract. It deals with the responsibility of a principle of
contract and its nature. The essentials for being an agent, sub agent and substituted agent in a
contract have also been discussed exhaustively in this book. The types and validity of various
forms of agents and sub agents and its significance in the present scenario is dealt with in this
book.

Alazemi Essa, Passing of Risk in International Contracts of Sale of Goods: A comparative


study between the United Nations Convention on Contracts for Sale of Goods 1980 and
English Sale of Goods Act 1979

This article deals with the provisions of CISG. It gives the researcher an insight into the process
under which the agents and the system of sub agents as well as substituted agents operate under
the British Law as well as the accepted conventions at the international level. It discusses the
conditions under which offer and acceptance of contracts being under the agency can be accepted
and revoked. It also discusses the provisions and the considerations under the CISG for the proper
disposal of justice in case of default of any of the agent, sub agent and substituted agent as well as
the principle.

Nilima Bhadbhade (ed.) Pollock & Mulla, THE INDIAN CONTRACT AND SPECIFIC
RELIEF ACT, 14th ed. 2013, Lexis Nexis, Nagpur

The author covers all the necessary aspects of agency under this masterpiece, which can be denoted
as essential for having a crisp grip over the concept of agency. However for the current work of
contract the researcher has covered the entire section of agency, wherein the author has beautifully
described the role of principle, agent, sub agent and substituted agent under the ambit of Indian
Contract Act as well as the historical development that preceded the same, followed by an ambient
amount of case laws both Indian as well as from other parts of Common law legal system.
Research Questions:

1. What is the extent of duties that have been assigned to an agent under Indian Contract Act?

2. What is the role of a sub agent and a substituted agent in a contract?

3. What are the major and substantial differences between a sub agent and a substituted agent?

4. What is the extent of responsibility of an agent towards the principle in case of appointment of
sub agents and substituted agents?

Research Methodology:

Approach of Research:

In this project doctrinal research is used. Doctrinal Research is a research in which secondary
sources are used and materials are collected from libraries, archives, etc. Books, journals, articles
were used while making this project.

Type of Research

Explanatory type of research is used in this project, because the project topic was relatively new
and unheard of and also because various concepts were needed to be explained.

Sources of Data Collection

Secondary source of data collection was used which involves in collection of data from books,
articles, websites, etc. No surveys or case studies were conducted.
Agent

In India, the relationship between Agent and Principal is primarily contractual in nature and is
governed by the terms of contract entered into between them ("Agency Contract"). The law of
agency derives its statutory base from Chapter X of the Indian Contract Act, 1872 ("Act"), which
provides the framework of rules and regulations that govern formation and performance of any
contract including the Agency Contract. Section 182 of the Act defines Agent as person
employed to do any act for another or to represent another in dealings with third person.
Any person, who is of the age of majority according to the law to which he is subject, and who is
of sound mind, can employ an Agent3. As between Principal and third person a person may become
an Agent, so as to be responsible to his Principal according to the provisions contained in the Act4.
No consideration is necessary to create an agency5. The authority of an Agent may be express or
implied6. An authority is said to be express when it is given by words, spoken or written7. An
authority is said to be implied when it is to be inferred from the circumstances of the case and
things spoken or written or in the ordinary course of dealing may account for the circumstances of
the case8. An Agent having an authority to do an act has authority to do every lawful thing, which
is necessary in order to do such act 9. The Agent in doing that act must neither do anything that is
illegal, not beyond the limits of his own authority, nor beyond the powers of his Principal. An
Agent has authority in an emergency to do all such acts for the purpose of protecting his Principal
from loss as would be done by a person of ordinary prudence, in his own case under similar
circumstance10. Several types of commercial agents have been recognized under Indian law, which
includes inter alia brokers, auctioneers, del credere agents, persons entrusted with money for
obtaining sales and insurance agents.

3
Section 183
4
Section 184
5
Section 185
6
Section 186
7
Section 187
8
Section 187
9
Section 188
10
Section 189
Test of determining existence of agency of relationship
Agency depends on the true nature of relationship.11 The American jurisprudence refers to the
case in which it was held the use of words agency agreement and agent by the parties in a
contract does not necessarily establish a relationship of agency in legal sense. 12The law in India is
same. It has been held in several decisions that the fact that the parties have called their relationship
an agency is not conclusive, if the incidence of this relationship, as disclosed by the evidence does
not justify a finding of a agency, and that the court must examine the true nature of relationship
and the functions and responsibilities of the alleged agent.13

Scope of Agents Authority

Ultimately, this depends on the agreement made between the principal and the agent. In general,
there are two ways to determine the scope of an agent's authority:

Express: An agent's authority can be expressly determined. If an agreement specifies an agent's


duties, an agent does not have authority to represent the principal beyond those duties.
Implied: An agent's authority can be implied by custom. Custom is determined by the express
duties of other agents in the same position. For example, a realty company hires a real estate agent.
It is implied that the agent has authority to help third parties buy and sell homes since it is the
custom among real estate agents.

Are There Other Ways to Determine an Agent's Authority?


There are situations where an agent's authority is created even if the person is not an agent. Here
are examples of these different situations:

Apparent Authority: A principal has a duty not to misrepresent another as his/her agent. When a
principal (accidentally or purposefully) causes a third party to believe that someone is an agent,

11
Halsburys Law of England, 3rd edn, Vol I, p 146
12
McCarty v King County Medical Service Corporation, 26 Wash 2d 660; 175
13
Banaras Bank v. Ram Prasad, AIR 1930 All 573
the principal is bound by the agent's actions even if the person was not an agent. The third party
must be reasonable in believing that the person was an agent.
Emergency Powers: In an emergency situation, an agent may act beyond his/her authority even if
the principal did not give the agent permission. For example, an agent might use company funds
to provide medical attention to an injured employee. The agent may not have authority to do so,
but the emergency situation would excuse the agent's actions.
Ratification: There are times when a principal will authorize the agent to act beyond his/her
authority. As long as the principal ratifies the action ahead of time, the agent has authority to act.

Duties Of Agent In Contract

a) Execution of Instructions
One of the primary duties of an agent is to execute the instructions of the principal. This duty is
the basis of any agency. The scope of the instructions to be executed would however depend on
the terms of the agency agreement. Importantly though, an agent should only execute lawful
instructions. 14

(b) Exercise of skill and care


Skill and care are prerequisites to the efficient exercise of duties by agents. It is therefore a
cardinal requirement of law that agents must exercise a reasonable degree of skill and care in
executing the principals instructions. Where there is apparent lapses in executing the agents
responsibilities, the agent is considered to have breached the terms of the agency. 15

(c) Act in good faith


An agent must in all respects, and within the bounds of reasonableness, act in good faith in the
discharge of the agency responsibilities. This means, in the performance of the obligations, the
interest of the principal is of paramount consideration. The agent should therefore avoid conflict

14
Bonsor v Musicians Union [1956] AC 104
15
New Zealand Farmers Cooperative Ltd v National Mortgage & Agency of NZ [1961] NZLR 969
of interests between his/her personal business with that of the principal. 16 But, this duty also
extends to the production of the agency accounts when asked to do so by the principal. 17

Liability and Duties of an Agent To The Principal By An Agent:

If an agent expressly claims to have authority or by his acts indicates that he has authority, he
warrants his authority but if the third person knows the facts as well as the agent, there is no
warranty.

An agent may expressly state that he has authority. He may do this because he thinks he has
authority or because he intends to deceive. In either case he is liable to the person who thus deals
with him and who on account of lack of authority, apparent or real, could not hold the principal,
and therefore suffers damages. 18 Thus suppose that A states to C that he has been sent by P, to
purchase C's cattle. C thereupon delivers his cattle to A, to deliver to P. The cattle die on the way
through no fault of A. In this case if A had had actual or apparent authority, he could not be held,
as the contract would be between C and P, with A as a mere representative of P. P would be
responsible as delivery to his agent would be delivery to him. But if A lacks authority C is not
without remedy. He can hold A upon his statement that he has authority, on the strength of which
he parted with the cattle19.

If, however, in this case, C was in possession of all the facts, and in common with A, misconstrued
them, he could not hold A. Thus if A had said: "I have here a letter which P has sent me, in respect
to the purchase of cattle, and I think from it that I have authority to buy cattle," and C, upon reading
the letter, had assented to that view, yet the legal effect of the letter was not to give A authority to
buy cattle, but merely, say, to make inquiries concerning their purchase, here there would be no
warranty by A of his authority, for there would be no reliance upon A's assertions that he had
authority.

16
Chaudhry v Prabhakar [1989] 1 WLR 29
17
Yasuda v Fire & Marine Ltd v Orion Marine Insurance Ltd [1995] 2 WLR 49.
18
Section 237 and Section 186 of I.C.A, 1872
19
Kelly v Cooper [1993] AC 205
It is not necessary that the agent expressly state that he has authority. An implication to that effect
may arise from the facts, and this would, perhaps, be the more usual case. Indeed, the agent by
acting as agent and by purporting to bind another person as principal, holds himself out as having
the authority to so act and thereby warrants himself to have authority.20

The P bank by A, as vice president, guaranteed a commercial account. The bank being sued on the
guaranty defended that it had no power as a bank to make such an engagement, not being proper
banking business. The court sustained the defence. The plaintiff then sued the Vice President upon
the ground that he warranted his authority. But the court held that inasmuch as the third person
was chargeable as a matter of law with the power of a bank and therefore must be taken to have
known that the Vice President had no powers to bind the bank upon this guaranty, there was no
warranty of authority.21

When Agent having authority to bind principal may instead bind himself?

One who is an agent and has full power to bind his principal may nevertheless binds himself. There
is nothing to prevent an agent from binding himself upon a contract made by him. He may do this
for a variety of reasons. He may be careless in the execution of his authority22. He may not disclose
the principal, preferring for some reason to let only his own identity appear. Or it may be that his
principal has not sufficient credit with the person dealt with and therefore the agent binds himself.

As per Sec. 73(Principal Undisclosed) If the principal is undisclosed by the agent the agent is
liable. So, if the agent does not disclose his principal, the agent is liable. In some such cases the
third person upon discovering the principal may elect to hold him, because he is the real party in
interest, as we note in another connection; but he may, if he chooses, in all cases, hold the agent
for it is with the agent that he has dealt as principal.

In the case of Thilmany v. Iowa Paper Bag Co. & William Daggett, W sold flour to R, R sues for
breach of warranty of merchantability of the flour. W defends that he was an agent. On the deal W

20
Bryant, Powis and Bryant Ltd v La Banque du Peuple Cunnigham & Co. Ltd (1891-92) All ER Rep 1253 (PC)
21
Ferguson v. Um Chand Boid (1906) ILR 33 Cal 343
22
Mulukchand bin Gyanmal v. Shan Mohan Vardraj (1890) ILR 14 Bom 590
did not disclose the name of his principal, although he was known to be a broker. The transaction
was oral. Held, that W was liable.

Furthermore, when agent bound on sealed instruments by the form of his execution. It is a long
established rule that only those who are named or described in and sign a sealed instrument are
bound thereon. If the agent signs his own name only, though he describe himself as agent, he will
be bound and the principal will not be bound. By the law of sealed instruments, only those can be
sued thereon, who are parties thereto? An agent may, by careless execution of a sealed instrument,
bind himself when he intended only to bind his principal. We may indicate here the proper form
one should use and that will be about the extent to which in this discussion we can go. The books
are full of discussions of particular sets of facts and courts are at some variance upon similar cases.
But there are well established forms of execution which everyone should have in mind when he
executes such paper.

First, it must be noted that it is everywhere agreed that if one merely describes himself as agent,
that in itself is not sufficient to bind his principal.23 Thus if he signs "John Brown, Agent," or
"William Smith, President," or "Harry Jones, Trustee," etc., these descriptive words are merely
words of description and in no way qualify the liability of the party signing. 24 And it is also
everywhere agreed that if one go further and say "John Brown, Agent of Thomas Anderson," the
deed is the deed of John Brown. So, one can go into a multitude of form. It is not absolutely
essential that the agent's name should appear. Yet it is highly desirable, in order that the evidence
may be the more surely preserved and other reasons of convenience. It is therefore common and
the better usage for the agent to set forth that the execution is by him as agent. Even in those states
where statutes have abolished the seal, the above form of signature is the only safe one to use.

Lastly, agent is bound where no definite or responsible principal. So, if a person represents a large,
unorganized or irresponsible body, it will be presumed, unless the contrary appears, that the
representative was given the credit. If a committee representing a large public gathering as a
political party, an unincorporated club, etc., deals with others for supplies, it is reasonable under

23
Wheeler v. Reed (1885) 29 Ch D 500
24
Casco Nat. Bk. v. Clark (1808) All ER Rep 227
the circumstances to presume that it is the committee to whom the credit is given, and such
committee will usually be personally responsible. Wherever there are situations of that sort in
which the credit appears to be given the agent and he must have known it was so given, he will be
responsible.

Duty Not To Delegate:


Delegatus non potest delegare is a well known maxim of the law of agency. The principal chooses
a particular agent because he has trust and confidence in his integrity and competence. Ordinarily,
therefore, the agent cannot further delegate the work which has been delegated to him by
principal. 25 It was laid down in John McCain & Co. v. Pow26that unless so authorised by the
principal, an estate agent has no right to appoint s sub- agent and delegate to him his powers which
require special skill and care.
Moreover, a factor or other agent employed because of his skill and discretion must perform all
acts involving these qualities personally, in the absence of a contrary understanding. 27. He may,
however, be given authority to hire another agent for the principal to co-operate with him in the
performance of delegated acts, in which case he is under no liability for the acts of the additional
agent28 .The agent may, on the other hand, have only procured the consent of the principal to his
hiring another to perform, as his agent, the acts which he otherwise would have had to perform
personally29. In this case he is liable to the principal for any default by his own agent 30. The law
on this subject is fairly well settled, but, as the parties seldom define clearly the relations which
they intend to create, a difficult question of fact is often presented31. Although the additional agent
is hired in the original agent's name, the principal may be in the position of an undisclosed principal
to the additional agent, if the employment is in his behalf. 32 Roughly, this would seem to be the

25
De Busche v. Alt (1878) 8 Ch 286, 310
26
(1975) 1 All ER 129
27
Warren v. Martin (1850) 52 U. S. 209
28
Morris v. Warlick (1903) 118 Ga. 421, 45 S. E. 407
29
Smith v. Jefferson Bank (1906) 120 Mo. App. 527, 97 S.
30
Barnard v. Coffin (1886) 141 Mass. 37, 6 N. E. 364
31
Bank of Ky. V. Adams Express Co. (1876) 93 U. S. 174
32
Whitlock v. Hichs (1874) 75 Ill. 460; see Blackburn v. Mason (1893) 68 L. T. R. (N. S.) 510
case if he is to receive the benefits, furnish the consideration, and have the control. In the principal
case the plaintiff was, ultimately, to furnish the consideration, and, as the defendant was under no
obligation to perform the services of the principal, the contract was for his benefit. It is true that
the defendant was to have the immediate control but it would seem that the plaintiff was the real
principal of the additional agent.33 The court thought otherwise, however, and properly applied the
law to its interpretation of the facts.
In the case of Caplin v. Penn Mutual Life Ins. Co34, where a life insurance policy was issued which
contained the pro-vision that the insurer would lend money thereon to the "insured or owner of the
policy". The plaintiff was an assignee who sought to borrow on it. It was held, that specific
performance of the contract to lend would be granted. Ordinarily, specific performance will not be
decreed of an agreement to borrow35, or to lend money. The reason for its refusal lies in the fact
that the remedy at law is adequate, since the damages arising from breach of a contract to borrow
or to lend are easily assessable, being, in the absence of special damages, the difference between
the contract rate and the market rate of interest, plus the expenses incurred in procuring a new loan.

33
Cf. De Bussche v. Alt (1873) 8 Ch. D. 286; Mccants v. Wells (1873) 4 S. C. 381
34
(App. Div. 2nd Dept. 1918) 58 N. Y. L. J. 1987
35
Rogers v. Challis (1859) 27 Beav. 175
SUB-AGENT

A person appointed by an agent to perform some duty, or the whole of the business relating to his
agency.Sub-agents may be considered in two points of view.

1. With regard to their rights and duties or obligations, towards their immediate employers.

2. As to their rights and obligations towards their superior or real principals.

A sub-agent is generally invested with the same rights, and incurs the same liabilities in regard to
his immediate employers, as if he were the sole and real principal. To this general rule there are
some exceptions for example, where by the general usage of trade or the agreement of the parties,
sub-agents are ordinarily or necessarily employed, to accomplish the ends of the agency, there, if
the agency is avowed, and the credit is exclusively given to the principal, the intermediate agent
may be entirely exempted from all liability to the sub-agent. The agent, however, will be liable to
the sub-agent, unless such exclusive credit has been given, although the real principal or superior
may also be liable. When the agent employs a sub-agent to do the whole, or any part of the business
of the agency, without the knowledge or consent of his principal, either express or implied, the
latter will only be entitled to recover from his immediate employer, and his sole responsibility is
also to him. In this case the superior or real principal is not responsible to the sub-agent, because
there is no privity between them.

Where by an express or implied agreement of the parties, or by the usages of trade, a sub-agent is
to be employed, a privity exists between the principal and the sub-agent, and the latter may justly
maintain his claim for compensation, both against the principal and his immediate employer,
unless exclusive credit is given to one of them; and, in that case, his remedy is limited to that party.

Who is a Sub-agent?

A sub-agent is a person employed by and acting under the control of the original agent in the
business of the agency (Sec. 190). In simple words, a sub-agent is the agent of the agent. Thus, an
agent is the principal of the sub-agent. He really acts in the double capacity. He is an agent of the
principal and at the same time, is the principal of the sub-agent.
Appointment of sub agent

As a general rule, an agent cannot appoint a sub-agent. However, in the following cases, an agent
can appoint a sub-agent:

1. A sub-agent may be appointed if there is a custom of the trade to appoint a sub-agent.

2. Again, a sub-agent may be appointed where the nature of the work is such that a sub-agent is
necessary.

3. Where the principal expressly or impliedly allows the appointment of a sub-agent.

4. Where the work to be done is purely ministerial and does not depend upon personal skill,
experience, etc. of the agent.

5. Where the principal is aware that the agent will delegate his authority.

6. Where an emergency makes it necessary to appoint a sub-agent.

Sub-Agency

An agency is a consensual relationship created by contract or by law where the principal grants
authority to an agent to act on behalf of the principal to deal with a third party. An agency
relationship is fiduciary in nature and the actions and words of an agent exchanged with a third
party bind the principal.

A subagent is a person to whom the agent delegates as his/her agent. Through a subagent, the
agent can perform an act for the principal. If an agent feels that the appointment of subagents are
necessary to the proper transaction and carrying on of the business committed to the agent, then
the agent has an implied authority to make such appointments36. Generally, if an agent employs a

36
Consolidated Underwriters Ins. Co. v. Landers, 285 Ala. 677 (Ala. 1970)
subagent, then the agent is the employing person and the principal is not a party to the contract of
employment. However, a principal can be a party if s/he becomes a surety. 37

If an agent employs a subagent for his/her principal, and by his/her authority, then the subagent is
the agent of the principal and is directly responsible to the principal for his/her conduct, and if
damage results from the conduct of such subagent, the agent is only responsible in case s/he has
not exercised due care in the selection of the subagent.38

Whereas, if the agent employs a subagent on his/her own account to assist him/her in the work at
his/her own risk, then there is no privity between such subagent and the principal. Under this
circumstance, a subagent is only responsible to the agent, while the agent is responsible to the
principal for the actions done by him/her and the actions by the subagent.39

An agent is responsible to the principle for the conduct of a subagent with reference to the affairs
of the principal entrusted to the subagent.40 It was observed in Shaw v. OByrne41, that if an agent
is authorized by owners to sell certain land, and if s/he authorizes a subagent to perform the same,
then the sale made by such subagent will be binding upon the owners. However, a subagency
cannot rise higher than the general agency and when that general agency ceases to exist; it will
automatically dissolve the subagency42.
An agent is not liable to third persons for the misfeasance or malfeasance of a subagent employed
by him/her in the service of his/her principal, unless s/he is guilty of negligence in the appointment
of such subagent or improperly co operates in the acts or omissions of the subagent.43

The law regarding the responsibility of a principal for persons allegedly appointed as subagents
is well settled. Booker v. United American Insurance Co.44 When one employs an agent who

37
McKnight v. Peoples-Pittsburgh Trust Co., 360 Pa. 290 (Pa. 1948)
38
Baker-Riedt Motor Co. v. Moore, 93 Okla. 153 (Okla. 1923)
39
ibid
40
Sanoma, Inc. v. Interested Underwriters Concerned Via Ewing Intl Marine Corp., 2001
41
64 Utah 139 (Utah 1924)
42
Union Casualty & Surety Co. v. Gray, 114 F. 422 (3d Cir. Pa. 1902)
43
Baisley v. Henry, 55 Cal. App. 760 (Cal. App. 1921)
44
700 So.2d 1333, 1335 (Ala. 1997).
has either express or implied authority to employ a subagent, the subagent will also be the agent
of the principal. [However, t]he act of a subagent will not bind the original principal where the
appointment of such subagent was not by authority, express or implied, or was not subsequently
ratified by the principal Id.In other words, a principal will be bound by the acts of a purported
subagent only if: (1) the agent had express authority to appoint the subagent; (2) the agent had
implied authority to appoint the subagent; or (3) the principal ratified the appointment. Id. at
1335-1336(Consolidated Underwriters Ins. Co. v. Landers,45 Eagle Motor Lines v. Hood,46 Butler
v. Standard Life Ins. Co. of the South47).

Relationship between Agent and Sub-Agent.

A subagent is a person to whom the agent delegates as his/her agent. Through a subagent, the
agent can perform an act for the principal. If an agent feels that the appointment of subagents are
necessary to the proper transaction and carrying on of the business committed to the agent, then
the agent has an implied authority to make such appointments[i]. Generally, if an agent employs a
subagent, then the agent is the employing person and the principal is not a party to the contract of
employment.

It may be generally stated that, where agents employ sub-agents in the business of the agency, the
latter are clothed with precisely the same rights, and incur precisely the same obligations, and are
bound to the same duties, in regard to their immediate employers, as if they were the sole and real
principals.48

The sub-agents loook to, and is controlled by the agent who appointed him, and is not under any
contract with the principal, he must look to the agent for his remuneration and indemnity. Thus, a
sub-agent will not be liable to render an account to the principal. 49

45
285 Ala. 677, 681, 235 So.2d 818, 822 (Ala. 1970);
46
395, 398, 55 So.2d 126, 129 (Ala. 1951);
47
232 Ala. 238, 167 So. 307, 309-310 (Ala. 1936)
48
Story of Agency, 386.
49
Purushotham Haridas v. Amruth Ghee Co Ltd AIR 1961 AP 143; relying on Hugh Francis Hoole v. Royal Trust
Co. AIR 1930 PC 274
However, in Union of India v. Mohd Nazim,50 a resident of India sent a valur payable article to an
addressee in Pakistan. The government of Pakistan realized the value of the article, but did not
hand over the amount to the Government of India, as it suspended the VP service betwenn the two
countries. It was held that the arrangement entered into for exchange of Vp article under agreement
between the two countries did not make the Government of Pakistan the sub-agent of the
Gavernment of India, and did not render the latter liable to pay the price of the article to the sender.

Sub-Agents Responsibility

The sub-agent looks to and is controlled by the agent who apoointed him, and is not under any
contract with the pincipal. 51 If money due to A is paid to P, who is Zs servant, Z having authority
from A to collect it, P is accountable only to Z, and A cannot recover the money directly from P.52

In S Summan Singh v. National City Bank of New York, 53 A has instructed the American Bank to
remit money to X in Jullundur. The bank issued instructions to the Jullundur bank to pay the money
to X, in Jullundur. These were, in Jullundur, two persons of the name of X, and Jullundur bank
paid the money to the wrong person. It was held that A could not recover money from the Jullundur
bank, as there was no privity of contract between them.

A authorised B to carry on business on his behalf in any manner that he liked. B appointed C as
commission agent to enter unto transactions of purchase and sale of bullion in the following terms:

i. To render accounts to B of all transactions and sale;


ii. To be responsible for the solvency of persons and whom he did business;
iii. To act on instructions of B on behalf of B;
iv. To charge certain commission on the transactions.

It was held that the terms on which the business was done, showed that the rehip between B and
C was one of the pricipal and agent and not of principal and principal and, therefore, C was a sub-

50
AIR 1980 SC 431
51
Except in cases of substituted agent appointed bt the agents: S.194.
52
Stephens v. Badcock (1832) 3 B&Ad 354
53
AIR 1952 Punj 172
agent, and the case fell under S. 192, and not under S. 226. As such, C was not answerable to A,
and suit for accounts by A against C was not sustainable. 54

Liability of agent to principal for acts of sub-agent.-

Plaintiff, an in-surance company, appointed defendant its agent to effect insurance, and issue
policies for it in a certain territory. Defendant, without authority from the plaintiff, appointed a
sub-agent and confided to him the general charge of his business. Without the agent's knowl-edge
the sub-agent delivered a policy (countersigned by him in the agent's name), and re-ceived payment
(which was turned into the agent's account), covering a risk which the plaintiff company had
instructed the agent not to take. A loss occurred, which the company paid, and it now sues the
agent for indemnity. Held, that the agent is liable for this act of his sub-agent, and the fact that he
had no knowledge that the policy was issued, or the pre-mium received, is no defense. Franklin
Fire Ins. Co, v, Bradford55.

This holding, if we assume that the facts are correctly interpreted, is in accord with the general rule
that an agent who employs a sub-agent on his own account is responsible to his principal for the
manner in which the business has been done, whether by himself or his agent.56 If the sub-agent is
really the agent of the original agent, the latter is responsible for his acts within the scope of the
authority conferred, even though he may have been ignorant of the particular act, or may have
expressly forbidden it.57 The court held that, under the circumstances, there was no forgery
committed when the sub-agent signed the agent's name to the policy, and that the act was within
the scope of the authority conferred by the agent upon the sub-agent. In another case, however,
growing out of the same transaction and involving the same agent and sub-agent, the court of ap-
peals for the third circuit, in a similar suit by another insurance company, held that the act of the
sub-agent was not within the scope of the authority, that the countersigning of the policy was

54
Rughunath Prasad v. Seva Ram Tikam Das AIR 1980 All 15.
55
(1901) 201 Pa. 32, 50 Atl. Rep. 286, 55 I. R. A. 408.1
56
MECHEM ON AGENCY, 197
57
Id. a 735
legally a forgery, and therefore that the agent was not responsible. Bradford v. Hanover Ins. Co.58
This holding, like the other, is sound in law, if the facts are rightly interpreted.

Authority to appoint sub-agents

J purchased a note and mortgage of F and left the same in his hands for collection. F resided in
New Hampshire, the mortgagor in Nebraska. F had negotiated the original loan through one B of
Lincoln, Nebraska, and had received several payments through him after the assignment. B finally
collected the last installment of the note and failed to turn over the proceeds. J, the holder,
transferred the note and mortgage after maturity to the plaintiff, who brings suit to foreclose. Held,
that the plaintiff must fail because F, from necessity, had implied authority to appoint B as a sub-
agent to receive payment. Breck v. Meeker.59

The rule is too well settled for dispute that, as an exception to the general rule that agents have no
power tolappoint sub-agents, (Ruthven v. American Fire Ins.60; Connor v. Parker61;) authority so
to act may be implied from necessity arising out of the cir-cumstances of the parties; Appleton
Bank v. McGilvray62; Planters' etc. Nat'l Bank v. Wilmington First Nal'l Bank.63

58
(1900) 102 Fed. Rep. 48, 43 C. C. A. 310, 49 L. R. A. 530
59
(1903), - Neb. -, 93 N. W. Rep. 993.
60
Co. (1894), 92 Ia. 316, 60 N. W. 663
61
114 Mass. 331
62
4 Gray (Mass.) 518, 64 Am. Dec. 92
63
75 N. C. 534.
Substituted agent

Section 194 provides that where an agent, holding an express or implied authority to name another
person to act for the principal, has named another person, such person is not a sub-agent, but is an
agent of the principal himself. For the sake of brevity, such other person who has been named is
called a substituted agent.

A "Co-agent" or a "substituted Agent" is a person who is appointed by the agent to act for the
principal in the business of agency with the consent of the principal.
Section 194 enacts, "where an agent holding an express or implied authority to name another
person to act for the principal, names another person accordingly, he is not a sub-agent, but a
substituted agent for the principal"

Where an agent appoints or names other person for being appointed as an agent in his place, such
person is called a substituted agent. In the words of (Section 194), where anagent, holding an
express or implied authority to name another person accordingly, such person is not a sub-agent
but an agent of the principal for such part of the business of theagency as is entrusted to him.

Examples
(1) A directs B, his solicitor, to sell his estate by auction, and to employ an auctioneer for the
purpose. B names C, an auctioneer, to conduct the sale. C is not a sub-agent, but is A s agent for
the conduct of the sale.
(2) A authorises B, a merchant in Kolkata, to recover the money due to A from C &Co. B instructs
D , a solicitor to take proceedings against C & Co., for the recoveryof the money.
D is not a sub-agent but is solicitor for A (Section 194).

In the case of Central Bank Of India Ltd., ... vs Firm Rur Chand Kurra Mal,64 the Court laid down
that, In view of the conclusion at which we have arrived, namely, that the relationship between
the plaintiff-firm and the Oriental Bank was one of substituted agent, it becomes unnecessary to

64
AIR 1958 P H 159
go into other matters which have been considered by the trial Court and which have been argued
before us. It is equally unnecessary to decide whether there was any negligence on the part of the
defendant-bank in the matter of entrusting the work to the Oriental Bank or in the delay in
informing the plaintiff firm about non-realisation of the amount of the hundi. It was admitted by
Mr. Dalip Chand Gupta that the question of negligence would only arise if the defendant bank was
the agent and not if the Oriental Bank became the substituted agent.

Where an agent holding an express or implied authority to name another person to act for the
principal in the business of the agency has named another person accordingly, such person is not
a sub-agent, but an agent of the principal for such part of the business of agency as is entrusted to
him. (Section194). Where the agent has authority to appoint an agent and the person so appointed
is in the nature of a substitute for the original agent, the contract arises between the principal and
the substitute and the substituted agent becomes responsible to the principal for the due discharge
of the duties as if he is appointed by the principal himself. According to Section 195, in selecting
substituted agent for his principal an agent is bound to exercise the same amount of discretion as
a man of ordinary prudence would exercise in his own case; and if he does so, he is not responsible
to the principal for acts or negligence of the substituted agent so selected.

What is the difference between Sub-agent and Substituted agent?

It is important to understand the distinction between the two as their liability is different:

Sub-agent

1. A sub-agent is appointed by the agent and as such he is under the control of the agent.

2. A sub-agent acts under the agent.

3. There is no privity of contract between the subagent and the principal.

4. A sub-agent cannot ask for his remuneration from the principal.

5. The principal cannot hold the sub-agent liable, except in case of fraud.
6. An agent is liable for the agent acts of the sub-agent.

Substituted Agent

1. A substituted agent is only named by the agent but is under the control of the principal.

2. A substituted agent acts independently for his principal.

3. There is contractual relationship between the substituted agent and the principal.

4. A substituted agent can ask for his remuneration from the principal.

5. The principal can hold the substituted agent liable.

6. An agent is not liable for the acts of the substituted agent.

Furthermore, in Halsbury's Laws of England65 it is stated that there may be three classes of sub-
agents: (1) those employed without the authority, express or implied, of the principal, by whose
acts the principal is not bound; (2) those employed with the express or implied authority of the
principal but between whom & the principal there is no privity of contract; (3) those employed
with the principal's authority, between whom & the principal there is privity of contract, and a
direct relationship of principal and agent is, accordingly, established.

For the acts and defaults of the first two classes the agent is responsible to the principal; in the
third case the substituted agent has the rights and liabilities of an agent vis-a-vis the principal. 66

Halsbury's Laws of England, Volume I, wherein it is stated-

"There is as a general rule no privity of contract between the principal and a sub-agent, the sub-
agent being liable only to his employer, the agent. The exception is where the principal was a party

65
(Volume I) Simonds edition para- 405
66
Mercantile Bank of India Ltd. v. Chetumal Bulchand AIR 1930 Sind 247
to the appointment of the sub-agent or has subsequently adopted his acts, and it was the intention
of the parties that privity of contract should be established between them."

It can be inferred that, that the whole distinction in our law appears to turn on the original agent
naming the person he appoints to represent the principal for the whole or part of the business first
entrusted to him. Whether this naming is put to the agent or principal is by no means apparent. The
naming should, however, be to the principal himself so as to bring about privity of contract. In
case of a sub-agent no such naming is required and consequently no such privity in law is
established.
Conclusion and Suggestion

As a general rule, no doubt, the maxim 'delegatus non potest delegare' applies so as to prevent an
agent from establishing the relationship of principal and agent between his own principal and a
third person; but this maxim when analyzed merely imports that an agent cannot, without authority
from his principal, devolve upon another obligations to the principal which he has himself
undertaken to personally fulfil; and that, inasmuch as confidence in the particular person employed
is at the root of the contract of agency, such authority cannot be implied as an ordinary incident in
the contract. But the exigencies of business do from time to time render necessary the carrying out
of the instructions of a principal by a person other than the agent originally instructed for the
purpose, and where that is the case, the reason of the thing requires that the rule should be relaxed,
so as, on the one hand, to enable the agent to appoint what has been termed a sub-agent or
'substitute' (the latter of which designations, although it does not exactly denote the legal
relationship of the parties, we adopt for want of a better, and for the sake of brevity); and on the
other hand, to constitute, in the interests and for the protection of the principal, a direct privity of
contract between him and such substitute."67
Furthermore, as per 13th law commission report in section 190 the following changes must be
incorporated in the present act of I.C.A, 1872 and the paper affirms it too.
1. Where the employment of a sub agent is justified by usage of the particular trade or business in
which the agent employed, provided such a usage is neither unreasonable, nor inconsistent with
express terms of agents authority
2. Where the authority conferred is of such a nature as to necessitate its execution wholly or in part
by means of sub- agent
3. Where the act done is purely ministerial and does not involve confidence or discretion.

In my opinion, that is the true test to determine whether the person appointed by an agent
authorised in that behalf to perform part of the business of the agency is a substituted agent of the
principal or the sub- agent of the agent, and the test to be applied is the same whether the case falls
within Section 194 or whether, as in the present case, the person so appointed is the nominee of

67
13th law commission report
the principal although there is a difference in the obligation undertaken by the agent, for
Section 195 applies to a case falling within Section194, while in cases where the substituted agent
is the nominee of the principal, the agent is not concerned with the character or efficiency of the
person so appointed, and his obligation quo to the part of the business of the agency entrusted to
the substituted agent ceases if and so soon as privity of contract has been created between the
substituted agent and the principal.
The true test to determine whether the person appointed by the agent authorised in that behalf to
perform part of the business of agency is a substitute agent of the principal or the sub-agent of the
agent is to see if there is a privity of contract between the principal and the person so appointed,
and the test to be applied is the same whether the case falls within Section 194 or whether the
person so appointed is nominee of the principal, although there is difference in the obligation
undertaken by the agent.
Bibliography

References

Books
13th Law Commission Report (Universal publishing and Co.)
Pollock & Mulla, Indian Contract Act& Specific Relief Acts, vol 2 (13th edn, Lexis
Nexis Butterworths Wadhwa 2009)
Avtar Singh, Contract & Specific Relief Act (10th edn, EBC)
P C Markanda, The Law of Contracts (2nd edition, Vol. 1, Wadhwa Publications)

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http://www.facebook.com/l.php?u=http%3A%2F%2Fwww.docstoc.com%2Fdocs%2
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http://www.preservearticles.com%2F2012012621572%2Fwhat-is-the-difference-
between-sub-agent-and-substituted-
agent.html&h=4AQG0e4nbwww.lawandotherthings.blogspot.in