TEAM – I:

IN SEMESTER ASSESSMENT

CONTRACT LAW-Ⅱ

TOPIC:

AN ANALYSIS OF SUB-AGENT & SUBSTITUTED AGENT

NAME: SUHAS S

COURSE: Ⅱ SEMESTER LLB „B‟

SRN NUMBER: 03FL23BLL106

INTODUCTION

Chapter X of the Indian Contract Act, 1872 deals with the laws relating to Agency. It is

important to know the law relating to agency because nearly all business transactions

worldwide are carried out through agency. All corporations, big or small, carry their work out

through agency. Therefore, laws relating to the agency are an important area of Business Law.

Relationships relating to principal and agent involve three main parties: The Principal, the

Agent, and a Third Party.

An agent does not act on his own behalf but acts on behalf of his principal. He either

represents his principal in transactions with third parties or performs an act for the principal.

The question as to whether a particular person is an agent can be verified by finding out if his

acts bind the principal or not.

Agency is all about authority which is the authority through which the agent acts on behalf of

the principal. The principal is liable for all the acts done by the agent within his authority. It is

based on the Latin maxim Qui facet per allium facet per se, which means one who acts

through another does the act himself. The agent is regarded as an exception to the doctrine of

privity of contract as the agent can acquire rights and incur liabilities on behalf of the

principal. The agent is authorized to form a contract in the name of the principal, and the

principal can sue or be sued on the basis of that contract. The agency can be formed through

four ways: an actual authority through contract, ratification by the principal, estoppel by

conduct, and by authority implied by law.

The principal delegates his power and authority to the agent to act on his behalf to third

parties. Does the agent can further delegate his duty and appoint a person as a sub-agent?
Ordinarily, the agent has no power to delegate the work delegated to him by the principal. It

is based on the legal maxim Delegata potestas non potest delegari, which means a delegate,

cannot further delegate. However, Section 190 of the Indian Contract Act provides two

exceptional circumstances in which the agent can further delegate his duties. He can do

when:

1. The nature of agency permits or demands it; or

2. The ordinary customary practices of the business allow it.

There can be two kinds of delegation where the delegation is from an agent; it is termed as

sub-agent. When the delegation for the particular duty is done directly through the principal,

it is known as a substituted agency. This piece will discuss the differences between them and

the rights and liabilities created by both vis-à-vis principal and the original agent.

Types of Agents

Agents are classified in various ways according to the point of view adopted. From the

viewpoint of the authority they have, they can be classified as special agents, general agents

and universal agents. They are classified as mercantile or commercial agents and non-

mercantile or non-commercial agents.

There are different various types of kind agents are as follows.

 Sub-Agent

 Substituted Agent

 Special Agents
 General agents

 Universal Agent

 Co-Agent

 Factor

 Broker

 Auctioneer

 Commission Agent

 Del Credere
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.”

The original agent employed the sub-agent, who works under his control and authority. The

relation between the original agent and the sub-agent is that of principal and agent. All the

rules which govern the agency will automatically govern the relationship between the sub-

agent and the agent. The same rights and liabilities can be created by the sub-agent on the

original agent as created by the agent on the principal.

In the case of Balsamo v. Medici (1984), the Chancery Court held that the sub-agent

couldn‟t be directly sued by the principal even for negligence as there is no privity between

them. As per section 192 of the Indian Contract Act, 1872, the sub-agent can only be sued

by the principal directly in the cases of fraud and wilful wrong. In Raghunath Prasad v.

Seva Ram Tikam Das (1980), the Allahabad High Court, held that the principal could sue

the sub-agent through the original agent for any losses as there is privity and both original

agent and sub-agent can sue each other.

The sub-agent who is properly appointed can make the principal liable for any contracts

entered by the sub-agent in the name of the principal. The contract will be treated as entered

by the principal himself. The original agent is responsible to the principal for any acts of the

sub-agent which include negligence, fraud, wilful wrong, or any other breach of duty. In the

case of Nensukhdas Shivnaraen v Birdichand, the Bombay High Court held that the

principal, if wishes he, can directly sue the sub-agent or the original agent for the fraud or

wilful wrong of the sub-agent.

When the agent who does not have the authority to appoint the sub-agent appoints the sub-

agent, then the agent will be a principal towards the sub-agent. The original agent will solely
be responsible to both the principal and third parties for the acts of such person. This person

will no way be considered representing the principal and thus can‟t enter the contract on the

principal‟s behalf. The principal can‟t be held liable for the acts of such a sub-agent.

Substituted Agent:

Section 194 of the Indian Contract Act, 1872 defines a substituted agent as the person

nominated by the original agent with the knowledge and consent of the principal to work in

the business of the agency for some particular part of the business. Two requirements are to

be fulfilled by an agent before nominating the substituted agent. The first is that the original

agent has an implied or express authority to appoint such a person by the principal. The

second is that the original agent has named such a person to act for the principal in such part

of the agency‟s business.

When the agent appoints such a person, the agent merely acts as the messenger of the

principal‟s direct authority conferred on him; this was held in Nensukhdas Shivnaraen v.

Birdichand.

The naming of such a person by the original agent does not amount to the delegation of duties

by the original agent of the principal. Instead, it establishes the direct relation between the

principal and the person so named. Here, the privity is established between the principal and

the person so named by the original agent. Thus, the named person will be treated as the

agent of the principal and not the agent of the original agent (Central Bank of India Ltd v.

Firm Rurchand Kurramal and De Bussche v. Alt). This privity creates a direct relation
between the substitute and the principal, and for the discharge of duties, the substitute is

directly responsible to the principal.

The authority to appoint such substitutes is implied when the nature of the business or

through the usage of the trade practices, it can be reasonably presumed. When the substitute

is accepted by the principal and the privity is established between them, then the original

agent is not concerned with the business transaction between the substitute and the principal

(Purushotham Haridas v. Amruth Ghee Co Ltd and Central Bank of India Ltd v. Firm

Rurchand Kurramal). He is not concerned with the substitute agent‟s efficiency, character,

or negligence (Gambhirmull Mahabirprasad v Indian Bank Ltd). The original agent can‟t

be held to be responsible for the conduct of the substituted agent once the relation is

established between the principal and the substituted agent (Chowdhury TC v Girindra

Mohan Neogi, 1930 Calcutta HC).

Section 195 of the Indian Contract Act, 1872 talks about the agent‟s duty in naming such a

person. This Section imposes a duty on the agent to select a person as a substitute agent by

exercising such prudence an ordinary reasonable man has exercised in a similar case. If he

exercises such prudence, the original agent is not responsible to the principal for the

negligence or any other act of the substituted agent.

In Punjab National Bank v. Firm Ishwarbhai Bhai Lalbhai Patel & Co, the original agent

can only be sued for the failure of the nominated person when it can be shown that the

original agent was negligent in selecting the nominated person. Suppose it is found that the

original agent was negligent in selecting such a person. In that case, the original agent will be

liable to pay damages to the principal as it can be seen as a breach of the agent‟s primary

duty. In Ramchandra Lalbhai v Chinubhai Lalbhai, the Bombay HC held that the
original agent has the implied authority to revoke the authority of the substituted agent in the

interest of his principal, or otherwise he will be tied by his negligence in the selection.

Substituted agents are different from sub-agents. Section 194 provides that substituted agents

are not sub-agents but are in fact agents of the principal. Suppose an agent has an implied

authority to name another person to act for the principal in the business of the agency, and he

has named another person accordingly. In the circumstances, such a named person is not a

subagent he is an agent of the principal for such part of the business of the agency as has been

entrusted to him.

For Example: A directs B who is a solicitor to sell his estate by auction and to employ an

auctioneer for the purpose. B names C, an auctioneer, to conduct the sale. In such a situation,

C is not sub-agent, but is A‟s agent for the sale.

Who is a sub-agent?

An agent may sometimes delegate the duty that has been delegated to him by the Principal to

somebody else. Ordinarily, an agent cannot delegate the duty he is supposed to perform

himself to another person (Delegatus Non Potest Delegare), except in particular

circumstances where he must, out of necessity, do so. Section 191 of the Indian Contract Act,

1872 defines a sub-agent to be a person employed by and acting under the control of the

original agent in the business of the agency.

Delegatus non potest delegare

An agent cannot in ordinary circumstances delegate the duty that was delegated to him. The

principle is based upon the idea that when a Principal appoints an agent, he does so by
placing his confidence and trusts in the agent and might not have similar trust in the work of

another person.

Difference Between Sub Agent and Substituted Agent

The difference between the sub-agent and the substituted agent can be broadly classified into

control & direction, responsibility, privity of contract, appointment, liability, remuneration to

agents, and responsibility towards the third party:

1. Control & direction- All the direction and control given to the sub-agent is by the

original agent as he is the agent of the original agent. In contrast, all the control

exercise on the substituted agent is directly through the principal. The principal

can‟t directly exercise control over the sub-agent, but he can exercise it through

the original agent.

2. Responsibility- A sub-agent is responsible for all the acts to the original agent,

whereas the substituted agent is directly responsible to the principal for all his acts.

Only for fraud and wilful wrong, the substituted agent is directly responsible to the

principal. The sub agent is indirectly responsible to the principal through the

original agent for all the other acts.

3. Privity of Contract- There is no privity of contract between the sub-agent and the

principal. The privity of sub-agent is with the original agent. On the other, there is

privity between the principal and the substituted agent. The substituted agent can

be directly sued and can also sue the principal. The principal cannot directly sue or

be sued by the sub-agent except in the cases of fraud and wilful wrong.

4. Appointment- A sub-agent can only be appointed by the original agent when the

nature of the business dealt by the agency demands it or where there is a

 customary practice in the trade business to appoint the sub-agent. A substituted

agent is appointed when the original agent has the express or the implied authority

from the principal to appoint such a person. A substituted agent is usually

appointed for the completion of a particular part of the business when it requires

some special skills or which can‟t be done by the agent himself.

5. Liability- The sub-agent is liable to the original agent for any acts done by him.

The sub-agent is liable for any conduct, breach of duty, fraud, or wilful wrong

directly to the original agent. The sub-agent is liable to both the principal and the

original agent for the fraud or wilful wrong. On the other hand, the substituted

agent is liable only to the principal for any act or breach committed by him. The

principal can hold the original agent liable for any acts done by the substituted

agent only if the original agent has negligently chosen such person.

6. Remuneration to agents- The original agent pays the commission or

remuneration to the sub-agent through his pocket or share. The principal makes the

payment to the substituted agent.

7. Responsibility towards the third party- The contract entered by the properly

appointed sub-agent on behalf of the principal will have the same effect as the

contract entered by his agent or by the principal himself. The principal will be

bound to the third parties for such a contract. But when the sub-agent is not

properly appointed, the sub agent‟s contract will have no liability on the principal

vis-à-vis third party. For such a contract, the original agent will be liable to both

the principal and the third party. Any act done by the substituted agent within his

authority will bound the principal vis-à-vis a third party.

Conclusion

The difference between sub-agent and the substituted agent is very fundamental. When a

person, in the capacity of an agent, is asked to name someone for a certain task, the person

who is named does not become a sub-agent to the Principal, but a substituted agent.

There is lot of difference in between sub-agent and substituted agent. one is appointed by the

original agent is immediate responsible to the original whereas the substituted agent is

directly responsible to the principal. He is appointed for some part of the business of agency.

Bibliography

Cases

1. B. Mahinder Das v P. Mohan Lal, AIR 1939 All 187.

2. Balsamo v Medici, (1984) 2 All ER 304.

3. Central Bank of India Ltd v Firm Rurchand Kurramal, (1958) Pun 1115.

4. Chowdhury TC v Girindra Mohan Neogi, (1929) 56 Cal 686: AIR 1930 Cal 10.

5. De Bussche v Alt, (1878) 8 ChD 286.

6. Gambhirmull Mahabirprasad v Indian Bank Ltd, AIR 1963 Cal 163.

7. Meyerstein v Eastern Agency Co, (1885) 1 TLR 595.

8. Nensukhdas Shivnaraen v Birdichand, AIR 1917 Bom 19.

 9. Punjab National Bank v Firm Ishwarbhai Bhai Lalbhai Patel & Co, (1971) 2 Bom

1413.

10. Purushotham Haridas v Amruth Ghee Co Ltd, AIR 1961 AP 143.

11. Raghunath Prasad v Seva Ram Tikam Das, AIR 1980 All 15.

12. Ramchandra Lalbhai v Chinubhai Lalbhai, AIR 1944 Bom 76.

13. Thomas Cheshire & Co v Vaughan Bros & Co, (1920) 3 KB 240.

Books

1. Pollock & Mulla The Indian Contract Act,1872, (15th ed., Lexis Nexis, 2020).

2. Anson‟s Law of Contracts, (29th ed., Oxford, 2010).

Statutes

1. The Indian Contract Act, 1872