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Sub-Agents: All you need to know!

Updated: Feb 17, 2022

Written by: Samyuktha Pentyala

INTRODUCTION


According to Section 191 of Indian contract Act, 1872, a sub-agent is a person who the original agent employs in the agency's business and who is under the original agent's authority. A person appointed by an agent to carry out a certain duty or the entirety of his agency's operations. Sub-agents can be viewed from two perspectives: (i) In terms of their immediate employers' rights, duties, and obligations; and (ii) in terms of their own rights, duties, and obligation in relation to their superiors or true principals' rights and obligations.


In terms of his immediate employers, a sub-agent is often given the same rights and responsibilities as if he were the sole and genuine principal. There are some exceptions to this general rule, for example, where sub-agents are ordinarily or necessarily employed to accomplish the ends of the agency, the intermediate agent may be entirely exempted from all liability to the sub-agent if the agency is avowed and the credit is exclusively given to the principal. Unless such exclusive credit has been given, the agent will be accountable to the sub-agent, though the real principal or superior may also be liable. When an agent hires a sub-agent to handle all or part of the agency's business without his principal's knowledge or approval, either express or implicit, the latter will only be able to collect from his immediate employer, and he will be solely responsible to him. Because there is no privity between them, the superior or true principal is not liable to the sub-agent.


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


APPOINTMENT OF SUB-AGENT


An agent cannot, in general, appoint a sub-agent. However, an agent can designate a sub-agent in the following circumstances:


a) If it is customary in the trade to appoint a sub-agent, one may be appointed.

b) If the nature of the work necessitates it, a sub-agent may be hired.

c) When the principal explicitly or implicitly permits the appointment of a sub-agent.

d) Where the work to be done is strictly ministerial and does not rely on the agent's personal abilities, experience, or knowledge.

e) When the principal is aware that his authority will be delegated by the agent.

f) When an emergency necessitates the appointment of a sub-agent.


Effects where sub-agent is properly appointed [S. 192]-


When a subagent is appropriately appointed, the principal is represented by the subagent in relation to third parties, and is obligated by and liable for his actions as if he were the principal's original agent. Agents are responsible for their sub-agents. -The principal holds the agent responsible for the actions of the sub-agent. Sub-responsibility—Except agents in circumstances of fraud or deliberate wrongdoing, the sub-agent is responsible for his actions to the agent but not to the principal. As a result, where the sub agent is duly appointed. The following are the outcomes of such an appointment:


(i) The principle is represented by the sub agent

(ii) the principal is bound or accountable to third parties as a result of the sub agent's actions.

(iii) The principal is responsible to the original agent.

(iv) Except in circumstances of fraud or deliberate wrongdoing, the subagent is answerable to the original agent but not to the principal.


Effects where sub-agent is not properly appointed [S.193]-


When an agent appoints a person to act as a sub-agent without authority, the agent acts in the capacity of a principal to an agent, and is responsible for the person's actions both to the principal and to third parties; the principal is not represented by or responsible for the acts of the person so employed, nor is that person responsible to the principal. As a result, when the original agent fails to properly designate the sub agent.


The following are the consequences of such an appointment: -


(i)The acts of the sub agent do not represent the principal.

(ii) The principal is not liable for the actions of the sub agent against third parties.

(iii) The original agent is liable to the principal and third parties for the actions of the sub agent.


SUB-AGENCY


An agency is a consensual connection established by contract or by law in which the principal delegated authority to an agent to deal with a third party on his or her behalf. The actions and words of an agent exchanged with a third party bind the principal in an agency relationship, which is fiduciary in nature.


A subagent is a person who the agent appoints to act as his or her agent. The agent can conduct an act for the principal through a subagent. If an agent believes that the appointment of subagents is required for the proper transaction and conduct of the business entrusted to the agent, the agent has implicit authority to do so.[1] In most cases, when an agent hires a subagent, the agent is the one who employs the subagent, and the principal is not a party to the employment contract. A principal, on the other hand, can be a party if he or she becomes a surety.[2]


If an agent hires a subagent on behalf of his or her principal and with his or her authority, the subagent becomes the principal's agent and is directly responsible to the principal for his or her actions; if damage occurs as a result of the subagent's actions, the agent is only liable if the subagent was not chosen with care.


There is no privity between the agent and the principal if the agent hires a subagent on his or her own account to assist him or her in the work at his or her own risk. A subagent is only responsible to the agent in this situation, but the agent is responsible to the principal for his or her own conduct as well as the activities of the subagent.


An agent is accountable to the principle for the actions of a subagent in relation to the principal's affairs entrusted to the subagent. In Shaw v. O'Byrne, it was held that if an agent is permitted by the owners to sell particular land and subsequently permits a subagent to do so, the sale performed by the subagent is binding on the owners. A subagency, on the other hand, cannot climb above the general agency, and if the overall agency goes out of business, the subagency will be dissolved as well.


RELATIONSHIP BETWEEN AGENT AND SUB-AGENT


In most cases, when an agent hires a subagent, the agent is the one who employs the subagent, and the principal is not a party to the employment contract. 'It may be generally asserted that, where agents employ sub-agents in the agency's business, the latter are clothed with exactly the same rights, incur exactly the same liabilities, and are committed to the same duties, as if they were the sole and real principals, in regard to their immediate employers.' Because the sub-agent reports to and is controlled by the agent who selected him, and because he is not bound by any contract with the principal, he must rely on the agent for remuneration and indemnification. As a result, a sub-agent is not obligated to account to the principal.[3]


SUB-AGENT’S RESPONSIBILITY


The sub-agent reports to and is controlled by the agent who appointed him, and there is no contract between the principal and the sub-agent. If money owed to A is paid to P, who is Z's servant, with Z having permission from A to collect it, P is only responsible to Z, and A cannot reclaim the money from P directly.[4]


In S Summan Singh v. National City Bank of New York [5], A has authorised the American Bank to transmit money to X in Jullundur. The bank gave the Jullundur bank instructions to send the money to X in Jullundur. There were two people named X in Jullundur, and Jullundur bank paid the money to the wrong individual. Because there was no privity of contract between A and the Jullundur bank, it was determined that A could not collect money from them.


Sub-agent’s liability to principal


The sub-agent is only accountable to the agent, not the principal, except in circumstances of fraud or deliberate wrongdoing. the sub-agent is only accountable to the agent, not the principal. Calico Printers' Association v. Barclays Bank is a well-known example, in which a sub-agent failed to ensure the principal's products, which were destroyed by fire. The principal, on the other hand, was unable to recuperate against the sub-agent. All of the duties of the regular agent apply to a sub-agent. His rights cannot exceed those of the main agent, and he must exercise them through the agent, unless direct action is required to provide the appointment of a sub-agent commercial efficacy.


In Crema v Cenkos Securities plc [6] held that a sub-broker could recover his contractual commission from the broker regardless of whether the principal had paid the broker or not. The Court determined that the answer to this question is determined by the conditions of the appointment as interpreted against the backdrop of market practises.


Liability of agent to principal for acts of sub-agent


Franklin Fire Ins. Co. v. Bradford [7]: Plaintiff, an insurance firm, appointed defendant as its agent in a specific zone to effect insurance and issue policies on its behalf. Without the plaintiff's permission, the defendant appointed a sub-agent and entrusted the general management of his firm to him. The sub-agent provided a policy (countersigned by him in the agent's name) and received payment (which was deposited into the agent's account) without the agent's knowledge, covering a risk that the plaintiff firm had told the agent not to assume. The corporation suffered a loss, which it compensated, and it is now suing the agent for indemnity. Franklin Fire Ins. Co. v. Bradford held that the agent is accountable for his sub-actions, agent's and that the fact that he had no knowledge of the policy's issuance or the premium received is no defence. If the facts are correctly interpreted, this conclusion is consistent with the common rule that an agent who engages a sub-agent on his own account is liable to his principal for the manner in which the business is conducted, whether by himself or by his agent. If the sub-agent is the original agent's agent, the latter is accountable for the sub-agent’s actions within the scope of the authorization granted, even if he was unaware of the act or specifically prohibited it. The court determined that the sub-agent did not commit forgery when he signed the agent's name to the policy under the circumstances, and that the act was within the extent of the agent's power to the sub-agent. However, in a separate case arising from the same transaction and involving the same agent and sub-agent, the court of appeals for the third circuit, in a similar suit brought by another insurance company, held that the sub-act agents was outside the scope of his authority, that the policy countersigning was legally a forgery, and that the agent was not responsible. In Bradford v. Hanover Ins. Co. If the circumstances are correctly considered, this holding, like the others, is legal.


CONCLUSION


In most cases, there is no privity of contract between the principal and a sub-agent, with the sub-only agent's responsibility being to his employer, the agent. The exception is when the principal was a party to the sub-appointment agent's or has subsequently adopted his conduct, and it was the parties' purpose to establish privity of contract between them. It can be deduced that the entire distinction in our law appears to hinge on the original agent naming the person he designates to represent the principal for the entire or portion of the activity entrusted to him at the beginning. It's unclear whether this designation is directed at the agency or the principal. The designation should, however, be to the principal person in order to ensure contract privity. No such designation is required in the case of a sub-agent, and thus no such privity in law is established.


[1] Consolidated Underwriters Ins. Co. v. Landers, 285 Ala. 677 (Ala. 1970)

[2] McKnight v. Peoples-Pittsburgh Trust Co., 360 Pa. 290 (Pa. 1948)

[3] Purushotham Haridas v. Amruth Ghee Co Ltd AIR 1961 AP 143

[4] Stephens v. Badcock (1832) 3 B&Ad 354

[5] S Summan Singh v. National City Bank of New York, AIR 1952 Punj 172

[6] Crema v Cenkos Securities plc, (2011) 1 WLR 2066

[7] Bradford v. Hanover Ins. Co

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