Sub-Agent

Legal definition of Sub Agent

The Sub-Agent is defined under Section- 191 of the Indian Contract Act, 1872 as-

“A sub-agent is a person employed by, and acting under the control of, the original agent in the business of the agency”

The sub-agent was hired by the original agent & operates under his supervision & authority. The principle and agent relationship exists between the original agent & the sub-agent. The relationship between the sub-agent and the agent will be governed by all of the rules that govern the agency. The sub-agent might generate the same rights & obligations on the original agent as the agent on the principal.

A sub-agent is frequently given the same rights and obligations as if he were the exclusive and legitimate principal by his immediate employers. There are several exceptions to this general rule. For example, if sub-agents are frequently or inevitably used to achieve the agency’s goals, the intermediate agent may be completely immune from any duty to the sub-agent if the agency is acknowledged and credit is given only to the principal. The agent will be responsible to the sub-agent unless such exclusive credit has been provided, albeit the genuine principle or superior may also be liable.

When an agent engages a sub-agent to manage all or part of the business of the agency without his principal’s knowledge or agreement, either express or implied, the latter can only recover from his immediate employer and therefore is entirely liable to him. The superior or genuine principal is not accountable to the sub-agent since there is no privity between them.

Where a sub-agent is to be hired by an express or implied agreement of the parties, or by trade usages, a privity exists between them, & the latter may justly retain his claim for compensation both against the principal & his instantaneous employer, unless unique credit is given to one of them, therefore, in that case his remedy is restricted to that party. Here in this article we also going to see what tends to uncertainty for Sub-agents

Appointment of Sub-Agent

In general, an agent cannot appoint a sub-agent. However, under the following situations, an agent can appoint a sub-agent:

a) If appointing a sub-agent is usual in the trade, one may be appointed.

b) A sub-agent may be employed if the nature of the business requires it.

c) When the principal authorises the appointment of a sub-agent, either expressly or implicitly.

d) Work that is simply ministerial in nature and does not rely on the agent’s personal talents, experience, or understanding.

e) When the principle is aware that the agent will delegate his power.

f) When the appointment of a sub-agent is required due to an emergency.

Relationship between Agent & Sub-Agent

When an agent employs a subagent, the agent is usually the one who employs the sub-agent, & the principal is usually not a party to the employment contract. In general, if agents hire subagents in the business of agency, the latter are clothed with the same rights &  have the same liabilities, and are also  bound by the same obligations as if they were the only & actual principals in relation to their immediate employers.’ Because he reports to & therefore is controlled by the agent who hired him, & he is not obligated or tied by any contract with the principal, the sub-agent must rely on the agency for compensation and indemnity. As a result, a sub-agent is not required to answer for his or her actions to the principal[1].

Responsibility of  Sub Agent

There is no contract exist between the principal & the sub-agent, and he reports to & is supervised by the agent who selected him. If money owing to A is paid to P, who is Z’s servant, with Z’s authorization to collect it, P is solely liable to Z, and A cannot recover or claim back the money directly from P[2]

A has authorised the American Bank to transfer money to X in Jullundur in S Summan Singh v. National City Bank of New York[3] . The bank instructed the Jullundur bank to send the funds to X in Jullundur. Jullundur had 2 people called X, & Jullundur bank gave the money to the wrong person. Because A & the Jullundur bank had no privity of contract, it was found that A could not recover money from them.

Liability of  Sub-Agent to Principal

Except in cases of fraud or purposeful misconduct, the sub-agent is only answerable to the agent, not to the principal. Only the agent, not the principal, is responsible for the sub-agent. A well-known case is Calico Printers’ Association v. Barclays Bank[4], in which a sub-agent failed to guarantee the principal’s products were destroyed by fire. In contrast, the principal was not able to recuperate against the sub-agent. A sub-agent has the same responsibilities as a normal agent. Unless direct action is necessary to offer the appointment of a sub-agent commercial efficacy, his rights cannot exceed those of the main agent, & he must exercise them via the agent.

Crema v Cenkos Securities plc[5]  found that irrespective of whether the principal had paid the broker or not, a sub-broker might collect his contractual commission from the broker. The answers to these questions is determined by the terms of the appointment as construed against the backdrop of market practises, according to the Court.

What is the uncertainty for sub-agents?

The position of the sub-agents in this case was addressed by the High Court prior to the Court of Appeal’s decision. The High Court ruled that under the Regulations, sub-agents might seek compensation from the principal (rather than the agent).

The principal appealed to the Court of Appeal in an attempt to avoid culpability. The principal contended that in order for the Regulations to apply, there had to be a direct contractual link between the principle & the sub-agents, which was not the situation in this case because the sub-agent’s contractual relationship was with the agent (not with the principal).

The principal was upheld by the Court of Appeal. However, it was obvious from the Court of Appeal’s decision that the Court of Appeal was worried about the sub-agents’ inability to benefit from the Regulations. In order to address this problem, the Court of Appeal decided that the sub-agents should be allowed to a part of the compensation (or indemnity) received by the agent from the principal. However, for the sub-agents, this was at best a pyrrhic solution, as the agent was not able to mount a claim against the principal due to financial constraints.

Conclusion

In most circumstances, there is no privity of contract between the principal & a sub-agent, as well as the obligation of the sub-only agent is to his employer, the agent. The exception is if the principal was a party to the sub-appointment agent’s or has subsequently adopted his conduct , as well as the parties’ intention was to establish privity of contract between them. The whole distinction in our law appears to rest on the original agent designating the person he appoints to represent the principal for the entirety or a portion of the activity entrusted to him at the commencement. It’s unclear whether this designation is aimed at the agency or at the principal. To preserve contract privity, the designation should be made to the principal person. In the case of a sub-agency, no such identification is necessary, and hence no legal privity is created.

References


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

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

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

[4] (1931) 36 Com Cas 71

[5] (2011) 1 WLR 2066

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