Upload
saurabh-raman-srivastva
View
770
Download
60
Tags:
Embed Size (px)
DESCRIPTION
De
Citation preview
DR. RAM MANOHAR LOHIYA NATIONAL LAW UNIVERSITY,
LUCKNOW.
Law of Contracts
Final Draft:
“Agent, sub-agent, substituted-agent:
Judicial Interpretation”
Submitted for the project work undertaken in the partial fulfillment of B.A. LL.B (Hons.) 5 years integrated course at
Dr. RMLNLU, Lucknow.
Under the guidance of: Submitted by:
Dr. Visalakshi Vegesne Saurabh Raman (113)
Associate Prof. (Law) Saurabh Sharma (114)
Dr. RMLNLU, Lko.
ACKNOWLEDGEMENT
This project has been presented in a simple and lucid manner for better
understanding and appreciation of the study. However, it would not have been
possible without the kind support and help of many individuals. We would like
to extend our sincere thanks to all of them.
We are highly indebted to our teacher, Dr. Visalakshi Vegesne, Associate
Professor (Law), Dr. R.M.L. National Law University for her guidance and
constant supervision as well as for providing necessary information regarding
the project & also for her support in completing the project.
Last but not the least, a sincere word of appreciation to our family and friends
and thanks to people who have willingly helped us out with their abilities.
Helpful suggestions from the readers are always welcome.
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 Agent1. 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 Act2. No consideration is necessary to create an agency3. The authority of an
Agent may be express or implied4. An authority is said to be express when it is given by
words, spoken or written5. 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 case6. An Agent having an authority to do an act
has authority to do every lawful thing, which is necessary in order to do such act7. 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 circumstance8. 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.
Test of determining existence of agency of relationship1 Section 1832 Section 1843 Section 1854 Section 1865 Section 1876 Section 1877 Section 1888 Section 189
“Agency depends on the true nature of relationship.”9 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.10The 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.11
Scope of an Agent's 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, 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.
9 Halsbury’s Law of England, 3rd edn, Vol I, p 146 10 McCarty v King County Medical Service Corporation, 26 Wash 2d 660; 17511 Banaras Bank v. Ram Prasad, AIR 1930 All 573
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.12
(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 principal’s instructions. Where there is apparent lapses in executing the agent’s
responsibilities, the agent is considered to have breached the terms of the agency.13
(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 of interests between his/her personal business with that of the
principal.14 But, this duty also extends to the production of the agency accounts when asked
to do so by the principal.15
12 Bonsor v Musicians’ Union [1956] AC 10413 New Zealand Farmers Cooperative Ltd v National Mortgage & Agency of NZ [1961] NZLR 96914 Chaudhry v Prabhakar [1989] 1 WLR 29
15 Yasuda v Fire & Marine Ltd v Orion Marine Insurance Ltd [1995] 2 WLR 49.Kelly v Cooper [1993] AC 205
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.16 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 cattle.
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.
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.17
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 16 Section 237 and Section 186 of I.C.A, 187217 Bryant, Powis and Bryant Ltd v La Banque du Peuple Cunnigham & Co. Ltd (1891-92) All ER Rep 1253 (PC)
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.18
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 authority 19.
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 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.
18 Ferguson v. Um Chand Boid (1906) ILR 33 Cal 34319 Mulukchand bin Gyanmal v. Shan Mohan Vardraj (1890) ILR 14 Bom 590
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.20 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.21 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 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.22 It was laid down in John McCain & Co. v. Pow23that 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.24. He
may, however, be given authority to hire another agent for the principal to co-operate with
20 Wheeler v. Reed (1885) 29 Ch D 50021 Casco Nat. Bk. v. Clark (1808) All ER Rep 22722 De Busche v. Alt (1878) 8 Ch 286, 31023 (1975) 1 All ER 12924 Warren v. Martin (1850) 52 U. S. 209 ; Smith v. Jefferson Bank (1906) 120 Mo. App. 527, 97 S.
him in the performance of delegated acts, in which case he is under no liability for the acts of
the additional agent25 .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 personally. In this case he is liable to the principal for any default by his
own agent26. 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 presented.
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.27 Roughly, this would seem to be the 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.28 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. Co29, 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 borrow30, 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.
SUB-AGENT
25Morris v. Warlick (1903) 118 Ga. 421, 45 S. E. 40726 Barnard v. Coffin (1886) 141 Mass. 37, 6 N. E. 364; Bank of Ky. V. Adams Express Co. (1876) 93 U. S. 17427 Whitlock v. Hichs (1874) 75 Ill. 460; see Blackburn v. Mason (1893) 68 L. T. R. (N. S.) 51028 Cf. De Bussche v. Alt (1873) 8 Ch. D. 286; Mccants v. Wells (1873) 4 S. C. 38129 (App. Div. 2nd Dept. 1918) 58 N. Y. L. J. 198730 Rogers v. Challis (1859) 27 Beav. 175
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 appointments31. 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. However, a principal can be a party if s/he becomes a
surety.32
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.33
31 Consolidated Underwriters Ins. Co. v. Landers, 285 Ala. 677 (Ala. 1970)32 McKnight v. Peoples-Pittsburgh Trust Co., 360 Pa. 290 (Pa. 1948)33 Baker-Riedt Motor Co. v. Moore, 93 Okla. 153 (Okla. 1923)
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.34
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.35 It was observed in Shaw v. O’Byrne, 64
Utah 139 (Utah 1924), 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 subagency36.
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.37
“The law regarding the responsibility of a principal for persons allegedly appointed as
subagents is well settled.” Booker v. United American Insurance Co.38 “’When one employs
an agent who 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,39 Eagle Motor Lines v. Hood,40 Butler v. Standard Life Ins. Co. of the South41).
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
34 Id35 Sanoma, Inc. v. Interested Underwriters Concerned Via Ewing Int’l Marine Corp., 200136 Union Casualty & Surety Co. v. Gray, 114 F. 422 (3d Cir. Pa. 1902)37 Baisley v. Henry, 55 Cal. App. 760 (Cal. App. 1921)38 700 So.2d 1333, 1335 (Ala. 1997).39 285 Ala. 677, 681, 235 So.2d 818, 822 (Ala. 1970);40 395, 398, 55 So.2d 126, 129 (Ala. 1951);41 232 Ala. 238, 167 So. 307, 309-310 (Ala. 1936)
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.’42
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.43
However, in Union of India v. Mohd Nazim,44 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-Agent’s Responsibility
The sub-agent looks to and is controlled by the agent who apoointed him, and is not under
any contract with the pincipal.45 If money due to A is paid to P, who is Z’s servant, Z having
authority from A to collect it, P is accountable only to Z, and A cannot recover the money
directly from P.46
In S Summan Singh v. National City Bank of New York,47 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
42 Story of Agency, 386.43 Purushotham Haridas v. Amruth Ghee Co Ltd AIR 1961 AP 143; relying on Hugh Francis Hoole v. Royal Trust Co. AIR 1930 PC 274 44 AIR 1980 SC 43145 Except in cases of substituted agent appointed bt the agents: S.194.46 Stephens v. Badcock (1832) 3 B&Ad 35447 AIR 1952 Punj 172
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-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.48
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, Bradford49.
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.50 If the sub-agent is really the agent of the original agent, the latter is responsible for
48 Rughunath Prasad v. Seva Ram Tikam Das AIR 1980 All 15.49 (1901) 201 Pa. 32, 50 Atl. Rep. 286, 55 I. R. A. 408.150 MECHEM ON AGENCY, 197
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.51 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 legally a forgery, and
therefore that the agent was not responsible. Bradford v. Hanover Ins. Co.52 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.53
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.54; Connor v. Parker55;)
authority so to act may be implied from necessity arising out of the cir-cumstances of the
parties; Appleton Bank v. McGilvray56; Planters' etc. Nat'l Bank v. Wilmington First Nal'l
Bank.57
51 Id. a 73552 (1900) 102 Fed. Rep. 48, 43 C. C. A. 310, 49 L. R. A. 53053 (1903), - Neb. -, 93 N. W. Rep. 993.54 Co. (1894), 92 Ia. 316, 60 N. W. 66355 114 Mass. 33156 4 Gray (Mass.) 518, 64 Am. Dec. 9257 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,58 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 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
58 AIR 1958 P H 159
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 England59 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.60
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 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.
59 (Volume I) Simonds edition para- 40560 Mercantile Bank of India Ltd. v. Chetumal Bulchand AIR 1930 Sind 247
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."61
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.
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 term’s of agent’s authority
Where the authority conferred is of such a nature as to necessitate its execution
wholly or in part by means of sub- agent
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 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
61 13 th law commission report and Pollock and Mulla)
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)
Web- sources
http://www.facebook.com/l.php?u=http%3A%2F%2Fwww.docstoc.com%2Fdocs
%2F15688659%2FAgency-contract&h=4AQG0e4nb
http%3A%2F%2Fbooks.google.co.in%2Fbooks%3Fid%3DvRX7gALzEcMC
%26pg%3DPA245%26lpg%3DPA245%26dq%3Dsubstituted%2Bagent
%26source%3Dbl%26ots%3DJ2VwiPq19K%26sig
%3DpzYm5sME_A781xPrjZY7z3o6xYk%26hl%3Den%26sa%3DX%26ei
%3D0n6fUMDSI8PPrQfXzYDwDg%26ved%3D0CE0Q6AEwBw%23v
%3Donepage%26q%3Dsubstituted%2520agent%26f
%3Dfalse&h=4AQG0e4nbw.mightylaws.in
http%3A%2F%2Fwiki.answers.com%2FQ
%2FWhat_is_the_difference_between_sub_agent_and_substituted_agent&h=4A
QG0e4nb
http://www.facebook.com/l.php?u=http%3A%2F%2Fwww.preservearticles.com
%2F2012012621572%2Fwhat-is-the-difference-between-sub-agent-and-
substituted-agent.html&h=4AQG0e4nbwww.lawandotherthings.blogspot.in