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Difference Between Sub-Agent and Substituted Agent | Civil Law for Judiciary Exams PDF Download

Introduction

  • A sub-agent is someone working for and under the authority of the original agent, conducting tasks within the agency's business scope. 
  • Conversely, a substituted agent is an individual designated by the original agent, with the principal's approval, to manage particular aspects of the agency's business directly on behalf of the principal.

Here’s a table highlighting the differences between a sub-agent and a substituted agent:
Difference Between Sub-Agent and Substituted Agent | Civil Law for Judiciary Exams

Sub-Agent

  • A sub-agent, as defined under Section 191 of the Indian Contract Act, is an individual employed by and acting under the control of the original agent in the business of the agency.
  • The original agent engages the sub-agent to work under their control and authority. The relationship between the original agent and the sub-agent is akin to that of principal and agent. Consequently, the rules governing the agency apply automatically to the relationship between the sub-agent and the agent. The sub-agent can create the same rights and liabilities for the original agent as the agent can create for the principal.
  • In the case of Balsamo v. Medici (1984), the Chancery Court ruled that the principal cannot directly sue the sub-agent for negligence due to the absence of a direct contractual relationship between them. However, Section 192 of the Indian Contract Act allows the principal to directly sue the sub-agent in cases of fraud and intentional wrongdoing.
  • 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, given the contractual relationship between the original agent and the sub-agent.
  • A duly appointed sub-agent can render the principal liable for any contracts entered into on behalf of the principal, treating the contract as if entered into personally by the principal. The original agent is answerable to the principal for any actions of the sub-agent, including negligence, fraud, intentional wrongdoing, or any other breach of duty.
  • In Nensukhdas Shivnaraen v Birdichand, the Bombay High Court ruled that if the principal desires, they can directly sue either the sub-agent or the original agent for the sub-agent’s fraud or intentional wrongdoing.
  • If an agent appoints a sub-agent without the authority to do so, the agent is considered a principal to the sub-agent. The original agent bears full responsibility to both the principal and third parties for the actions of this individual. However, this individual is not considered as representing the principal and therefore cannot enter into contracts on behalf of the principal. The principal cannot be held liable for the actions of such a sub-agent.

Substituted Agent

  • A substituted agent, according to Section 194 of the Indian Contract Act, 1872, is an individual appointed by the original agent with the principal's consent to manage a specific part of the agency's business.
  • Before appointing a substituted agent, the original agent must meet two conditions: first, the principal must have authorized the original agent to make such appointments, and second, the original agent must assign someone to act on the principal's behalf in that specific area of the agency's business.
  • When the original agent appoints a substituted agent, they are simply acting on the authority granted to them by the principal, as established in the Nensukhdas Shivnaraen v. Birdichand case.
  • The appointment of a substituted agent does not signify a transfer of the principal's duties by the original agent. Instead, it establishes a direct relationship between the principal and the person designated by the original agent, creating privity between them.
  • The appointed person becomes the agent of the principal, not the original agent, and is directly accountable to the principal for fulfilling their responsibilities.
  • The authority to name substitutes is implied when it can be reasonably inferred from the nature of the business or common trade practices. Once the substitute is accepted by the principal, the original agent is no longer involved in their transactions.
  • The original agent is not liable for the substitute agent's actions or performance. Once privity is established between the substitute and the principal, the original agent cannot be held responsible for the substitute's conduct.
  • Section 195 imposes a duty on the agent to exercise the same level of care that a reasonable person would when selecting a substitute agent. By doing so, the agent safeguards themselves from liability for the substitute's negligence or actions.

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Differences Between Sub Agent and Substituted Agent

  • Control & Direction: The primary agent maintains control over the sub-agent, who acts on behalf of the original agent. In contrast, the substituted agent is under the direct control of the principal. Although the principal cannot directly control the sub-agent, they can do so through the original agent.
  • Responsibility: The sub-agent is accountable to the original agent for their actions, while the substituted agent is directly responsible to the principal. Specifically, the substituted agent is liable to the principal for fraud and intentional wrongs, whereas the sub-agent is indirectly responsible through the original agent for all other actions.
  • Privity of Contract: There exists no direct contractual relationship (privity of contract) between the sub-agent and the principal. The sub-agent's contractual connection is with the original agent. On the other hand, there is privity between the principal and the substituted agent, allowing direct legal actions between them.
  • Appointment: A sub-agent can be appointed by the original agent based on business needs or trade customs. In contrast, a substituted agent is appointed when the original agent has explicit or implicit authorization from the principal. Substituted agents are typically appointed for specialized tasks requiring unique skills.
  • Liability: The sub-agent is liable to the original agent for their conduct, breaches of duty, fraud, or intentional wrongs. They are directly accountable to both the principal and the original agent for fraud or intentional wrongs. On the other hand, the substituted agent is only liable to the principal for their actions or breaches, with potential liability for the original agent if negligence in selection occurred.
  • Remuneration to Agents: The original agent compensates the sub-agent from their own funds, while the principal directly pays the substituted agent for their services.
  • Responsibility towards Third Parties: Contracts executed by a properly appointed sub-agent on behalf of the principal hold the same legal weight as contracts by the agent or principal themselves, binding the principal to third parties. If the sub-agent is improperly appointed, their contracts do not bind the principal, holding the original agent liable to both the principal and third parties. Actions within the substituted agent's authority are binding on the principal towards third parties.

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FAQs on Difference Between Sub-Agent and Substituted Agent - Civil Law for Judiciary Exams

1. What is the difference between a Sub-Agent and a Substituted Agent?
Ans. A sub-agent is appointed by the agent to perform specific tasks on behalf of the principal, while a substituted agent is appointed by the agent to take over all the rights and duties of the agent in the contract.
2. What is the agent's duty in naming a substitute agent as per Section 195 of the Indian Contract Act, 1872?
Ans. The agent is required to exercise reasonable care and skill in selecting a substitute agent, and the principal has the right to reject the substitute agent if they do not meet the required qualifications.
3. What is the significance of Section 195 of the Indian Contract Act, 1872 in relation to sub-agents and substituted agents?
Ans. Section 195 of the Indian Contract Act, 1872 provides guidelines for agents when appointing substitute agents, ensuring that the principal's interests are protected and that the substitute agent is competent to carry out the duties assigned.
4. Can a sub-agent be held liable for the actions of the principal in a contract?
Ans. No, a sub-agent is not directly liable to the principal in a contract as their actions are performed on behalf of the agent with the agent being ultimately responsible for their actions.
5. How does the concept of sub-agents and substituted agents impact the relationship between the principal and the agent in a contract?
Ans. The appointment of sub-agents and substituted agents allows the agent to delegate tasks and responsibilities, thereby facilitating the efficient execution of the contract while maintaining the agent's overall control and accountability.
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