Difference Between Sub Agent and Substituted Agent

A sub-agent and a substituted agent are different.

A sub-agent is an individual employed by and under the control of the original agent, operating within the scope of the agency’s business.

A substituted agent, on the other hand, is a person appointed by the original agent with the principal’s consent to handle specific 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:

Sub-Agent

A sub-agent is defined under Section 191 of the Indian Contract Act as an individual who is employed by and acts under the control of the original agent in the agency’s business.

The original agent hires the sub-agent to work under their control and authority. The relationship between the original agent and the sub-agent is that of the principal and agent. The regulations governing the agency automatically apply 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 Balsamo v. Medici (1984) case, the Chancery Court ruled that the principal cannot directly sue the sub-agent for negligence because there is no direct contractual relationship between them. However, according to Section 192 of the Indian Contract Act, 1872, the principal can directly sue the sub-agent in cases of fraud and intentional wrongdoing.

In the Raghunath Prasad v. Seva Ram Tikam Das (1980) case, the Allahabad High Court held that the principal could sue the sub-agent through the original agent for any losses since there is a contractual relationship between the original agent and the sub-agent.

A properly appointed sub-agent can make the principal liable for any contracts entered into on behalf of the principal. The contract will be treated as if the principal entered into it personally. The original agent is accountable to the principal for any actions of the sub-agent, including negligence, fraud, intentional wrongdoing or any other breach of duty.

In the Nensukhdas Shivnaraen v Birdichand case, 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 without the authority to appoint a sub-agent does so, the agent will be considered a principal to the sub-agent. The original agent will bear full responsibility to both the principal and third parties for the actions of this individual. However, this individual will not be 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, as defined in Section 194 of the Indian Contract Act, 1872, refers to a person appointed by the original agent with the principal’s knowledge and consent to handle a specific part of the agency’s business. Two conditions must be met by the agent before appointing a substituted agent. 

Firstly, the principal must have given the original agent the authority, either explicitly or implicitly, to make such an appointment. Secondly, the original agent must have designated a person to act on behalf of the principal in that particular aspect of the agency’s business.

When the agent makes such an appointment, they are merely acting as a conduit for the direct authority granted to them by the principal. This principle was established in the case of Nensukhdas Shivnaraen v. Birdichand.

The appointment of a substituted agent by the original agent does not constitute a delegation of the principal’s duties by the original agent. Instead, it establishes a direct relationship between the principal and the person named by the original agent. In this case, privity is established between the principal and the person named by the original agent. 

Consequently, the named person is considered the agent of the principal, not the agent of the original agent. This privity establishes a direct relationship between the substitute agent and the principal and the substitute agent is directly accountable to the principal for carrying out their duties.

The authority to appoint such substitutes is implied when it can be reasonably inferred from the nature of the business or trade practices. Once the substitute is accepted by the principal and privity is established between them, the original agent is no longer involved in the business transactions between the substitute and the principal.

The original agent is not responsible for the substitute agent’s competence, character or negligence. Once the relationship is established between the principal and the substituted agent, the original agent cannot be held accountable for the conduct of the substituted agent.

Section 195 of the Indian Contract Act, 1872 addresses the agent’s duty in naming a substitute agent. This Section imposes a duty on the agent to exercise the same level of care that an ordinary reasonable person would exercise in a similar situation when selecting a substitute agent. If the agent exercises such care, they will not be held responsible to the principal for any negligence or actions of the substituted agent.

Difference Between Sub Agent and Substituted Agent

There are several key differences between a sub-agent and a substituted agent, including control and direction, responsibility, privity of contract, appointment, liability, remuneration and responsibility towards third parties:

Control & Direction 

The original agent exercises all control and direction over the sub-agent, as the sub-agent acts as an agent of the original agent. In contrast, the substituted agent is directly controlled and directed by the principal. While the principal cannot directly control the sub-agent, they can do so through the original agent.

Responsibility 

The sub-agent is responsible for their actions to the original agent, whereas the substituted agent is directly responsible to the principal for their actions. The substituted agent is specifically responsible to the principal for fraud and willful wrongs. The sub-agent is indirectly responsible to the principal through the original agent for all other acts.

Privity of Contract 

There is no contractual relationship (privity of contract) between the sub-agent and the principal. The sub-agent’s privity of contract is with the original agent. On the other hand, there is privity between the principal and the substituted agent. The substituted agent can be directly sued by and can also sue the principal. The principal cannot directly sue or be sued by the sub-agent, except in cases of fraud and willful wrongs.

Appointment 

The original agent can appoint a sub-agent when the nature of the agency’s business or trade customs demands it. A substituted agent is appointed when the original agent has express or implied authority from the principal to make such an appointment. A substituted agent is typically appointed for specific tasks that require special skills or cannot be performed by the agent themselves.

Liability 

The sub-agent is liable to the original agent for their actions. The sub-agent is directly liable to the original agent for misconduct, breaches of duty, fraud or willful wrongs. The sub-agent is liable to both the principal and the original agent for fraud or willful wrongs. On the other hand, the substituted agent is only liable to the principal for their actions or breaches. The principal can hold the original agent liable for the actions of the substituted agent only if the original agent negligently chose that person.

Remuneration to Agents 

The original agent pays the commission or remuneration to the sub-agent from their own pocket or share. The principal directly compensates the substituted agent.

Responsibility towards Third Parties 

Contracts entered into by a properly appointed sub-agent on behalf of the principal have the same legal effect as contracts entered into by the agent or the principal themselves. The principal is bound to third parties for such contracts. However, if the sub-agent is not properly appointed, the sub-agents contract does not bind the principal in relation to third parties. In such cases, the original agent is liable to both the principal and the third party. Any actions performed by the substituted agent within their authority are binding on the principal in relation to third parties.