Introduction
In the realm of agency law under the Indian Contract Act, of 1872, the roles of sub-agent and substituted agent play crucial but distinct roles in business transactions. These roles are defined by specific legal principles, responsibilities, and implications that every business entity and agent should comprehend. Below, we delve into the contrasts between these two types of agents to clarify their roles and implications.
Sub Agent
A sub-agent, as defined under Section 191 of the Indian Contract Act, is an individual engaged and directed by the original agent within the scope of the agency’s business. The original agent exercises control and authority over the sub-agent, who acts under the principal-agent relationship. This relationship means that any actions of the sub-agent can create rights and liabilities for the original agent, akin to those created by the agent for the principal.
Key Points about Sub Agent
Control and Direction: The original agent retains full control and direction over the sub-agent’s activities.
Responsibility: The sub-agent is accountable to the original agent for their actions, including negligence, fraud, or breaches of duty.
Privity of Contract: There is no direct contractual relationship between the sub-agent and the principal. Instead, the sub-agent’s contractual privity exists with the original agent.
Appointment: The original agent appoints a sub-agent when the agency’s business or trade customs necessitate it.
Liability: The sub-agent is liable to both the original agent and indirectly to the principal for any misconduct or breaches.
Remuneration: Compensation or remuneration to the sub-agent typically comes from the original agent.
Substituted Agent
In contrast, a substituted agent, governed by Section 194 of the Indian Contract Act, is appointed by the original agent with the principal’s knowledge and consent to handle specific aspects of the agency’s business. Unlike a sub-agent, a substituted agent does not act under the original agent’s control but directly represents the principal in designated matters.
Key Points about Substituted Agent
Control and Direction: The substituted agent operates under the direct control and supervision of the principal, not the original agent.
Responsibility: Direct responsibility lies with the substituted agent to the principal for their actions, including fraud or willful wrongs.
Privity of Contract: There exists a direct contractual relationship (privity of contract) between the principal and the substituted agent.
Appointment: The original agent appoints a substituted agent with explicit or implicit authority from the principal to do so.
Liability: The substituted agent’s actions bind the principal directly, and the principal can sue or be sued by the substituted agent.
Remuneration: The principal compensates the substituted agent directly for their services.
Conclusion
Understanding the distinctions between a sub-agent and a substituted agent is vital for ensuring clarity in agency relationships under the Indian Contract Act. While both types of agents facilitate business transactions, their roles in control, responsibility, liability, and contractual privity differ significantly. By comprehending these differences, principals, agents, and third parties can navigate agency relationships with confidence and clarity.
FAQs about Sub-Agents and Substituted Agents
Q1: Can a sub-agent directly enter into contracts on behalf of the principal?
No, a sub-agent acts under the control and authority of the original agent, not directly for the principal. Contracts entered into by a sub-agent bind the original agent, who in turn binds the principal. The sub-agent does not have a direct contractual relationship with the principal.
Q2: What happens if a substituted agent exceeds the authority of the principal?
Suppose a substituted agent exceeds the authority granted by the principal. The actions of the substituted agent may not bind the principal. The principal can only be held liable for actions within the scope of the authority granted to the substituted agent by the original agent with the principal’s consent.
Q3: How does liability differ between a sub-agent and a substituted agent?
A sub-agent is primarily liable to the original agent, who in turn is responsible to the principal for the sub-agents actions. In contrast, a substituted agent is directly liable to the principal for their actions within the scope of their appointed authority. The principal can directly sue or be sued by the substituted agent in relation to their agency activities.
Also Read: Termination of Agency in Contract
Reference: shiacollege