Relationship between principal agent and sub-agent depends on the question whether the agent has an authority to appoint sub-agent and whether the sub-agent is properly appointed.
If then sub-agent is properly appointed:
1) the principal is bound by and responsible for the acts of a sub agent;
2) the agent is responsible to the principal for the acts of the sub-agent;
3) the sub agent is responsible for his acts to the agent, but not to the principal except in case of fraud or willful wrong.
It is of interest to observe clause (3) above. Sub-agent is responsible and accountable to the agent and not to the principal by clause (1). Principal is liable for acts of the sub-agent if he is properly appointed. Sub-agent is not responsible to the principal because there is no privity of contract between the principal and sub agent. It is case of fraud or willful wrong that the principal can proceed against the sub-agent. Principal can, however, against the agent for acts of a sub-agent. As far as the rights of a third party are concerned, he can enforce the wrongs of a sub-agent on the principal if the sub-agent is properly appointed. Principal is therefore liable for acts of the sub-agents if he is properly appointed.
Where B employees C as Kutcha adhatia for carrying on the business on behalf of A the position of C was that of sub-agent. As a sub-agent C is not answerable to A and the suit for accounts by A against C is not maintainable.
If the sub-agent is not properly appointed: Where an agent has appointed a person to act as sub agent without having authority to do so, the principal shall not be deemed to be represented or responsible for the acts of the sub-agent so employed, nor is such a sub-agent responsible to the principal. The agent is responsible for the acts of such a sub-agent both to the principal and to third persons.
Sub-agent is said to be improperly appointed where agent delegates his powers without authority from the principal or where none of the circumstances stated above exist which necessitate appointment of a sub agent.
It will be observed that where a sub-agent is not properly appointed, the liability of agent is also towards third parties. As a rule, we have seen that an agent is responsible to the principal and it is the principal who is responsible for the acts of his agent to the third party. However, the section throws additional liability on the agent where he has improperly appointed a sub-agent. Agent stands liable to the third party for the acts of a sub-agent.
Termination of sub-agent’s authority: (Sec 210) Lastly it must be noted that the termination of the authority of an agent causes the termination of the authority of all sub-agents appointed by him.
Liabilities of principal, agent and sub-agent: The agent is responsible to the principal for the acts of a sub-agent and the sub-agent is responsible for his acts to the agent but not the principal, except in cases of fraud and willful wrong.
Where an agent improperly appoints a sub-agent, the agent is responsible for his acts both to the principal and to third parties. The principal in such cases is not responsible for the acts of the sub-agent nor is the sub-agent responsible to the principal. But where a sub-agent is properly appointed, the principal as regards third person, is represented by the sub-agent, and is bound by and responsible for his acts, as if he were an agent originally appointed by the principal.
Where an agent under an express or implied authority has named another person to act for the principal, such a person is not a sub-agent, but an agent of the principal. There is no liability on the agent appointing him provided the agent so appointing exercises discretion as a man of ordinary prudence would exercise is his own case (Secs 194 & 195). Such an agent is called a substitute agent.