Meaning

When a person employs another person to do any act for himself or to represent him in dealing with third persons, it is called a ‘Contract of Agency’. The person who is so represented is called the ‘principal’ and the representative so employed is called the ‘agent (Sec. 182). The duty of the agent is to enter into legal relations on behalf of the principal with third parties. But, by doing so he himself does not become a party to the contract to the contract not does he incur any liability under that contract. Principal shall be responsible for all the acts of his agent provided they are not outside the scope of his authority.

Example: A of Calcutta has a shop in Delhi. B, the manager of the shop, has been ordering and purchasing goods from C for the purpose of the shop. The goods purchased were being regularly paid for but of the funds provided by A. B shall be considered to be an agent of A by his conduct.

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.

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.

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. 

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.

A instructs B, a merchant, to buy a ship for him. B employs a ship surveyor of good reputation to choose a ship for A. The surveyor makes the choice negligently and the ship turns out to be seaworthy and is lost. B is not, but the surveyor is, responsible to A. (a) A instructs B, a merchant, to buy a ship for him, B employs a ship –surveyor of good reputation to choose a ship for A. The surveyor makes the choice a negligently and the ship turns out to be seaworthy and is lost. B is not,
but the surveyor is, responsible to A.

Differences	Sub-Agent	Substituted Agent
Control & Direction	Controlled by original agent	Controlled by principal directly
Responsibility	Responsible to original agent	Responsible directly to principal
Privity of Contract	Privity with original agent	Privity with principal
Appointment	Appointed by original agent based on business needs or trade customs	Appointed by original agent with explicit or implied authority from principal
Liability	Liable to original agent for acts or misconduct	Controlled by the original agent
Remuneration	Paid by original agent	Liable to the principal for acts or breaches
Responsibility towards Third Parties	No direct contractual relationship with principal	Direct contractual relationship with principal