Relationship between the principal, agent and sub-agent depends on the important questions whether the agent had authority to appoint a sub-agent and if so, whether the sub-agent was appointed properly. In the circumstances discussed above, appointment of a sub-agent is legally justified.
1. When the appointment of sub-agent is legally justified?
Where an agent appoints a sub- agent, the principal is liable for the acts of the sub-agent. Since there is no privity of contract between the principal and the sub-agent, the sub-agent is not directly answerable to the principal, except in case of fraud or willful wrong.
Similarly, principal is not liable to the sub-agent. Thus the legal relations of the principal, agent and sub-agent may be summarized as follows:
(a) The principal is bound by the acts of the sub-agent.
(b) The principal cannot hold the sub-agent liable, except in cases of fraud or willful wrong.
(c) The sub-agent cannot hold the principal liable, say for his remuneration.
(d) The agent is liable to both, i.e., to the principal for the acts of the sub-agent and to the sub- agent for the acts of the principal. V
(e) The agent is liable to the sub-agent for his remuneration.
2. When the appointment of the sub-agent is not legally justified:
If an agent appoints a sub- agent without implied or express authority, i.e., without having authority, the principal is not bound by the acts of the sub-agent. In such cases, the agent will be personally liable to the principal as well as the third parties. The principal, in such a case, is not represented by or responsible for the acts of the sub-agent, nor is the sub-agent responsible to the principal (Sec. 193).