Sadasivam vs K. Ramanathan Chettiar and another

Alagiriswami, J.—The plaintiff is the appellant. He was substituted in a place of the original plaintiff. He is an assignee from the original

plaintiff. The original plaintiff entrusted a sum of shares to the first defendant, who was his financier. The first defendant entrusted those shares to

the second defendant instructing him to sell them. The second defendant has sold some of the shares, but has not paid the money either to the first

defendant or to the original plaintiff. The appellant''s assignor P.W. 1 had given the first defendant a letter releasing him from all liabilities in respect

of the transaction relating to shares. The suit was filed against both the defendants for recovery of the amount realised by the second defendant by

the sale of the shares. The trial court decreed the suit against the first defendant after holding that the letter issued by the P.W. 1 releasing the first

defendant was obtained from him under coercion and therefore, the first defendant was liable. The trial court also held that the second defendant

was not liable because there was no privity of contract between P.W. 1 and the second defendant. The first defendant appealed to the

Subordinate Judge of Coimbatore. The latter disagreed with the conclusion of the trial court that the letter releasing the first defendant from all

liabilities was obtained under coercion and therefore held that the first defendant would not be liable. As regards the second defendant the

appellate court held that it was not in a position to grant any decree against him. The reasoning on which this decision is based is found in

paragraph 12 of his judgment is as follows:--

It may look hard that the plaintiff''s assignor could not realise his amount because of the dispute between defendants 1 and 2. It is possible to

say that if an appeal had been preferred against the judgment dismissing the suit against the second defendant the question as to whether any

damages are really due to the second defendant can be determined and conflicting claims of the three can be adjusted. I am afraid that it cannot be

done now either here or in the trial court by remanding the suit for fresh disposal. The plaintiff however is not without his remedy. The retention by

the second defendants of the money of the plaintiff when no claim for damages can be made against him, would be wrongful and the plaintiff''s

assignor and now the plaintiff himself may be entitled to recover the amount either along with the first defendant or in his presence from the second

defendant on the basis that no amount was due to the second defendant in damages. The cause of action for such a suit would be entirely different

from the cause of action of this suit. That is not a matter on which this court can express any opinion binding on the parties. But the learned District

Munsif was not right in thinking that Ex. P-1 is vitiated by coercion or fraud. The pressure if any that was responsible for the plaintiff''s assignor in

excepting Ex. P-1, was the pressure of circumstances and not the pressure by the first defendant. The fact that Ex. A-1, A-2 were given to the

plaintiff''s assignor and the money of the cotton mills share was also given shows that the plaintiff''s assignor got an advantage which he could not

have otherwise got by executing Ex. B. 1.

In the suit, the first defendant had contented that P.W. 1 had instructed him to sell the shares through the second defendant. But the lower

appellate court has found that there was no privity of contract between P.W. 1 and the second defendant.

In this court it is argued on behalf of the appellant that the lower appellate court was wrong in holding that in the absence of an appeal by the

plaintiff against the second defendant against the judgment dismissing the suit against, him, no decree can be given against him. Reliance is

specifically placed on or XLI rule 33 C.P.C. for this propose. In this, I think, the appellant is undoubtedly right. The decision of the Supreme Court

in Pannalal Vs. State Bombay and Others, supports the proposition that where a plaintiff files a suit against two defendants and the suit is decreed

against one of them, but dismissed against the other and the person against whom the suit has been decreed files an appeal and the appellate court

finds that the decree against him cannot be sustained, it is open to the appellate court to pass a decree against the person against whom the suit has

been dismissed, if he is the respondent in the appeal. In this case, the second defendant was a respondent in the appeal filed by the first defendant

before the lower appellate court and therefore, it was open to the lower appellate court to have passed a decree against the second defendant if it

had hold that the second defendant was otherwise liable. The question, therefore, is whether the second defendant is liable. It may be mentioned at

this stage that the sum with which we are now actually concerned is Rs. 1485, representing the sale price of ten shares of the Premier Mills. The

second defendant claimed that he had some claim against the first defendant in respect of the other shares which had been handed over by the first

defendant and which he sold on his behalf.

The first question is whether the second defendant could be hold to be a sub-agent. Under S. 190 of the Indian Contract Act, ""An Agent cannot

lawfully employ another to perform acts which he has expressly or impliedly undertaken to perform personally, unless by the ordinary custom of

trade a sub-agent may, or, from the nature of the agency, a sub-agent must, be employed."" In this case, there is no evidence as to whether by the

ordinary custom of trade a sub-agent may be employed or from the nature of the agency, a sub-agent must be employed. So, the case must really

proceed on the basis that the second defendant is not a sub-agent at all. Under Sec. 192 of the Indian Contract Act. ""here a sub-agent is properly

appointed, the principal is, so far as regards third person''s 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"". The agent is responsible to the principle for the acts of the sub-agent. The sub-agent is responsible

for his acts to the agent, but not to the principle, except in cases of fraud or wilful wrong. But this case may have to be approached from both the

angles; one that the second defendant is a sub-agent and the other, that he is only the first defendant''s agent and not a sub-agent. The position of

the sub-agent, as a reading of Sec. 192 of the Act shows is really that of an agent of the principal agent and that he is not liable to the principal

except in cases of fraud or wilful wrong. The subsequent section of the Contract Act refer to the various liabilities of the agent like accounting etc.

All those, of course, will not apply to a sub-agent in relation to the principal Sec. 218 of the Act provides that subject to such deductions

(mentioned in the earlier sections) the agent is bound to pay to his principal all sums received on his account. The question that then arises is,

whether the sub agent is bound to pay to the principal and not merely to his direct principal, that is the agent all sums received by him. Bowstead,

on Agency, 12th Edn. at page 72, in his introductory note points out the position with regard to the sub-agent as follows :--

English and American writers have recently stressed the ambiguity of the word ''sub-agent''. In cases and discussions on this topic errors are apt to

result from the failure to distinguish two separate classes of situation. These are, to adopt Professor Powell''s language:(i) the situation where the

agent (A) has authority to appoint an agent'' (B) to the principal; and (ii) the situation where the agent (A) has authority to appoint a sub agent'' (B)

to perform the authority''. In situation (i) the exercise of the authority creates a contractual relationship of principal and agent between P and B. A

may be answerable to P for the manner in which he has exercised his authority to appoint; but he is not B''s principal that is to say, he is not bound

by or liable for B''s acts and not the rights or duties of a principal vis-a-vis B. P is so bound and liable and has those rights and duties. This is not

true case of sub-agency. In situation (ii), on the other hand, B is clearly A''s agent; A as principal gives B authority to perform some or all of the

tasks that are to be performed for P. A is answerable both to P and to third persons for B''s conduct, and to B for his remuneration and indemnity.

B is a sub-agent properly so called. The present chapter is concerned with sub-agents in this second sense.

Indeed, Professor Seavey is able to say, on the basis of American decisions that ''a sub-agent is liable to the principal for negligence in

performing or failing to perform duties undertaken for the principal. He is also under duty to account for anything received for the principal and is

liable as a fiduciary for any breach of a fiduciary duty. In England we cannot go so far. The general duty to account is denied by long standing

decision; the requirement of privity contract still apparently excludes, in this field, liability for negligence where privity does not exist. The limited

extent to which the incidents of the agency relates are recognised as applying between principal and sub-agent reflects the deep-seated tendency of

English law to regard that relation as essentially contractual; it the agent has authority to establish privity of contract between principal and sub-

agent, those two parties will be regarded as principal and agent and most of the ordinary consequences of this relationship will follow; if not, the

relationship and most of its consequences will be denied. This though not perhaps satisfactory, appears to be the result of the English decisions.

Further, in Art. 42, discussing the relations between principal and sub-agent, the learned author points out that there is no privity of contract

between a principal and sub-agent as such whether the sub-agent was appointed with authority of the principal or not; and the rights and duties

arising out of the contracts between the principal and agent, and between the agent and sub-agent, respectively, are only enforceable by and

against the immediate parties thereto. Among the illustrations given there, is the following :--

A ship was consigned to A, an agent in China, for sale, a minimum price being fixed, A, with the knowledge and consent of the principal,

employed B to sell the ship. B, being unable to find a purchaser, bought the ship himself at the minimum price, and subsequently resold her at a

larger profit. It was held that privity of contract existed between the principal and B, and that B was liable to account to the principal for the profit

made on the resale.

It is further pointed out that the fiduciary situation of the sub-agent may give raise to a liability to account in such a case even in the absence of

privity of contract. The illustration is taken from the case in D. Pussche v. Alt (1877) 8 Ch. D. 286 C.A.. In the second illustration given under that

Article it was held that the broker was not liable to account to the principal for the proceeds of the goods sold, and that the principal was not

entitled to recover the balance of the proceeds from the broker in the factor''s name without allowing the amount due from the factor to the broker

in respect of the other transactions to be set off, though the broker has reason to believe that the factor was acting as an agent, ignoring the first

illustration, where it has been held that there was a privity of contract, between the principal and the sub-agent, the second illustration seems two

show that the principal would be entitled to recover from the sub-agent the amount which he can show to be is, subject, of course, to the sub-

agent''s right to recover the amount which he would be entitled to recover from his principal, that is the principal agent. In Halsbury''s Laws of

England, 3rd Edn. Volume I, at page 172, paragraph 406, the position of law is stated as follows:--

406......The sub-agent not as a rule being brought into contractual relationship with the principal, must lock to the agent for his remuneration and

indemnity. Thus, where an agent for the transport of goods, without authority deligated his entire duties, it was held that the person performing them

was not entitled to recover for his services against the principal. Similarly a sub-agent is, as a general rule, accountable only to the agent who

employs him, and that agent in turn to his principal, so that a sub-agent taking over the conduct of the principal''s business is not liable to render an

account to the principal and cannot even he sued by him for money had and received to the principal''s use.

But a reference is also made in the foot note to the case of Blackburn v. Mason (1893) 68 L.I. 510 which was a case of money had and

received from London agent, stockbroker. In that decision the plaintiff had instructed a stockbroker Caw to sell certain shares standing in his

name. Caw telegraphed to the defendant to sell those shares. The defendant accordingly sold those shares. The defendant then remitted to Caw,

the balance left from the proceeds of the sale after deducting there from the amount in which Caw was then indebted to him upon his private

account. The court field that the defendant was not entitled to deduct from sale proceeds of the plaintiff''s shares any amount which Caw owe to

the defendant. The defendant''s plea in that case was that there was a custom of the London Stock Exchange that, when a London broker was

employed directly by a country broker, he had the right of treating the country broker as a principal although acting for some one else and that

therefore, the London broker was entitled to use any claim he might have against his principal. The court held that such a custom was unreasonable

and cannot be given effect to. In that case, it does not seem to have been disputed at all that the plaintiff would be entitled to maintain the suit. This

was apparently on the ground of the title of the plaintiff and that the money with the defendant should be treated as money had and received to the

plaintiff''s use. The decision In Ex parte Edwards 8 Q.B.1881 to 1882, 262 is not really in point because it proceeds on the basis of the court''s

power over its own offices.

One case, which is of considerable in this matter is the decision of the Privy Council in Peacock v. Baijnath and Graham v. Baijnath ILR 12 Cal.

573, In that case the Peacock and Co, were consignors of certain goods to Tambaci and Son, who employed the defendant Baijnath as the

person to dispose of the goods so consigned. Tambaci became a bankrupt and Baijnath claimed a lien over the goods which had been entrusted to

him for sale in respect of moneys due to him from Tambaci and Son. This was a claim of a lien on the basis of an agreement and the courts found

that there was no such agreement. Dealing with the question of the right of Peacock and Co, in relation to their goods in the possession of Baijnath,

the Calcutta High Court held, that Peacock and Co. was entitled to recover on the basis of title. Dealing with the question as to the claim of

Peacock and Co., in respect of moneys for goods already sold and accounted by Baijnath in due course to Tambaci, the Calcutta High Court

stated as follows :--

As to this, we think the claim cannot be supported. There are only three grounds, so far as we are only aware, on which a principal has been held

entitled to sue a sub-agent employed by his agent. The first is title, whereby he may follow his property in the hands of the sub-agent if he finds it

there. This was the ground of decision in the House of Lords in Mideed v. Maspons 9 Q.B.D. 530 and on this ground we have held Peacock and

Co. entitled to recover certain of their goods. The second ground is privity of contract. The only remaining ground on which a sub-agent could be

made liable to account to the principal for goods sold through the sub-agent is fraud, or something equivalent to fraud. The law applicable to India

upon this point is now embodied in Sec. 192 of the Contract Act. This section, which seems to us for this purpose substantially in accordance with

the law in force before the passing of the Contract Act says:--

The sub-agent is responsible for his acts to the agent, but not to the principal, except in cases of fraud or wilful wrong"".

The Privy Council upheld the decision. The Peacock and Company''s suit was dismissed so far as it concerned the goods sold and accounted

for. It was declared that Messrs. Peacock were entitled to 104 bales and the Banian was ordered to pay the sale price of so many bales as had

not been delivered to Peacock and Co. Thus, it is obvious from these decisions that though a sub-agent is not directly accountable to the principal,

the principal can maintain a suit against the sub-agent for recovery of his goods which are with the sub-agent or for their value. The plaintiff in this

case would, therefore, have been entitled to maintain the suit against the second defendant in respect of the sale proceeds of the shares belonging

to the plaintiff which had been sold by him and it would have been possible for the lower appellate court itself in this case to grant a decree to the

plaintiff as against the second defendant. Of course, the second defendant would be entitled to set off as against this amount, whatever amount be

was entitled to, from the first defendant.

Even treating the second defendant as not being a sub-agent, it is obvious that in this case the money in the hands of the second defendant is

the money of the plaintiff, to which he is entitled. The second defendant has no claim as against the plaintiff. The second defendant has no right to

retain the amount realised by the shares. He is, therefore, bound to pay it either to the plaintiff, who is the owner of the shares or to the first

defendant who handed them to him. He cannot escape without paying either of them. Of course, if he has any claim as against the first defendant,

he would be entitled to set it off against the plaintiff''s claim. Therefore, from either point of view, the second defendant cannot escape his liability.

The second appeal is, therefore, allowed and the judgment of the lower appellate court dismissing the plaintiff''s suit is set aside. The lower

appellate court will restore A.S. No. 142 of 1962 to its file and dispose of it afresh. If it finds it necessary, for a proper disposal of the appeal that

the claim of the second defendant, if any, as against the first defendant ought to be considered and evidence taken for that purpose, it may either

do so itself or direct the trial court to record the evidence and submit for consideration along with the other evidence in the case in disposing of the

appeal. The appellant will get a refund of the court fee paid by him in this court Costs will abide and follow the result. I think it is hardly necessary

to say that the plaintiff cannot get a decree as against the first defendant. His being on record is only for deciding whether the second defendant can

have any claim as against him, and to that extent the plaintiff''s claim against the second defendant would be reduced. There can be no question of a

decree against the first defendant himself in favour of the plaintiff.