Sadasivam vs K. Ramanathan Chettiar and Another

Alagiriswami, J.—The Plaintiff is the Appellant. He was substituted in 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 F.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 amounts realized 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 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, he 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 11 of his judgment, which 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 2nd 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 Defendant 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 exhibit B-1 is vitiated by coercion or fraud. The pressure if any that was responsible for the Plaintiff''s assignor in executing exhibit B-1 was the pressure of circumstances and not the pressure by the First Defendant. The fact that exhibits A-1 and 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 exhibit B-1.

In the suit the first Defendant had contended 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 second Defendant against the judgment dismissing the suit against him, no decree can be given against him. Reliance is specifically placed on Order XLI, Rule 33, Code of Civil Procedure, for this purpose. 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 waa 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 the decree against the second Defendant, it had held 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. 1, 485 representing the sale price of 10 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 held to be a sub-agent. u/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 or 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. u/s 192 of the Indian Contract Act,

Where a sub agent is properly appointed the principal is, so far as regards third persons, 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 principal for the acts of the sub-agent. The sub-agent is responsible for his acts to the agent, but not to the principal, 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 Section 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 refers 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. Section 218 of the Act provides that subject to such deductions (mentioned in the earlier sections) the agent is bound to pay 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. How stead, On Agency, twelfth edition, at 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 situationwhere 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 has not the rights or duties of a principal vis-a-vis BP is so bound and liable and has those rights and duties. This is not a true case of sub-agency.

In situation (ii), on the other hand, B is dearly 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-agent 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 a 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 decisions the requirement of privity of contract still apparently excludes, in this field, liabiity for negligence where privity does not exist. The limited extent to which the incidents of the agency relation are recognized as applying between principal and sub-agent reflects the deep seated tendency of English law to regard that the relation as essentially contractual; if 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 no perhaps satisfactory, appears to be the result of the English decisions.

Further, in Article 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 (he knowledge and consent of his principal, employed B to rail the ship. B, being unable to find a purchaser, bought the ship himself at the minimum price, and subsequently resold her at a large 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 re-sale.

It is further pointed out that the fiduciary situation of the sub-agent may give rise 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 De-bussche 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 to show that the principal would be entitled to recover from the sub-agent, the amount which he can show to be his 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, third edition, volume I at page 172 paragraph 406, the position of law is stated as follows:-

406....The sub-agent not as a rule being bought into contractual relationship with the principal, must look to the agent for his remuneration and indemnity. Thus, where ah agent for the transport of woods without authority delegated his entire duties, it was held that the person performing them wan 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 be sued by him for money had and received to the principal''s use.

But a reference is also made in the footnote to the case of Blackburn v. Mason (1) which was a case of money had and received from London agent, stock-broker. In that decision the Plaintiff had instructed a stock-broker 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 therefrom the amount in which Caw was then indebted to him upon his private account. The Court held that the Defendant was not entitled to deduct from sale proceeds of the Plaintiff''s shares any amount which Caw owed 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 (1881) 8 Q.B. 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 help in this matter, is the decision of the Privy Council in Peacock v. Baijnath and Graham v. Baijnath (1891) ILR Cal. 573 (P.C.) In that case one 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: (at page 585).

As to this, we think the claim cannot be supported. There are only three grounds, so far as we are 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 Mildred v. Maspons (1883) 8 L.R. App. Cas. 874. 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 Section 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-agents is responsible for his acts to the agent, but not to the principal, except in case of fraud or wilful wrong.

The Privy Council upheld the decision. 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 he 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 realized 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 Appeal Suit 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 it for consolidation 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 results.

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.