An agency is a consensual relationship created by contract or by law where the principal grants authority to an agent to act on behalf of the principal to deal with a third party. An agency relationship is fiduciary in nature and the actions and words of an agent exchanged with a third party bind the principal.
A subagent is a person to whom the agent delegates as his/her agent. Through a subagent, the agent can perform an act for the principal. If an agent feels that the appointment of subagents are necessary to the proper transaction and carrying on of the business committed to the agent, then the agent has an implied authority to make such appointments[i]. Generally, if an agent employs a subagent, then the agent is the employing person and the principal is not a party to the contract of employment. However, a principal can be a party if s/he becomes a surety[ii].
If an agent employs a subagent for his/her principal, and by his/her authority, then the subagent is the agent of the principal and is directly responsible to the principal for his/her conduct, and if damage results from the conduct of such subagent, the agent is only responsible in case s/he has not exercised due care in the selection of the subagent[iii].
Whereas, if the agent employs a subagent on his/her own account to assist him/her in the work at his/her own risk, then there is no privity between such subagent and the principal. Under this circumstance, a subagent is only responsible to the agent, while the agent is responsible to the principal for the actions done by him/her and the actions by the subagent[iv].
An agent is responsible to the principle for the conduct of a subagent with reference to the affairs of the principal entrusted to the subagent[v]. It was observed in Shaw v. O’Byrne, 64 Utah 139 (Utah 1924), that if an agent is authorized by owners to sell certain land, and if s/he authorizes a subagent to perform the same, then the sale made by such subagent will be binding upon the owners. However, a subagency cannot rise higher than the general agency and when that general agency ceases to exist, it will automatically dissolve the subagency[vi].
An agent is not liable to third persons for the misfeasance or malfeasance of a subagent employed by him/her in the service of his/her principal, unless s/he is guilty of negligence in the appointment of such subagent or improperly co operates in the acts or omissions of the subagent[vii].
[i] Consolidated Underwriters Ins. Co. v. Landers, 285 Ala. 677 (Ala. 1970)
[ii] McKnight v. Peoples-Pittsburgh Trust Co., 360 Pa. 290 (Pa. 1948)
[iii] Baker-Riedt Motor Co. v. Moore, 93 Okla. 153 (Okla. 1923)
[v] Sanoma, Inc. v. Interested Underwriters Concerned Via Ewing Int’l Marine Corp., 2001 U.S. Dist. LEXIS 9312 (E.D. Pa. July 5, 2001)
[vi] Union Casualty & Surety Co. v. Gray, 114 F. 422 (3d Cir. Pa. 1902)
[vii] Baisley v. Henry, 55 Cal. App. 760 (Cal. App. 1921)