What is agency by estoppel?

• A. An agency relationship is created solely by the agent's stated intention.
• B. An agency relationship is created when the agent's actions lead a third party to believe there is an agency.
• C. Agency by estoppel is created because the principal's action caused a third party to believe an agency exists.
• D. Agency by estoppel requires a formal court ruling.

Answer: (C)

Agency by estoppel happens when a principal’s conduct makes a third party reasonably believe that someone is the principal’s agent, and the principal cannot later deny that relationship because it would penalize the third party’s reliance. The key idea is that the belief arises from the principal’s actions or representations, not merely from the agent’s intentions. When the principal presents or allows an appearance of authority, and someone relies on that appearance in dealing with the agent, the principal is estopped from contradicting the existence of the agency.

That’s why the best answer centers on the principal’s role in causing the third party to believe an agency exists. It’s not about the agent’s stated intention alone, nor about a required court ruling, and it isn’t created by the agent’s actions without the principal’s inducement.