Future Business Leaders of America (FBLA) Business Law Practice Exam

What is agency by estoppel?

1. A formal agency agreement

2. Implied authority from conduct of the parties

3. Written documentation of agency

4. A waiver of agency

The correct answer is: Implied authority from conduct of the parties

Agency by estoppel occurs when a principal creates an appearance of an agency relationship through their conduct or representations, leading a third party to believe that an agency exists. In this scenario, even in the absence of a formal agreement, the actions or omissions of the principal can bind them to the commitments made by the purported agent, since the third party has reasonably relied on the principal's representations. The concept hinges on the idea that the principal should not be allowed to deny the existence of the agency relationship when their behavior has led others to assume that one exists. This occurs frequently in business relationships where one party represents itself in a way that suggests they have authorized another party to act on its behalf, thus causing reliance by third parties on these representations. In contrast, a formal agency agreement would involve explicit and documented consent between the principal and agent, which does not apply in the case of agency by estoppel. Similarly, written documentation of agency refers to formal agreements that establish the relationship clearly, which isn’t characteristic of agency by estoppel. A waiver of agency, on the other hand, implies giving up one’s rights or claims regarding an agency, which is a different concept altogether. Therefore, the idea that agency by estoppel stems from the implied authority derived from