Estoppel

Updated 1/5/2024 PG

A principal may be liable for a contract entered into by an agent acting without authority if the doctrine of equitable estoppel applies. In the context of agency, estoppel will result in principal liability if (1) the principal intentionally or carelessly caused a third-party to believe that the agent had the authority to bind the principal; or (2) the principal knew that a third party incorrectly believed that the agent had the authority to bind the principal and the principal did not take reasonable steps to notify the third party of the true facts. Restatement (Third) of Agency § 2.05. Estoppel is similar to apparent authority. In both, the agent lacks actual authority but the deal is binding because of the principal’s manifestations. In apparent agency, the principal's manifestations to the third party creates authority. With estoppel authority, the principal induces the third party to rely or sees the third party relying and doesn't stop them.

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