Agency by Estoppel
1. Meaning of Agency by Estoppel
Definition:
Agency by estoppel occurs when a person (principal) represents or allows another person to appear as their agent, and a third party relies on that representation, thereby creating a legal obligation for the principal.
Even if there is no actual authority given to the agent, the principal cannot deny the agency if the third party acted in good faith.
Key Principle:
“Where a person by his conduct represents another as his agent, he is estopped (prevented) from denying the agency.”
2. Key Features
Representation by Principal: The principal’s actions or words create the impression of agency.
Reliance by Third Party: The third party acts believing in the agent’s authority.
Principal is Estopped: Principal cannot deny the authority of the agent.
No Actual Authority Needed: The agent may not have been formally authorized.
3. Example
Scenario:
A shop owner lets a person deal with customers as if he is an authorized seller.
A customer buys goods from this person, believing him to be an agent.
Later, the shop owner cannot refuse payment or deny the sale, because he allowed the agent to appear as authorized.
4. Case Law
Hely-Hutchinson v. Brayhead Ltd. (1968) – (English case)
The court held that if a principal allows a person to appear as their agent, the principal is bound by the agent’s actions even if no formal authority exists.
Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly (1986, India)
Emphasized that conduct of a principal can create apparent authority, and third parties can rely on it.
5. Difference from Ordinary Agency
| Feature | Ordinary Agency | Agency by Estoppel |
|---|---|---|
| Authority | Actual authority is given | No actual authority needed |
| Creation | By contract or agreement | By representation or conduct of principal |
| Binding Effect | Principal is bound | Principal is estopped from denying agent’s authority |
| Example | Manager authorized to sell goods | Person allowed to appear as agent, customer relies |
6. Importance
Protects third-party interests.
Ensures fairness when principal creates a false impression of agency.
Prevents unjust denial of liability by principal.
✅ Conclusion:
Agency by estoppel arises to protect the third party who acts on the apparent authority of the agent, even if the principal never formally appointed the agent. The principal is legally “estopped” from denying the agency.
RELATED Blog
0 comments