What does "authority by estoppel" imply in agency law?

"Authority by estoppel" in agency law refers to a situation where a principal is prevented (or estopped) from denying the authority of an agent when a third party is misled into believing that the agent has the authority to act on behalf of the principal. This typically occurs when the principal has either explicitly or implicitly allowed the agent to represent them in a way that leads the third party to reasonably rely on that representation.

For example, if a principal knowingly allows an agent to conduct business in a manner that suggests the agent has authority, and a third party relies on that assumption, the principal cannot later argue that the agent did not have that authority. This is designed to protect the interests of the third party, ensuring they are not unfairly disadvantaged if they acted on the good faith belief that they were dealing with an authorized representative.

The other options either misinterpret the concept of authority by estoppel or do not pertain to the implications of agency law accurately. Understanding this principle helps clarify the bindings and duties of both principals and agents in various business dealings.