Which type of agency is imposed by law to hold the agent or principal legally accountable?

Agency by estoppel arises when a principal leads a third party to believe that someone is their agent, even if no formal agency relationship exists. This type of agency is created by the actions or conduct of the principal that implies the existence of agency, which can hold the principal or the agent legally accountable to third parties. It effectively prevents the principal from denying the agency relationship when the third party relies on the representation made by the principal.

When a principal allows a situation to unfold where a third party reasonably believes they are dealing with an agent, the principal may be estopped (prevented) from arguing that no agency exists if harm comes from that reliance. This concept protects third parties and ensures accountability in commercial transactions, especially where reliance on representation is involved.

In contrast, other types of agency such as agency by ratification require prior conduct of the agent that the principal later approves, agency by authorization needs a clear delegation of authority from the principal to the agent, and agency by necessity typically arises in emergency situations where an agent acts without explicit authority to protect the principal's interests. Each of these alternatives does not encompass the circumstances under which a principal can be held accountable purely by the implications of their actions towards third parties.